According to a recent report from Accounting Today, “Industry sources agree that once [tax] firms move into standard recurring services, such as advisory, it is important to pivot away from hourly billing.”
The main reason? As you offer recurring tax advisory services, the value you create for clients increases, and your firm should be compensated for that value creation. There are a handful of additional reasons and considerations for operating with retainer-based pricing.
In this article, we’ll cover why retainer-based pricing may be of value to your tax firm, and we’ll share some advice for implementing a new pricing strategy.
Key Takeaways:
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Table of Contents:
- Why Make the Move to a Retainer-Based Pricing Model
- What to Consider When Setting Retainer Prices
- How to Communicate Retainer Price Changes to Clients
- Example: How Harness Structures Retainer Pricing
Why Make the Move to a Retainer-Based Pricing Model
Your pricing structure should reflect the expertise you provide and the type of tax firm you wish to build. When it comes to your clients, your pricing strategy should reflect the level of service and expertise you offer them and allow you to filter out the clients who won’t be the right fit for you and your practice.
Before moving to a retainer-based model, make sure you have diversified your service offerings to provide enough value to warrant a retainer. A diverse range of tax services helps retain existing clients, attract new clients, and shift from commoditized pricing to value-based annual retainers.
When thinking about a retainer-based pricing strategy, keep in mind:
- Every new client should be an opportunity to increase rates. It sounds harsh, but if you let years go by without increasing your prices, you may struggle to remain profitable over time.
- Focus on creating comprehensive value for clients, not commoditized work. Churning out tax return after tax return is a one-way ticket to maintaining low prices with low-value clients.
- Knowing when to say ‘no’ to potential clients. This will help you hold onto the best clients for your firm. When talking with prospective clients, always ask yourself, “Do they fit my pricing model?”
Remember—if your goal is to attract high-value clients with complex tax needs, your pricing should align with that complexity. There’s strength in offering a variety of services. Increasingly, clients are expecting more than just annual filings.
What to Consider When Setting Retainer Prices
If you’re making the move from hourly to retainer-based pricing, it’s all about providing the right value for the right price—and it needs to be profitable and scalable for your firm.
Ask these three questions when setting retainer prices:
1) What is Your Firm’s Value Proposition to Clients?
If you simply offer tax returns, it may be difficult to pivot to a retainer-based model. Your value proposition to clients needs to support a larger monthly or annual retainer, and your firm needs to offer comprehensive services to your ideal client.
(Bonus: Read our article Beyond the Tax Return: Growing Your Tax Practice Through Comprehensive Planning Services)
2) What Services Are Missing to Fulfill Your Value Proposition?
You may offer some tax planning services but desire to expand offerings. Take an inventory of your services and make plans to offer additional planning and advisory services that are a good match for your client base.
For example, consider the following service offerings:
- Tax planning for company founders and small business owners
- Equity compensation advisory
- Gift tax compliance
- Trust tax compliance
- Crypto reconciliation
- Bookkeeping services
3) What is the Scope of your Retainer?
To run a profitable tax firm, and set clear client expectations, you need to document exactly what is within scope and out of scope for your retainer pricing. For anything out of scope, you may still offer the service to clients but for an added one-off service fee.
(Bonus: Get tips from How to Price Your Tax Practice’s Services to Drive Revenue Growth)
For tax returns, it is important to be clear on what is included and how many of each from, under your retainer pricing. Go through each tax form and set prices according to the work required to complete a return, considering some common forms and situations:
- W2 Form
- 1099 Forms
- K-1 Form
- Schedule A Form
- Schedule C Form
- Number of Rental Properties
- Number of States Filings
- Quarterly Estimates
- Foreign Tax Reporting
For comprehensive services beyond tax returns, you’ll want to balance two things:
- Clearly spell out what is included in the specific service. For example, you’ll likely offer a different retainer pricing level for tax planning for company founders than tax planning for a startup employee with one equity grant.
- Have a clear understanding of the estimated hours your team will spend with a client, and set a price that allows for some wiggle room to avoid eating away at profits for time-consuming clients.
Most importantly, as you scope out comprehensive services, remember that you are pricing for value created, not time provided.
How to Communicate Price Changes to Clients
Transitioning to a retainer from hourly billing can be a big change for clients. Clients may be used to an annual price increase in your hourly rate, but the move to a retainer needs to be well-communicated to all clients, especially in cases where you’re not giving a client a choice to remain on hourly billing.
When you’re ready to move to a retainer, make sure to:
- Contact clients directly via their preferred method: There is nothing wrong with sending a well-written mass email to all clients being moved to a retainer, but you’ll likely want to call or mail certain clients based on their preferences. Additionally, for your larger clients, having a call or meeting to discuss can help smooth the transition.
- Provide adequate advance notice: Historically, you may have communicated your annual price increase a month or so in advance, but the move to a retainer is different. Review your client relationships and how they will be impacted by a retainer. You’ll likely want to communicate the change months in advance.
- Explain the reasoning: You don’t need to discuss your firm’s profitability, but you can explain how you’re moving to a retainer-based model to better serve your clients’ comprehensive needs.
- Communicate your value to clients: Go beyond explaining the reasoning behind the change. Use the change to showcase the services, especially if you are expanding services under the retainer, that your clients will have access to. The move to a retainer is an opportunity to have deeper conversations with clients about their needs.
- Be clear on your clients’ options: If you are still offering the choice of hourly billing, let clients know that and what they need to do to select their billing preferences. Be sure to explain the benefits of moving to a retainer that hourly billing may not provide.
Example: How Harness Structures Retainer Pricing
Retainer pricing can be approached in different ways by tax practices. Retainers can be priced monthly, quarterly, or annually. And they can be different depending on the clients a firm serves.
At Harness, we position retainers to attract different levels of client complexity, with four tiers to segment clients:
Our retainer tiers are largely created for clients who range from startup employees with equity compensation all the way to founders and business owners with complex tax planning needs.
Each retainer tier includes a baseline level of services to prevent scope creep. Additional services can be added to each tier to expand a client’s services.
And importantly, these retainer tiers are adjusted each year as costs grow and client needs change.
Thinking about offering retainer base pricing?
There’s no one way to price your tax firm’s services. But moving to a retainer pricing model can communicate the value your firm creates for clients. It can also position your firm to grow by attracting more of your ideal clients.
Schedule a call with Harness today to learn our approach to retainer-based pricing and learn how our modern tax practice management software, in-house concierge team, curated client introductions, and professional community can support your tax practice.
Tax related services provided through Harness Tax LLC. Harness Tax LLC is affiliated with Harness Wealth Advisers LLC, collectively referred to as “Harness”. Harness Wealth Advisers LLC is a paid promoter, internet registered investment adviser. This blog should not be considered tax or legal advice and is provided for informational purposes only.
Harness cannot guarantee future results. An advisor’s past performance may not be indicative of future results. Not all advisors have the same skills, knowledge or expertise, including those that have certain credentials. Content should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of Mr. Boehr as of the date of publication and are subject to change.
As noted above, this blog contains an endorsement from a tax advisor who provides services through the Harness platform. This presents a conflict of interest as there is an indirect financial incentive for a tax advisor to promote Harness’s platform. The tax advisor’s comments may not be representative of any other tax advisor’s experience with the firm.
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