Handling Price Increases

In this episode, Rachel and Marcus discuss their experience implementing price increases at DBA in 2024. They share their strategy of presenting clients with updated pricing based on new service packages, while offering loyalty discounts to ease the transition. Despite some client churn, DBA ultimately increased monthly recurring revenue by over $6,000 while serving 15 fewer clients, freeing up capacity for their team. Rachel and Marcus break down the numbers and share valuable lessons for other firm owners considering price increases.

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• (00:00) - Welcome to Who's Really The Boss Podcast
• (00:34) - Family Updates and Summer Jobs
• (03:34) - Price Increases for Client Accounting Services
• (04:33) - Evergreen Engagement Letters Explained
• (06:39) - Implementing Price Increases
• (09:54) - Client Reactions and Feedback
• (11:44) - Adjusting Service Offerings and Pricing
• (23:49) - Final Thoughts on Price Increases
• (31:25) - Analyzing April 1st Metrics
• (32:14) - Client Churn and Acceptance Rates
• (33:56) - AIM Service Line Adjustments
• (39:55) - June 1st Metrics and Client Transitions
• (43:28) - Strategies for Managing Client Capacity
• (54:48) - Final Thoughts and Future Plans

Creators & Guests

Host

Marcus Dillon, CPA

Host

Rachel Dillon

What is Who's Really the BOSS??

"Who's Really the BOSS?" highlights the joys and challenges of running a CPA firm with your spouse or family. From hiring and terminating to improving capacity, cash flow, and culture, our conversations cover leadership, operations, and current accounting industry challenges. Our mission is to strengthen families and accounting firms by helping listeners avoid the mistakes we have made, so they can lead and live happily ever after.

There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.

Rachel Dillon: Hi, I'm Rachel Dillon, and together with my husband, Marcus Dillon, we lead Who's Really the Boss podcast, where we highlight the joys and challenges of running a business with your spouse or family. Our mission is to strengthen families and businesses by helping listeners avoid the mistakes we have made so they can lead.And live happily ever after.

Rachel Dillon: All right. Welcome back [00:00:30] to another episode of Who's Really the Boss podcast.

Marcus DIllon: Hey, thanks for having me back.

Rachel Dillon: I, um, I think we have to start with the update on Kinley and Avery. We'll do them both, but we'll just make them really short. Uh, Kinley so far is at camp. Uh, when this releases, she will have come home and then probably be back in camp. So, um, volunteering. Working. Not necessarily just playing and having fun the whole time, though. [00:01:00] The pictures look like a lot of fun so far.

Marcus DIllon: Yeah, and Avery's just doing her thing, right. Swimming and going to two a day practices and trying to figure out how she can make money, which that was a discussion this week. So for a lot of our friends and listeners, they've also got kids at home that are trying to figure out like what camps do you put them in? And, uh, we're past that stage of life where, you know, you kind of figure out where they go during the day. But, um, now it's they want money. Go figure. And how [00:01:30] they can make money. And you start thinking through like, okay, you've got June, you've got July, you've got a big swim meet coming up. You practice twice a day, like as an employer, your hours are really limited. And while it may be great to think, what can you do? Um, you also have to be realistic. So. And then August, you're back in school, we try to do a family vacation, all that fun stuff. So I think we talked and it would be like four weeks of potential [00:02:00] work time that she could actually do, which really limits who, which really means.

Rachel Dillon: 12, 12 days, like, yeah, like 12, 12 days. Like. Yeah, like 12 days and 36 hours. Is is like her complete availability for the whole summer. So yeah, it doesn't make sense to get a job outside of. But we did remember, remember on a previous episode when we talked about they neither one had any interest in working with us later in life, like [00:02:30] both of them had decided not necessarily exactly what they're going to do, but they just knew it wasn't going to be working with us. And Avery is actually leaning more towards if you had something fun I could do, maybe I would be interested in it. And so trying to set her up with some different creative tasks that need to be done within the firm. And so that way she can contribute and [00:03:00] earn a little bit of money this summer.

Marcus DIllon: Well, I think even you said that at one time, um, I never want to work with you or, uh, in this type of business. And our business has changed since you've said that. So, um, you're going on ten years now on this side, so it's, um. Yeah, maybe Avery, maybe Kinley will be the kind of the same way, like, we just evolved to be a business that our family wants to work in. Go figure.

Rachel Dillon: So that's right. Like challenge accepted when they said, I'll never do that. [00:03:30] No, I don't want to do that. What can we do to make it a place where they would want to work? So anyway, that's fun. But really what we're talking about today is we did price increases back in February for our, um, client accounting and advisory services clients. So for those monthly recurring revenue clients that are on actually evergreen engagements, meaning [00:04:00] they just they don't sign anything every year regarding these accounting and advisory services. But if they needed to terminate, they just give us a 30 day notice. So wanted to talk through what actually happened, how we went about it, and then what the results were from doing those price increases.

Marcus DIllon: Yeah. Going back to, you know, kids want to make money, I guess the firm, the business needs to make money as well. So, um, kind of a little background on price increases [00:04:30] and why we did move to evergreen engagement Letters. Uh, we used to send out updated engagement letters every year with pricing to every single engagement. And that was stressful. That was stressful season, and not much would change as far as like the level of engagement that we were doing. So we didn't need to redo like the engagement necessarily. We just needed to redo the pricing. And so if changes were going to happen in the engagement, they didn't wait [00:05:00] until the anniversary date, the one year anniversary date to make changes. Those were made throughout the life of the engagement. So that's also the background and why we moved to Evergreen Engagement Letters. Now, has it been three years?

Rachel Dillon: Yeah, I think so.

Marcus DIllon: Yeah. So so that when we did those evergreen engagement letters I think it was May. Was it May of 2020? Um, 1 or 2022.

Rachel Dillon: May have been May 2020. To when we [00:05:30] actually implemented and sent them out.

Marcus DIllon: Yeah. So that that makes sense with the May of 2022 was actually the last time some of these clients on CAS or we also have a monthly recurring revenue, uh, service for individual tax called ehm, ehm. And the last time that we may have price increase, somebody would have been May of 2022, um, give or take. Or if they became a client after that point, [00:06:00] they still had their same price because we felt during 2023 we were making some efficiency gains. We had restructured the team. We wanted to see how profitable we could get engagements before going back to a client and asking for a bump. And I will tell anybody listening, don't do that. Always go get a small price increase every year. If it's 3%, 5% something. That way people are always in the habit of, uh, expecting [00:06:30] a price increase that goes along with inflation. And so we had not done price increases since May of 2022. And we decided to do that not at the end of the year. Um, like a lot of firms would do, and make it for the full year of 2024. We actually did that in the stressful season of life during tax season for most firms, and we actually rolled out price increases on February 15th to the clients that would have an effective date of [00:07:00] April 1st. And so you want to talk a little bit on why we chose that time of year and even an effective date of April 1st.

Rachel Dillon: Yeah. So looking at just over the life of our business and giving updated pricing and things to clients, knowing that any time we increase prices, there's the potential to lose some relationships during that conversation. And so what we found is if we do [00:07:30] pricing updates, increases, communicate that to clients. After the majority of the tax work is done, it's an easier transition period if there's going to be a transition. So they're not kind of in limbo feeling like they're stuck because their tax work is not done yet or something of that nature. The reason we let clients know on February 15th is, as I mentioned, we have a 30 day notice for terminating [00:08:00] services. So if we let them know on February 15th and they feel that the price no longer aligns with the value that they receive, then they would have plenty of time to give us a 30 day notice without ever experiencing the actual price increase that would take effect on April 1st.

Marcus DIllon: Yeah. And, uh, a few different things there. You're in the middle of tax season and our pricing now is pure subscription. So we [00:08:30] do include tax with our cash engagements and obviously our Aim engagements. And the reason, um, why it's subscription is if you're a client during that time of year when a tax return would get prepared and filed, it would be included in your monthly cost. We don't prorate or show how much of the monthly cost goes towards that annual tax engagement. Uh, we just include it and we do that for a few reasons. That way it's a lot easier if someone does churn or terminate the agreement. [00:09:00] They, uh, leave with the tax return that has been completed. And we're not promising that we will wrap up, uh, tax return whenever it does come due. And they're not asking for any money prorated back because we are not filing that tax return. So we learned that, uh, through trial and error, I guess you will. And that's why, uh, charging for onboarding has been important for us now, because we kind of factor that in that [00:09:30] we're getting paid an onboarding fee. And that kind of makes us whole for some of those months where they weren't a client. But we are doing their tax return once a year. So that's why onboarding for us is, um, important. And we charge fairly for it, I believe, uh, just to kind of do what we need to, um, to get them caught up for the year.

Rachel Dillon: Yeah. So let's talk through how we actually presented price increases to clients because [00:10:00] it is in the middle of tax season. We do have more than 1 to 5 clients. That would be easy. That would be, you know, not a conversation. Easy. Present the pricing to five people and move on. Um, but we have quite a few more clients than that. And so let's talk through how to do this just so that people have an idea of what does it look like to present price increases to clients during a busy time?

Marcus DIllon: Yeah. So, uh, the main clients that we had [00:10:30] to present price increases to were those ones that were, uh, legacy service offerings. So they were monthly recurring engagements. What happened in October or November of 2022 is we rebranded. We rolled out all new service offerings and packages, and then with those service offerings and packages, we set pricing and pricing was on our website. So you had a disconnect with the client base that was more on a legacy, um, offering and what we used to do with those legacy [00:11:00] offerings, which were a vague, um, acronym that we used to call all accounting. It was different for every engagement, and so we priced it based on the client. There was no standardized price. So we had to bring those clients into the new, especially whenever those clients who love the service we were providing would refer us a good client. And then that client comes in with the expectations of the price that that referral is getting, not the price [00:11:30] that's on our website. So, um, pricing on the website has been good because it also anchors now our existing clients to the value that they receive if it is continuing to be discounted. So we took those new pricing, those new engagements and showed every one of these, um, legacy service offering clients the value that they were getting, the package that they were getting, per our new website, the price of that package, [00:12:00] and then any add on.

Marcus DIllon: So we actually charge separate for payroll and have a calculator on our website where you can determine your own fee for payroll. We're always going to be more expensive than going to either ADP directly through retail, because we have to be involved. We help with onboarding and, uh, terminating of employees. We help with pension remittance. So it's always just a little bit more because of that white glove service. The other a la carte, um, add ons are if you [00:12:30] need sales tax, which not all clients do, uh, bill pay, which we calculate per number of uh, bills being paid through a Bill.com. And then, um, there's some other things that we don't do for every other client. So we had to get really clear on our packages. Now, um, which are essentials, Premier and Elite, they include what every client should be getting. So we just did that as a base and we removed everything. That [00:13:00] was kind of a one off or not every client received. So we talked about payroll. We talked about bill pay. We talked about sales tax. That may also include like a PPT like a property tax rendition. It may include 1099 at the end of the year. And then it also may include additional owners like individual tax returns.

Marcus DIllon: So we price every. Thing based on one family, and include that family's tax return in the monthly cost for the business. So all of that helped us build [00:13:30] out these proposals or these estimates for this group of clients that were on legacy pricing. So we needed to bring in these clients into the new realm of pricing. We change the menu of services, right? So we did that and we did it. We just built that as a template as a as a estimate in Qbo for that client. And then we put every line item on there per the market rate, which was on our website. And then our last [00:14:00] line item on that estimate was a, a discount a courtesy discount. Um, we called it a loyalty discount for that customer. And we put on there the year 2024. That way they could maybe see that that reduces or goes away over time. And then that kind of allowed us to move people along, but not all the way up to market rate in one fell swoop. So we did get some feedback on that. Um, but [00:14:30] that's ultimately how we built out the estimates. Now, you could probably talk about who delivered those estimates and why they were delivered in that way. Um, and you know, what your what the responses were even for that piece.

Rachel Dillon: Yeah, absolutely. So there were a couple of things. And we are going to talk about how many clients, um, told us to go jump in the lake. They know wanted our service. They no longer wanted services anymore. We are going to talk through how many, um, clients [00:15:00] stayed and what that did to overall monthly recurring revenue and revenue in general. So we'll talk through the actual numbers, but just wanted to give some context and some background of how we did this before. We share those numbers that way if you think, oh, that worked out really nicely, I want to try that. You kind of have some of the ideas of how we went about doing it. Uh, so I emailed those estimates out to our [00:15:30] clients, letting them know. So an email message, just giving them the details of we are doing pricing increases. Um, and these will take effect on April 1st. What I did not do on the first round that we sent out, I did not give like a call to action of you need to sign here or you need to opt in.

Rachel Dillon: It was more of an opt out. So if [00:16:00] if you have questions or if um, just a reminder actually on the second one I did, I really didn't give much call to action, but we did do tracking so we could see who opened it when they opened it, how often all of that, so we could see tracking on what we sent out to them. It came from me so that our team did not have to have pricing conversations. We never want to hurt the relationship of the team of three with the client and have to have awkward [00:16:30] conversations. So those pricing almost always go through Marcus and myself, um, through us, just to make sure that we keep the relationships of the team of three really dedicated to the actual work and servicing the client, and never over money. Um, every once in a while, Leslie does get in on those conversations and other client CFO, because she does have such a strong relationship built with her clients that when it makes sense, um, she can have those conversations [00:17:00] as well.

Marcus DIllon: So the interesting thing was some of those clients that were in Leslie's pod, you or I have never talked to before. And so they were actually confused by like, why is this Rachel Dhillon emailing me this price increase? Is this a scam? Uh, no, actually it's not. And we also made this opt out because whether you like it or not, your price is going up. So it's one of those like this is like the beginning of that conversation. So that's something we learned in that process. But yes, to your point, [00:17:30] you or I are usually the best person to deliver pricing conversations.

Rachel Dillon: So I didn't put a clear call to action on that, which then made us even though we could see who was opening the messages, it really made us wonder, do they hate us? Are they fine? You know, where are they in this? We got a few responses back that were you guys do a great job. Thank you. And that was it. Like no [00:18:00] questions asked. We got a few back of. Is because it said discount 2024. Um, and listed out the full price. People did understand and read into that. When is my pricing changing again to a non discounted price? Um, and then others were kind of just asking some different questions where we could tell that they were exploring [00:18:30] what would it look like to not be a client. So we really didn't get I mean, that was maybe like ten total responses back to 85, I believe ish messages sent out. So then looking through, um, as far as us, just for our own peace of mind, we also wanted to send another reminder again, just to make sure if someone wanted to terminate before the price increased, that they would have [00:19:00] a full 30 days. So we sent an additional follow up. And on this one we did ask for a call to action. Um, as far as to, you know, let us know and reminded them that if you are going to discontinue services, you do need to give us the 30 day notice in writing. Um, and that led to a couple more conversations, uh, people exploring what additional options would be.

Marcus DIllon: Yeah.

Marcus DIllon: Um, the other benefit [00:19:30] of you doing that, um, versus like a team member, obviously time of year, uh, you're not having these additional conversations if you're involved in production. So it was nice that you're not on a production team. So you were protecting the team as well. Um, just for those that don't know, we use HubSpot as our engine to send those emails, and we know when someone opens them, if they click on how often they viewed it, uh, everything like that. So constant contact can do that. [00:20:00] Mailchimp can do that. So we chose to send all of these messages through an email system or a CRM. So we could have that insight, uh, of who? Who received it. Who clicked on it? Because they may come back in May or June and say, why did you increase my price? And I can say, well, you clicked on it, you know, you saw. So, um, but but those are some of the pieces kind of behind the scenes. The other thing that came up is we stuck to our guns. We always do. [00:20:30] Um, so if you're thinking about doing price increases as a listener, we only offer these packages, right? And, um, so if a client said, hey, well, I want to bring my bookkeeping and payroll in-house, but I still want to use you for tax services. We say, hey, we understand completely. Here is your options to do that. And tax services we no longer offer a la carte. So you would actually get an introduction to another CPA firm or [00:21:00] tax firm down the street. And so some some of those conversations happened as well.

Marcus DIllon: But we stuck to our guns of what our core service offering is, how we've structured our business and what we feel is a good service offering. So, um, but yeah, those were conversations that we had, and we also gave us opportunities to really address service level for clients. So if some clients were like on a premiere, which is our quarterly CFO touchpoint, and they really only use us annually, we [00:21:30] built that proposal out with the essential, with the annual touchpoint, just because it wouldn't be that big of a price increase. And we knew that they would most likely fit that essential level. So not only did we increase price where we could, we also, um, what it's like shrinkflation, you know, where you give less for the same price? Um, you know, I think of like the gallons of ice cream or the, the tide container where you get [00:22:00] less and less as, uh, time goes on because that's a technique. Right. And so we can learn from others. But we wanted to really fit people in where they went best. So sometimes it was, hey, if you feel comfortable doing your own payroll, we'll direct you to ADP directly. And we're not going to be involved in that process anymore. But you could save some money there. We can move you from a monthly or quarterly touchpoint down to a quarter or annual touchpoint. So just all those different conversations are good to have versus, [00:22:30] you know, just straight up, this is what it is and you're going to take it or leave it.

Rachel Dillon: So yeah. And kind of the way that I heard that, I didn't hear it as well as I would like to hear it just in that service when we were, um, say, giving the appropriate pricing for the actual service they're using rather than the service that they may have been signed up for previously. So not necessarily giving [00:23:00] them less and charging them more, but actually only charging them for what they're using, it just happens that even that price was still an increase from what they were, um, currently paying. So the service is still there. The relationship's still definitely matters, but didn't want to offer something that was just way more than they needed and then really increase, um, the percentage. Price increase on them for no reason, so [00:23:30] wanted to make it in the best interest of the client. Um, but also for us, by doing that, that eliminates a lot of difficult conversations that maybe don't need to happen. Um, if we can already kind of see what would align best and fit best for that client relationship.

Marcus DIllon: Yeah. So so two things as far as like service offering that we, we saw even going into this is we knew that people given our team of three model and the budget that [00:24:00] is needed to serve clients on an ongoing basis. We knew that clients under $1,000 a month under the legacy pricing are going to have to go up beyond a thousand. And whenever you cross that threshold of something like a thousand or that next $1,500 mark, it triggers something in people's mind. But we were okay losing or churning out some of those low dollar clients. And so we went into that knowing that to be the case. Uh, we also [00:24:30] mentioned our MRR model for 1040, which is ehm, we rolled that out like 4 or 5 years ago. And then we said, ah, this is not this is not what we wanted to do here. Because what we did was we actually created another 1040 practice. So these people aren't connected to business returns. They're good clients. But, um, we gave them their tax prep to tax projections, to tax projection meetings throughout the year and put that on a monthly fee. Um, we also figured out that that was not [00:25:00] profitable at the rate that we were charging. So I think we went to market originally at like 150 a month. We were not profitable on that unless we were over $500 a month. So we would have about $6,000 worth of time in it, uh, throughout the year.

Marcus DIllon: So we knew that we were going to bump all of those, ehm, clients up to a base price of 500, maybe show a discount depending on who they were, but ultimately be okay with those ehm, clients going [00:25:30] and finding a better home for just 1040 services. So the last thing that I'll say is kind of what we went into this knowing or assuming is leading pricing conversations for obviously clients and other CPA firms that need to go up on prices. We knew that the 80 1010 rule would hold true. So 80% of your client base would just accept it regardless of what the price increase is. As long as it's within reason, 10% will come back with [00:26:00] clarifying questions. Ultimately, be okay with a price increase, you may have to work with them a little bit, and then the other 10% will likely churn out. So you have to build out these price increase models where at least 85% coverage is going to get your revenue back to where it needs to be or where you want it to be. Right? So, um, that's what we did when we started this and had some assumptions in mind. And obviously now [00:26:30] we have the results of these assumptions or experiments. Now that we're three months on the other side of these price increases.

Rachel Dillon: Yeah. And we waited to record this so that we could really give the details of what actually happened. If we had recorded this right after February, if we were still in March or April 1st. Um, that wouldn't give a true picture of what really happened, because sometimes people need to feel the pain of what it feels like to have that actual price increase come out of their bank account, um, to see if that value [00:27:00] still aligns with that price. And so we just wanted to wait and give it some time to really say, this is what happens when you have these monthly recurring services and these very relational clients, and you do a price increase. So before we go into where we landed, if we got anywhere close to 80, ten, ten with, um, this price increase, let's talk through what we're like the, the percent increases that we presented. So it [00:27:30] was a quite a range.

Marcus DIllon: Yeah.

Marcus DIllon: So um, as mentioned these are clients. This is only a portion of our firm. So the this subset of clients included both ehm clients and Cass clients, both MRR uh, it was 62% of our revenue base is who we went to seeking price increases. So, you know, 40, 38% still, um, were already on new pricing models or a service that this pricing [00:28:00] didn't, uh, impact it. Right? So, um, so 62% of our revenue base, which is majority, uh, right. So a little bit unnerving. We went trying to raise MRR. We knew we were going to have those assumptions. We wanted just to cover ourselves, because we knew churn was likely we were going to push clients that no longer fit or were going to go on the next journey with us off the bus, get them. To a service provider that could serve them just as well or [00:28:30] better than us at A, and maybe even a different price point. And the other thing that we knew is we had some clients that we knew they were looking or unhappy, and the model didn't really fit what they needed, so we were giving them an excuse to leave. We those are the ones we maybe went up a little bit more than a certain amount on so they could opt out and they could break up with us versus us break up with them.

Marcus DIllon: That's always a good technique. And then the [00:29:00] final thing, uh, in doing all this is we knew we had 2 to 3 clients that were active in, um, M&A, like selling their business. Those conversations, and one of those had been on a discount for so long, two years, um, that we really like. We should have addressed that discount sooner. So we brought that person back up all the way up to market. Just so during the interim, while we were helping them sell their business, that we were at market rate for at least a few months. [00:29:30] So those are the three things that we kind of went into this kind of knowing that would likely happen. So we just wanted to cover ourselves. We weren't planning to downsize the team at all. We knew we would come out of this with less clients, hopefully the same amount of revenue and build capacity for better work on the other side of price increases, because now we have these service offerings, which are clearly defined with good pricing on [00:30:00] our website, and that's how you build capacity. That's how we wanted to go to market. So all of that gives us a little bit of like precursor, I guess, to to where we're at and where we were going in the middle of February.

Rachel Dillon: Yeah. So the price increases, they ranged anywhere from was it the lowest maybe 5%?

Marcus DIllon: Yeah.

Rachel Dillon: All the way up to the highest being what it was. It was it was tough. It was a hard pill to swallow. [00:30:30]

Marcus DIllon: It was 66% increase okay. And he's still here. He's he accepted it.

Marcus Dillon: So yeah he was.

Rachel Dillon: Probably the first person to respond back. You guys do a great job. Thank you. No changes. Yeah.

Marcus DIllon: So that that one was a new start. That practice uh, served really well by Leslie's pod. He was in it at $800 a month. Had started like, had started and became a client right around that May of 2022. You know, Mark and he grew gradually and [00:31:00] added team members. And, you know, we couldn't do it for $800 anymore. We needed to address it sooner. And I think now he's at right at 2000, um, you know, 2150 somewhere in there. Um, maybe he's not that high, but it was 66%. So whoever's in the background checking my math on that, uh, he's more than $800. He was so.

Marcus Dillon: Yeah.

Rachel Dillon: All right, so let's talk about where we landed by, uh, you wanna go in, like, [00:31:30] timeline order, like, by April 1st, what we saw, and then by May or by June, um, we can kind of go in timeline.

Marcus DIllon: Let's do that because we know that, um, as you mentioned, like April 1st, we had some churn before April 1st, after the initial February 15th email went out. So leading into April 1st, I'm gonna break it down by service by MRR. So CAS, we had $147,650 per month on 81 engagements. [00:32:00] And that's this subset of clients that is in all of our clients. That's a $1,823 average. We wanted to go higher than that. We wanted to go like out of the gate. 15%, I think is where we were total, uh, where we ended up with the churn that happened from February to April 1st. On April 1st, it was $161,670 on 76 engagements. So we churned five. But [00:32:30] our average price for the remaining 76 engagements went from $1823 to $2127, and that was a 96.5% acceptance rate on that first month. So came out of the gate, saw, you know, 4 to 5% opt out. Those actually were the clients. Um, one was a pool service company that had been with us forever. Um, that was under $1,000, I think they were [00:33:00] around $900 with payroll and sales tax and all that stuff. And we just we knew it was time. Um, they were actually our pool service company and they dropped us a couple years back. So, um, just one of those things comes around. The other one was a client, um, who should have never been a client in the beginning. Um, they had a very small micro business, maybe did $100,000 a year, but they were paying us $750, $600 a month to keep up, to keep up with everything. And just we we don't support [00:33:30] that level of business. I don't know how they came in, but they were paying. And so because they were paying, it was a decision not to address until this came to a head. So all of that, you know, we kind of factored in, tried to bring people up to where they were at least $1,000 or more. And so those first businesses that churned were the ones under $1,000 who easily did not belong. And where we are going.

Marcus Dillon: Yeah.

Rachel Dillon: And so what happened with Aim and again, aim is [00:34:00] just our individual tax 1040 tax service with consultations. So tax projections and a meeting to go with each um and their year end tax preparation.

Marcus DIllon: So aim is no longer on our website either. We actually have tried to figure out what to do with Aim. So if you're interested in that it's like a 1040 plus or, you know, just different people call it different things. Uh, we don't work well with non-business owners, like, that's [00:34:30] just who we're called to serve. So aim we've actually we're actually probably going to modify that a little bit and have it be an on ramp or an off ramp to owning a business. And with that, you know, the pricing is $500 plus 250 to support this business while it, you know, is being in the foundational stages. And then once you buy a business, then you move over to one of our CAS programs. So, um, we probably talk more about that and how we'll experiment with that on the other side of this. But our aim, practice [00:35:00] or service line went from $7,040 per month on 22 engagements. So $320 average, which is brutal. I think we have one client in there that pays us like $1,500 to. And he's a great client and, and fun to work with. Uh, but he brings that average up. And then we saw churn. So we lost five clients so down to 17. And uh, that aim revenue went to 7007 25 for [00:35:30] a $454 average, which our new price point for aim is $500 plus. And that was a 82% acceptance rate. So we churned out about five and we turned out the right ones. The people who are paying 100, one, 50, $200 a month and didn't, didn't need what we were trying to give them.

Rachel Dillon: So and I think originally some of those one was a friend. So I can speak, uh, on this because they were a friend before and are still a friend now. [00:36:00] Um, but with the new price increase, he was like, I don't think this makes sense. And I was like, we kind of tried to tell you you didn't make sense for our business, but you really wanted us just to see what it would be like to have a CPA with meetings and, and really thought that there was something there. But we kind of we tried to steer them differently in the beginning. So then this kind of just helped move that relationship where he actually needed to go. Um, and so, yeah, some [00:36:30] of those came in wanting our services more than we wanted them to have our services. But it's really hard, um, to tell people no, because the level of service that our team provides, I know is kind of unmatched with our network locally when someone says they really want a local person. And so that's kind of how some of those came in, and also how some of those are we're helping identify [00:37:00] and expanding our network so we have a better solution for people rather than, okay, we'll just do it. So I think that that's important too, as firm owners, to make sure that you have a big network around you so that when clients don't fit you, you don't take them just because you don't have an alternative for them. But keeping that, um, network and that peer group wide so that you always have an alternative for someone who doesn't fit your core or ideal [00:37:30] services.

Marcus DIllon: Yeah. And so these are some clients that have made the transition with us throughout the years, you know, as we've kind of evolved, changed names, rolled out new service offerings. So they were along for the ride at as long as they could be. And then we we definitely had to, you know, make it an easy decision on them to maybe go find the firm who we were when they started. Right. You know, uh, five, seven years ago. Um, we know that our [00:38:00] ideal client, you know, if we were to parallel it to. Where do you shop? You know, our ideal client shops at Nordstrom, not Marshalls. And that's just one of those price points. They want that level of service. They really don't look at price tags. Um, they just want to know that it fits and go, you know, go walk out the door. So, um, those are those are our peeps. So looking at April 1st, uh, we shot for out of the gate, probably a 15% MRR increase. Uh, we did [00:38:30] go from 154 900. It included a couple. We charged people for like two, like small, small, like, just monthly recurring for software, I believe that are in that number as well.

Marcus DIllon: So we went from 154 900. We wanted to hit 177 210. If everybody accepted, which we knew they weren't, and we ended at 169, 985, uh, which was a 9.5% increase. So that was April [00:39:00] 1st. We had five fewer CAS clients, five fewer Aim clients and higher averages. Right. So we went from CAS average 1823 to 2127, which is actually right in line with the pricing on our website. Right. So a $2,000 base plus maybe some payroll or sales tax gets you right up to 22, 52,100, depending on where you're at. And one client went from CAS to aim during that. So we didn't lose that 11th [00:39:30] client, but he had sold his business. We already knew that he was needing to make a change, so we offered him the Aim option, kind of like we were talking about. Like we'll include your personal return, the projections. We'll also kind of keep maintenance on your business qbo file that you sold. Um, and, you know, be okay. And he went for it. So there's some success.

Marcus Dillon: Yeah.

Rachel Dillon: So let's talk through by June 1st. By June 1st. [00:40:00] What did that look like? Did we stay the same? Did we have more? People say, I'm out of here.

Marcus Dillon: Yeah, we.

Marcus DIllon: Were expecting more. So another 60 days, right? So we knew that it would give more people time to find their CPA that they wanted. Obviously, if you're looking for a CPA in the middle of March, April, uh, they're probably not returning your call, and then they're probably not returning your call all the way till May, because then they are so burned out they had to go take a vacation. And if this is too close [00:40:30] to home for anybody listening, I'm sorry, but, uh, you know, it's just one of those things where, uh, they didn't know who they were going to go to. They just knew that they weren't going to stay with us long term, which was fine. It just needed they needed more time to churn out, which is why we're recording this 90 days after, um, that that kind of took place. So, uh, so June 1st, we knew we were expecting a few more. Uh, we kind of already knew they were on the fringe based on conversations we had prior to June 1st or April 1st, but [00:41:00] we knew they were just looking. So, uh, Cass again, 147 650 on 81 clients, that 1823 average. So June 1st in place, it went down to 157,006 90 on 75 clients. So we lost. One more client, which is a big one. But we knew they were they were really three businesses in one. They had grown. They brought in a fractional CFO who was kind of in-house on a weekly [00:41:30] basis. So it had always been like this. What, like who does what? And um, it just kind of came to a head with the price increase and we didn't increase them all that much, but just, you know, a little bit.

Marcus DIllon: And I think that was motivation for them to bring things back in house. You know, that was a that was a three, $3,800 price point for them. So, uh, brought our average down from 2127 to 2103, which is still good. And with that 94.15% [00:42:00] acceptance on the original, um, price increases. So still haven't hit our 10% turn yet. You know, at June 1st on that CAS CAS division, uh, the ehm clients, those ten 40s went from 7040 on 22 clients, $320 average to 6009, 25 on 15 clients. So 462 average actually went up compared to our April, [00:42:30] um, 73.47% acceptance rate. So if we were trying to move people off the ehm model, we were succeeding, right? Because now we went below that 80%. Um, those two that let us know one just wasn't a good fit, had some investment accounts, actually went to the CPA who subleased a space from us. So real friendly, you know, situation to move her over there. Um, just not a good fit. And she was $150 price [00:43:00] point. The other ehm client was an ehm client who actually passed away. So sad situation. She was a little bit higher I think. $600 price point 550. Uh, but we knew working with her family that it was likely she wouldn't need these services this year, and trying to talk through what made the most sense. So it just so happened we turned that off, um, going into June 1st. Um. Ach. So.

Marcus Dillon: Yeah.

Rachel Dillon: And so we have [00:43:30] talked about it before that if you are looking to create some capacity and you have identified clients who no longer fit your service model or are just hard to work with, either for you or anyone on your team, just doing a price increase isn't always the best strategy to move them out. This is more for people who are good to work with, [00:44:00] who might have some of the services that you offer and are close to the price that you want to offer. That's where price increases are a great strategy to help, to be able to give them the level of service that you want to provide, and to be able to give them the value that you're providing to other clients within your firm. But really just doing price increases to move people who are hard to deal with. That's not the best strategy, because a lot [00:44:30] of times they'll pay that increased price and then be even harder to deal with because they now feel validated in everything that they're either asking for or the way that they treat people because they're they would see themselves now as like a VIP client now that they're paying such a higher rate. So that's just one warning out there not to try to create capacity only through price increases, especially if it's someone [00:45:00] who is refusing your like, core services or just hard to deal with, hard to deal with. It doesn't matter what they're paying or what services you're offering them, that is going to be detrimental to your team, your culture, your business in general, and need to move them out sooner rather than later.

Marcus DIllon: Yeah, so really good points. The crazy clients still going to be crazy even if they're paying a little bit more. Um, and we didn't get any feedback from any of these price [00:45:30] increases. What are you going to do for me now? Actually, some of them, uh, we're going to do less. And, you know, you're just kind of brought up to market. But yeah, those conversations did not happen that often. I would say that they were right in that 10% clarification percentage that we we knew about. So so for June 1st, uh, obviously we had shot for that 14.4 increase, uh, taking us from 150 4.9. It was supposed to take us to 177 210 with 100% acceptance. And we ended at 164 [00:46:00] 905, a 6.46% increase in revenue with actually doing less, um, and moving people around. You know, as far as, like the level of service that they were receiving. So one fewer CAS client, given the bad fit and opting out, you know, giving them an option to break up with us, too, if your aim given pricing out and then the death of a client. So so that brings us to July [00:46:30] 1st.

Marcus DIllon: Um, so July 1st, the CAS, which was at 147, 650 on 81 clients, that 1823 average actually CAS, we saw two more, um, churn out, and those were the two clients that we were helping sell their business. So we knew that it was just a matter of time. Those businesses closed, um, their sale in June and the new owners took over in July. They didn't need us in place. So our last draft for [00:47:00] those clients was in June. Um, and we were able to wrap them up and see them. They actually may move over to that Aim model for Offboarding kind of be in place for a year, but we haven't worked all those details out yet. Um, so we ended at one 5440 on the on that base of clients, 73 clients, 2110 average at 91.97% acceptance rate. So our average, uh, April 1st for CAS clients was 2127. [00:47:30] June 1st, 2103. And then July 1st came back up to 2110. So right at the $2,100 mark is good because our middle of the road package on our website is $2,000.

Marcus Dillon: Yeah.

Rachel Dillon: And so talk through a little bit about we knew just maybe to to reiterate, um, we knew that there were some clients in the process of selling businesses or. Looking forward to the future. We're going [00:48:00] to sell their business. And so why did we even bother increasing price and having the conversation, sending the letter to them, and not just leave well enough alone until they decided to, you know, discontinue.

Marcus DIllon: Because they weren't going to tell us? No. You know, I think that's the piece. Like, who changes accountants three months before they sell their business? Not many people. And and the whole reason behind this was the one client was so severely discounted that [00:48:30] we needed to bring that person up regardless. And then the other business, we just knew there would be more requests, more things like that coming through. And if if we were going to be involved in like due diligence or M&A, we would have a separate model for that type of engagement. But we were their their accountant. So we knew that there was just going to be more requests from the seller. So there was no reason not to increase prices, just like we were having that conversation with everybody else. So, um, you know, [00:49:00] kind of going back, we shot for that 14.4%, 100% MRR increase would have taken us from 154 9 to 1 77 to 10. And at the end of the day, July 1st, we ended at 161 255. Uh, so 4.1% increase. Uh, that July 1st was two fewer CAS clients, given the sales of their business businesses and the fact that they may actually go to aim. Um, to your point, over the last over [00:49:30] that three months with that price increase for those two clients, we actually made $2,700 more than if we would not have addressed price increase. So who does that? 27. Who doesn't want $2,700?

Marcus Dillon: Yeah.

Rachel Dillon: And I always see um, I, I don't pay attention to our financial data and our numbers like you do like others on our leadership team do. Um, but I do pay attention to the hours of our team. [00:50:00] And any time a client is going through an M&A deal, our team's hours go up. There's just more requests, more clarifications. And then, of course, meetings with typically their client CFO, sometimes their client controller happen during that time. So it makes a lot of sense to have what might feel like an uncomfortable conversation or to present that new pricing to that client, even though you assume they'll [00:50:30] be leaving soon. Go ahead and have the conversation, because you're going to end up spending the time with that client, whether you go up on the price or not. So might as well. For them. It's short term, and for you, it helps cover some of that additional work that you're going to help lead that client through, and they're going to be appreciative that you're available. Um, whereas if it was heavily discounted and you know, they're leaving, you might be more inclined to not be as responsive [00:51:00] to their requests, just knowing that the relationship is coming to an end. So better to have that conversation, um, for both sides than to not.

Marcus Dillon: Yeah, yeah.

Marcus DIllon: You want to end well, uh, you want to make their final memory of you and your team a positive one, if you can. And the same like you've been paid more by them in the last three months than the previous 12 months or 24 months. So, um, yeah, I count that a win. So overall, [00:51:30] well, we kind of learned is we turned 15 client relationships out of that 81 CAS, 20:02 a.m., a total of 15, which more on the aim side percentage wise, but with having 15 fewer engagements. Right. The team that has more capacity for better engagements or to take time off, because we do have part time, uh, employees that would enjoy some time off during the summer with their children if [00:52:00] they have children or just to enjoy the summer. Um, so this is the time of year to do that. And, um, we actually increased MRR in that whole process by $6,355 per month and set new averages. So those new averages, uh, for aim for 62. Um, since all of this has taken place, we actually brought on a new Aim client, a new doctor looking for a practice in the Houston area, wanting kind of us in place [00:52:30] to just help answer questions as that happens. So her price point is $750 per month. Um, you know, it's higher than our average. And it gives you that confidence to ask these things. And then the other three people that have, um, signed or have engagement letters out or won an existing client who started a new business. So that's at, what, 22, 50 per month. So the base 2000 plus 250 for. A roll. We have another doctor with multiple [00:53:00] practices. That one's like $3,900 a month. And then another two owner practice. That's 29, 50, 27, 50 somewhere in there. So all of these averages will continue to go up. And they're supported by the pricing on our website. Um, the team actually has capacity to welcome these new, better clients at higher price points because of this process of increasing price and actually turning [00:53:30] clients that no longer need to be on the roster.

Marcus Dillon: Yeah, absolutely.

Rachel Dillon: And just so people don't, uh, get the thought that we always have 3 or 4 engagement letters out at a time and multiple people signing, that doesn't happen every single month. Um, but it does. It does seem to happen when we have our processes and our systems in place. So when [00:54:00] we create capacity, then we seem to have more people interested and more people onboarding than when we're kind of everybody's at capacity and don't know what we're going to do with the next client. Right? Not that's a little bit overexaggerated, but sometimes we do kind of look at, okay, who would have capacity to even take on another client versus from [00:54:30] this price increase. Our team does have capacity and we have capacity to serve ideal clients. We don't have to go out and just say yes to anybody who calls. We still are very selective for ideal clients who need our ideal services.

Marcus Dillon: So yeah. Yeah.

Marcus DIllon: And to close I would say like this is the real data, right? 62% of our client base got those um, or our revenue base got those letters, [00:55:00] um, that we sent out in February 15th. Um, this is 92% at the end of the day, right? Um, totally supported on that 90, 1010 rule. Um, we did have some clients with or the 80 1010 rule. We did have some clients within that 10% clarification phase where we did have to work with them. Like, you know, you just kind of say like, okay, we can maybe come down 60 bucks, 50 bucks, whatever to not make you, um, make you go over the next hundred [00:55:30] mark. Uh, the other thing that we did that I don't know that I said this. We still pay for some qbo subscriptions for our clients. And what we did on the estimates that we built out, we showed that Qbo subscription and gave them the option. You can go pay for that if you want, and then you're subject to Intuit's price increases. So we really try to be transparent in those, um, in those estimates when we built them out so [00:56:00] they could take that estimate and go shop it. And they knew exactly what they were trying to buy. Um, and we didn't call it just something random, some black box of services. And I think that was very helpful this time around, whenever we did price increases so people could actually go shop it and see if they, if they were getting a good deal or not. So, um, but yeah, I would say we'll likely do this again next February and maybe just reduce people's discounts, [00:56:30] you know, take that 2024 discount. And the 2025 discount isn't as much to actually bring them up to market. We won't. It's unlikely that we would increase prices on our website because we actually have a pretty good feel on that. But yeah, I think it was a success for us. Fewer clients, more revenue, more capacity, and and now better clients in the pipeline or starting, um, to become clients.

Rachel Dillon: So and we've talked a long [00:57:00] time already, but we didn't share this and it just came to my mind was this wasn't easy from a determining the price increase. And how were the clients going to take it. And, you know, we don't we don't we are not trying to lose our whole client base. We are not trying to damage relationships with this, but also we have an amazing team that we need to be able to support [00:57:30] so that they can keep doing the good work that they do, or even better work. Um, and so we need to definitely be clear on that. This is how we did it. This is the result of what happened. But the 2 to 3 weeks and even like the week and two after we sent these out, there were tons of conversations with between you and I with our leadership team. You know, just going through all the scenarios of, [00:58:00] you know what, what can what do we respond if you know all these if then scenarios just going back and forth? So it wasn't easy to determine what is the appropriate increase in price. What made it easier was having the pricing and the packages on our website of a guide. You know, this is what we charge. And if we didn't know these people ahead of time and they had not been clients five years ago, this is the only thing [00:58:30] we would present. And we don't have any problem presenting that to, uh, new prospects who call. And so just know that it's determining the pricing and having those conversations or sending out that communication. It's not easy. Um, but it's necessary. It's helpful. And you get a lot of feedback from clients with that. So if you've sent out surveys and not had people engage with those or fill those out for you, [00:59:00] send out a price increase. People will respond at a lot higher percentage rate than just, you know, opening a survey email.

Marcus Dillon: Yeah, it.

Marcus DIllon: Could be a stressful 45 days. So if you're going through price increases, uh, and you need some body to cry on their shoulder, who's been there and done it, feel free to call us. We'll help. We'll help give you some assurance on the 8010, ten, uh, belief system that we have on on this and then, um, and.

Rachel Dillon: Easier to encourage from [00:59:30] the outside, right, than the actual people doing it. It's always easier to tell someone else to do it or how to do it, that it's going to be okay versus trying to comfort and encourage yourself during that process.

Marcus Dillon: Yeah.

Marcus DIllon: So but, uh, this is the results of Dba's 2024 price increase on that revenue base. So, uh, feel free to use it. However you will, hopefully you use it for the good in your firm and it helps you increase your price, provides capacity, and [01:00:00] gets you aligned with the type of people that you need to be working with.

Rachel Dillon: Yeah, thanks for prepping for the episode and bringing all the numbers.

Marcus DIllon: Yeah, like any good accountant. Right? I'm here.

Marcus Dillon: So.

Rachel Dillon: All right. See you on the next. Thanks for hanging with us to the end of another episode. Leave us a review with your thoughts, comments, and feedback on Apple Podcasts or Spotify. Be sure to subscribe to our podcast so you don't miss any future episodes. Join us again next week for another great conversation.