Who's Really the BOSS? | The Art of Pricing Your Accounting Services

In this episode, Rachel and Marcus share their experiences and insights on navigating the challenging task of pricing client accounting and advisory services (CAS). They discuss their firm's evolution from opaque pricing to a transparent, subscription-based model, and the strategies they employed to ensure their pricing accurately reflects the value they provide. Rachel and Marcus also delve into the difficulties of implementing price increases, the importance of clear communication with clients, and the lessons they've learned along the way.

Chapters

(00:00) - Welcome to Who's Really the BOSS?
(00:34) - Navigating the Complex World of Pricing Increases
(01:49) - The Evolution of Pricing Models: From Hourly to Value-Based
(04:25) - The Journey to Transparent Pricing on Our Website
(12:10) - The Impact of Pricing Transparency and Client Relationships
(19:59) - Learning from Competitors: The Secret Shopping Strategy
(27:31) - Evaluating Pricing Strategies and Client Relationships
(32:51) - The Challenge of Communicating Price Increases
(55:35) - The Art of Pricing and Client Feedback

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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: Welcome [00:00:30] back to Who's Really the Boss podcast.

Marcus Dillon: Hey, thanks for having me back.

Rachel Dillon: Yeah. So today, talking about maybe one of the less comfortable things about a business. Um, at least it feels uncomfortable for me to talk about. About business. And that's pricing.

Marcus Dillon: Yeah. Um, and a specifically pricing increases. How do you get pricing right for services for clients? And this is going to be pricing [00:01:00] for CAS services as, as we've seen it here at DBA as well, which I know there's a lot of discussion about that in the in the market in our industry. And nobody's got a perfect formula. So we'll just go through how we look at it. And maybe it gives people some value who are running firms.

Rachel Dillon: Yeah. And I really wanted I think the big question that people ask when they learn DBA is a client accounting and advisory services firm. Well how [00:01:30] do you price that. So I think pricing tax returns wasn't necessarily cut and dry. But maybe you had a range of what you typically charge. Or maybe some people charge by the form, or maybe they do all completely after the fact and just bill straight time that's in that tax return. And so CAS services don't necessarily fit that kind of after the fact or hourly billing model. And so that's always a big question for people just [00:02:00] starting in CAS or wanting to start. Cas is trying to figure out, well, how do we get compensated or how do we make money from offering this service line?

Marcus Dillon: There are still people that do CAS hourly. Uh, so I think even that is all over the place. I actually was listening to a podcast of a of a larger firm that does their CAS hourly for at least the first few months. And we can we can talk more about that and why we don't do it that way. Um, [00:02:30] but it's it's all good.

Rachel Dillon: Maybe in a larger firm it's different. Is it, you know, employees working with employees and not necessarily like person to person, owner to owner, like that relationship, because I wouldn't want to have that conversation with people every single month of, well, why did it take you ten hours this month? And last month it only took you four hours, and then next month it took you 20 hours. I'm not paying for 20 hours. That's ridiculous. You know what [00:03:00] we found? What I found talking to our clients over the last decade is really, people have different comfort levels on spending, and they have different ideas as far as, like a, um, like a budget in their mind of what they think or even just the value of what you're providing, it differs from person to person. And so to have that conversation every month, I think I'd throw up like, I think it would literally hurt me to [00:03:30] have that conversation every single month and like just waiting for people to not be happy about it or, you know, knowing that that month was low and knowing the next month's going to be high hours because of whatever project is due, I just can't I wouldn't be able to handle the kind of roller coaster of that.

Marcus Dillon: So if you're going to bill hourly, uh, which I'm not saying that's right or wrong, it's just different than what we do. You just need to build up thick skin and not care. And I think [00:04:00] that's the piece where we get an hourly invoice from an attorney. They do not care. Like, you know, it's one of those where like you're expected to pay that and they could care less like they've done the work if you want to go somewhere else, like they just don't care. So maybe that's the approach on some of these larger firms that serve middle market clients, that they kind of know their budget and they just bill them hourly, you know? So it's, uh, it's fun, but let's talk let's talk about DBA and how we're pricing, um, which all of [00:04:30] this is on our website. Right. Like we we debated whether or not we put pricing on the website for so long, and it's out there now.

Rachel Dillon: But my goodness, it has been an evolution to get to some, like starting minimums for the different plans that we offer. And so it definitely did not start like that. Um, I don't know. In the beginning, I think the question that you'd asked me, well, how much do you think they'll pay per month [00:05:00] might have been how we arrived or or how much are you willing to ask the other person to pay per month? Like, you might tell me a price and I'm like, I'm not asking for that much. And so that might have been our pricing formula or our pricing strategy. Um, you know, back in like 2017. And so definitely have come so far since then.

Marcus Dillon: Even that it don't give us that much credit. So, uh, we price. Just like every other [00:05:30] CPA firm does. And I know if you're listening to this and you hear me, what I'm about to say, you're going to shake your head. Because if you can gain access to their QuickBooks online account and see what they paid in the past, you're going to charge them what they've at least paid a little bit more. If you really want the client, you're going to discount a little bit, but that's going to be your baseline. What have they paid in the past? And knowing what they have paid in the past used to be how we operated. Right like that used to give us comfort. Like if they'll pay that previous CPA [00:06:00] $1,200, do that traction. I know that I've reviewed that tax turn. It's not the greatest. So if I charge at least a thousand, they're going to be a great client and love us. And so that's how we used to do it. Um, then we would get more bold and say, we're going to charge at least what that other person charged. And then you have, you know, where you're fully mature and you charge more. Right. And so that's the, uh, apples to apples approach, I guess, if you're doing the same [00:06:30] work that another CPA did and you're okay with their level of service and the quality of their work, then yeah, that could be your baseline. It's no different than the gas street, the gas station across the street from the other gas station, like the commodity has value.

Marcus Dillon: So, um, but where where we're at today, uh, has evolved, right? So we're not pricing tax returns. We're not pricing compliance, I guess is the bigger, uh, comment. What we [00:07:00] are pricing is relationship and it's based on subscription. So much like you had mentioned, how much would they pay. That's kind of value based uh, approach. Um, how much value can you bring? How much does that client see the value in these services. And what's that value match to that client? We did that for a season. And we still have some clients that are on value based, um, pricing because we priced some of those engagements the right way and with healthy profit [00:07:30] margins. And so we don't want to touch them. Right. Um, but what what happens there is you you have to price every client differently. And so we could not streamline or, um, make it an easy process. To where we could remove ourselves as the owners, or as the person that is setting price for everybody in the organization. So. So with that, you've had to [00:08:00] deliver. Now, both the apples to apples approach, you've had to deliver the value based approach. And now subscription 2.0, which, you know, as Ron Baker kind of has made famous like now you deliver subscription pricing, which points back to the menu of services on our website. So based on all those different ones, which has been the easiest to deliver.

Rachel Dillon: I'm just remembering back to we were probably very immature, right? In [00:08:30] business, ownership is what happened. But every every new prospect, you and I had to have a discussion on pricing. And it was a it was a lengthy discussion, like it was, you know, taking into account every single thing that we had access to that we knew we would do for that client. We don't want to change pricing, and we certainly don't want to go back to a client like in the first month and say, oh, we priced this wrong, or a tax return way back when we were doing a lot of annual tax returns. [00:09:00] Oh, I told you it was going to be this much, but actually it's going to be this much. And here's why. So we wanted to have as few conversations after that first one, um, on pricing as possible. And there was a prospect who called in and said they only wanted to meet with us if I could go to their office in Houston and we're out in the suburbs. And I'm like, I mean, it's it's an ideal client, except the fact that they [00:09:30] want me to come there in person. Um, you know, everything's fine. They're fine with us working with them digitally or virtually after that. But they just they want to know who they're meeting with. They want to know who they're trusting with all of their accounting for their business and their personal. And so you were like, that's crazy. We're not doing that. And I was like, well, and you said, tell them, was it $4,000 a month?

Marcus Dillon: Oh yeah, it was probably it was north of 4000. I don't know if it was 4500. This [00:10:00] was a.

Rachel Dillon: Lot of years ago. Yeah. And so it was it was a huge amount. And so I just remember standing in my office, I didn't even sit down like, I just, I had nothing open or in front of me because I knew immediately they were going to balk at the price and get off the phone. And so I told him and he said, okay, what do we do next? And I like it. I was speechless, I had no idea what to say, because I just had no idea that they were going to accept that. Um, I [00:10:30] am happy to report that we have delivered that amount of value all of these years. They are still clients. They are great clients, um, and we love serving them. But I just stopped. I was stopped, like dead in my tracks, like, oh my gosh, they said yes. And I think you could hear me, like stumbling and trying to get it back together. Um, from your office. Our offices were attached and so I think you could hear me talking and probably fell out of your chair as well.

Marcus Dillon: I probably said, [00:11:00] crap, now we gotta do the work, you know? So I said.

Rachel Dillon: I gotta go to their office in Houston, and I'm not. I just always laugh because I'm not the one. I don't do any accounting. I don't do any technical work. No bookkeeping, no tax, nothing. So I'm thinking, what value am I going to provide by going to your office? Like I'm not looking at your QuickBooks file. I'm not reviewing your tax return. You just want me to sit like literally sit and talk with you. And that really was they just wanted to to hear and like, [00:11:30] look me in the eye that yes, we are going to provide these services. We are going to deliver them timely, like what they're paying us for. We're actually going to deliver every month and not let financials, you know, or their bookkeeping go months without being reconciled and updated. And so they just wanted to know that when they have a question it's going to get answered. And on, you know, the by the 20th of every month they're going to have financials to review [00:12:00] and look at to run their business. And so it worked out. But again our pricing strategy has come a very long way since then. Um, it has only been recently since we put pricing out on Dylan Business Advisor's website. So we have a plans page. Um, it has all pricing, has a menu of our services. We offer client accounting and advisory services, with the advisory piece being what's different between each of our plans. [00:12:30] So they can meet with you or Leslie, our current CFOs, um, the CFO, either annually, quarterly or monthly. When I'm speaking to people, I don't advise annually for anyone. I just feel like they're not going to get the value that we can provide. We know the advice. This is where the value is. And so I just feel like talking to someone once a year isn't enough. So we always kind of steer them depending on their business either towards that quarterly or monthly. [00:13:00]

Marcus Dillon: Yeah, I think some clients, after they're on the bus for a while, it's okay to move to annual. And if they are a very stable business, they just need a check in once a year after year 1 or 2. It's it's fine. Um, they're getting the same level of service from the client service manager and the client controller, regardless of the CFO touchpoint. And sometimes that's all the clients need. So, you know, a conversation with Leslie and myself once a year may be just fine for some of those very stable, [00:13:30] uh, businesses that are executing the plan that they've laid out. So, um, but yeah, you've mentioned the different kind of packages that we have between essential, Premier and Elite. Uh, all of those are out there. So it's a $1,500 price point, $2,000 price point, $3,000 price point on the base package. Uh, we do give ourselves a little bit of flexibility in that, uh, we could customize that pricing based on complexity of the industry or number of transactions, [00:14:00] or if they're tracking things by division in one business, there's there's an out there. Right. So if we wanted to say it's our base package plus this additional complexity level or something like that, it still gives us a little bit of wiggle room on pricing, but the prospect knows where we're going to start, at least sometimes. They have in their mind that they are paying that regardless. And they are the most complex [00:14:30] business we've ever seen. So you've had to have some of those conversations now. Um, and I think you you say it in a way where our packages start at. And that's something that we've learned in recent history.

Rachel Dillon: Yeah. And what even prompted us to put this on the website to be visible and transparent to any prospect who finds us. Um, and so the reason was when I was having conversations with people, they weren't expecting [00:15:00] the price that I was going to say. A lot of the people that were finding us, either by referral or just, you know, Google search, they were mostly looking for a tax return and tax savings. Maybe they needed some additional help. Maybe they saw the value of like, yes, I need a bookkeeper because something happened previously to one. Or, you know, maybe it's a spouse and they just didn't want to do it anymore. But they never they hadn't experienced someone pricing [00:15:30] all of the services that they're going to need for the entire year, plus one of those services being advisory, meaning this is going to either help you, like generate revenue or save you in taxes, or save you money somewhere else. So there is extra value in that service line. We're not just giving you a price for something that would be like a commodity. Like, yes, here's your financial statement, here's your tax return. So they just weren't expecting it. [00:16:00] And so we put that on our website just to make the conversations easier when I'm on the phone and so or on a video call. And so if they haven't looked at our website, I always pull that up as part of that conversation as a starting point. So they have something to look at to see. Oh, it includes all of these things. That's why the price is here. Or they can disqualify themselves before they ever talk to me. And we don't ever have to, you know, waste their [00:16:30] time. Um, or I don't spend time talking to them about something that they're not comfortable paying.

Marcus Dillon: Yeah. So we've got those base plans there. We even have videos to say how we who we think would be a perfect fit for this level of service, and we qualify them based on revenue. So anywhere from 1.5 to 5 million professional services, kind of that sweet spot for us. Um, we know that based on our base package plus any add ons, they do, [00:17:00] uh, we are going to be within an acceptable range as far as their budget of top line revenue for that business. And so we've always kind of done rule of thumb 1 to 2%. Um, we don't want to exceed 2%. We're really just a luxury at that point, which some clients are okay with. Um, but at the same time, we don't want to be a burden to the business. So maybe there are, um, less expensive options in the market where they may not get the highest level of service like we would perform, but, um, [00:17:30] they, they can get things done. So we also have like our add ons out there. And so those add ons are, uh, you know, payroll services where we, uh, are present in the running of payroll. We use ADP as like our back engine, like our software that we use. But. We are helping them run payroll, right? So it's not just a hey, you enter it in and then it's all done.

Marcus Dillon: We're actually a part of the process. And that service, you know, [00:18:00] comes at a cost. So we are more expensive than like a retail, uh, payroll provider. And they can easily calculate what that cost would be on our website based on the number of team members they have, and based on if they're going to be semimonthly or bi weekly or even weekly payroll, uh, weekly payroll doubles the price. Go figure. You know, then a semimonthly or bi weekly. And then the other thing that we have out there that they can easily calculate is, uh, bill pay. So if they want us to help with their AP process and [00:18:30] they generate a number of bills, we can easily calculate that on the website. And that ties back to the, um, to the estimate that we would provide at the time of engagement. And then finally, if they have something like sales tax or additional tax filings, that's present as well. So those monthly additional costs for those monthly additional filings that are not a part of the base package, and the reason why they're not a part of the base package is because not maybe not every client needs those [00:19:00] items. So if they're a professional service provider and they don't need sales tax, then we're not just going to lump in sales tax and increase the cost for professional services.

Marcus Dillon: So I think that's kind of the methodology of why we do what we do. Um, to get to that point and know what we wanted to charge, uh, we kind of reverse engineered how many um, at first, what we wanted to make in the business and what we wanted our profit margins to be. So we started there, but then we started [00:19:30] to see how many clients we wanted to serve on an ongoing basis. And, uh, you know, our, our max limit is that 150 client relationships, which we're not there. We have full capacity. We have more capacity to serve more clients. Um, but beginning with that in mind and knowing the size of the business and the size of the team that we wanted to work with, the amount of profit that we, um, wanted to make. That's how we started engineer pricing and make sure it was in line with market and the value we could bring. So tell me, [00:20:00] you know, tell people about what we did as far as, uh, secret shopping and what might be seen as unusual for an accounting firm to actually go in secret shop competitors or peers.

Rachel Dillon: Yeah. And this isn't something that I would have done. I maybe did it once in the very early days when we were doing tax returns and like, just see what are other people charging? People aren't telling us. No. Like we keep increasing the price of what we tell people like our [00:20:30] starting fees are and they're not telling us no. So I think I may have called 1 or 2 other, um, accounting firms just to see, like if I have a tax return, how much would you charge? But we actually worked with a consulting group that helped us and they did some secret shopping for us. So secret shopping, just meaning that they called firms similar to ours or that provided similar services to what we are trying to figure out. What are we going to charge for this? Um, and then they actually [00:21:00] act like we're able to submit, like as a business owner. So the secret shopping wasn't just calling and saying, what would you charge for this? They actually looked at like some financial data, and they actually quoted out what it would be to work with them. And so I don't think that that's necessary for everybody to do, uh, I think you can get that information just through organizations and asking other people, just network of other accountants like, hey, what are you [00:21:30] charging? What are you including for that fee? Um, to get that, but definitely comparison to see what is market for what we're providing, um, with remote firms and being able to work with people kind of anywhere, any time, it's a little different than just saying I'm, I can just call these other two accountants in my city, and that's the market rate.

Rachel Dillon: That's not necessarily where we were coming from and why we needed to do it a little bit differently. Um, and so definitely looking at that and seeing, okay, [00:22:00] this is what they provide, what we found on that though, and I think this is typical for any CAS firm. No one's doing CAS the same like no firm. No two firms are doing CAS exactly the same. And so that's where it's also hard for. Clients or prospects to shop things out because they're never comparing apples to apples. And so that's also something that you have to be aware of as you're if if [00:22:30] you're trying to increase prices, if you're trying to go to market or above that, you're very clear on what you provide and why there's value in that.

Marcus Dillon: Yeah. So we price shopped for different firms and we won't say names because some of those like may be bitter that we price tested them. Um, but our, uh, our prospect actually went through the different, um, channels, like you said, with maybe their sales team getting [00:23:00] reviewed. And we learned throughout that whole process not only their pricing, but what onboarding looked like, what their conversation looked like. So it was a very, um, it was a very good process to go through because we learned so much. And, um, you don't have to price us DBA like ours is out there on the website. So please don't, um, call and get in the queue. Um, that's why we put it out there just so others could see.

Rachel Dillon: Yeah. Or send me a message directly and we can set up a call in that way. I know I'm not trying [00:23:30] to actually talk to you as a prospect. I'll. We'll share. We're open. We're open to sharing whatever we have done, done right, done wrong. We'll share it all.

Marcus Dillon: So we price tested. We picked those four firms because we, um, we respected them. We we aspired maybe to be like them in some aspect. And they were two were national and two were local. And it's funny, the two local firms, one never returned the call. Uh, didn't they? I think they answered or [00:24:00] they played phone tag and, uh, but the person who was going to have the pricing conversation or even just the prospect conversation never connected with our team. And so right there, zero capacity to serve a new client. Um, the second firm, um, actually said we are not accepting new clients. We are on a wait list and you can put your name on that wait list and we may call you back as a prospect. I think it was like six months. And so [00:24:30] from a local perspective, they didn't have capacity. The two firms. So what that means is we should increase price, right. You know, like don't discount your price if you're the only one with capacity because they there's not a competitor in the market here locally that had capacity to serve clients. So the two national firms, one was a very uh, specific. They only worked with dental clients. Um, and whenever we tested that, [00:25:00] they actually kicked out the prospect because the prospect was not a dental client.

Marcus Dillon: And that was good to to see how they handled that. They also shared pricing and things like that, which we were able to gain knowledge on. And it was helpful. Um, so that experience like not a fit there. And then finally the last one was a very large national, uh, firm that served dental as a niche. But then they continued the prospect conversation with our team, even though it wasn't a dental client. And so that [00:25:30] was, you know, you have this firm that is seen as the dental, uh, CPA firm in the country, and they're willing to entertain a prospect who is clearly not dental. So that just goes to show you, uh, don't believe everything you read on the internet. You know, like, um, just because you say you have a niche specialty doesn't mean you only have to serve that niche specialty. So we learned some things there and that pricing model and that firm is completely different because they do a lot of wealth management. You actually [00:26:00] pay a one time, um, $10,000 fee to become a client of theirs and really just receive their newsletter.

Marcus Dillon: And that's where that kind of gets you in the door, which I love that, um, if I can, uh, show some of that same value or prestige, uh, to our client base for that, that that's awesome. And I don't think they're wrong for doing that because they attract a type of client who wants to work with them in that, in that instance. So that's what we learned through the pricing increase, [00:26:30] uh, or the pricing testing. Um, what what we've kind of seen is we have some clients that we've added since that pricing has become public on our website. It's been out there for about a year and a half, and we had these legacy grandfathered clients that were priced so many different ways. Right. Value pricing off the hip, uh, apples to apples, you know, just different things. And as Rachel mentioned, you know, like no two [00:27:00] cars firms are the same. No two cars offerings are the same. So you really have to be good in how you're pricing your services. So, Rachel, you want to talk a little bit about where we're at today and what we've just recently gone through. Um, and. The stress levels that kind of came with.

Rachel Dillon: Well, we okay, well, let's take maybe one step back on that, I know that. What? The comparison shopping, we were hopeful that we would get more answers [00:27:30] than we actually did, so it was nice. We learned a ton, but we didn't necessarily get, okay, this is our pricing because they do the same services and the same manner and all of that. Um, it gave us an idea, a ballpark of, you know, where we could land a range that we could kind of work from, but we really needed to look at also, um, our current client list and the makeup of clients, the services we were providing and look at write ups, write [00:28:00] downs. So we really did go from our internal data of, you know, who, who are we having write downs on? Month after month. Um, and who are we serving well? Who does the team enjoy working with? Who has write ups? So we did look at the data. We didn't just go off of, you know, what are other people charging? Okay. We're going to charge that. We needed to make sure it fits our structure and our model within DBA because, uh, there [00:28:30] very few people who serve clients the way we do with a team of three. So we needed to make sure there's enough budget to cover the team of three and the way we serve clients and what we provide.

Marcus Dillon: Yeah. And I think that's that's a great kind of, uh, bridge because we introduced team of three after we priced some of these clients that were already in the firm. And what we saw is budget needed to increase for this increased level of service. And we'll talk [00:29:00] about this in another podcast. But, you know, figuring out what clients still made the most sense for these level of services moving forward. That's a different conversation. But the ones that did fit and were seeing value from this team of three, we had to make sure that each level of that team of three had the appropriate budget to fully serve that client on a on a monthly basis, because every client is getting touched monthly, regardless of advisory touch point. So I think that's the piece where we did look at [00:29:30] our data. We do have time data. We do track time, which I know is kind of taboo. And in today's world, depending on where you land on that topic. But we still value, uh, the, the information that the time data will give us at this point. And maybe down the road, there's another way that we can be, uh, better leaders or better business owners without that data. But right now, since we have it, we use it to make decisions on pricing. And so we reviewed, um, [00:30:00] the, the kind of write ups, write downs. Um, how much was really going into team and started looking at every individual client that was being served, which is a big task, and see who was inside of scope, who was outside of scope, what all we were doing for those clients and really, you know, listing out what services fall in that base package, what's outside of that base package, just so the clients know everything we're doing for them, and we know everything [00:30:30] that we're doing for them.

Marcus Dillon: In case the client ever wanted to go out to market and reprice services, or if we wanted, uh, to reprice services and have justification in what all we do for that client moving forward. So, uh, we there's a lot of firms that evaluate those write ups, write downs. Uh, write ups are great, right? No one, no one has anything bad to say about the write ups. Um, maybe that it wasn't as high as you would have liked, uh, given the risk tolerance or something involved. But [00:31:00] write downs are painful, and a lot of times, as owners, we just discount the fact that they exist. We don't want to address the elephant in the room and go, uh, change what needs to be changed or have that difficult pricing conversation or, or even increase price because things have changed at the client level, not necessarily even at the DBA level, because we chose to implement TMA three and we didn't want the client to, um, [00:31:30] just immediately have a burden of a of additional cost because of our improved service model. So we gave it a bit of time to make sure that we were confident that the level of service was increasing, that the value was increasing before we approached clients to see. About that price? Price increase. Conversation.

Rachel Dillon: Yeah. So after after looking at the at the data, then we were able to arrive at what [00:32:00] were those base prices for each plan. Enough to where we could put it on the website, and then also have a custom plan listed so that they know if there's more than two owners, if you know multiple locations, any kind of clash tracking or divisions, any kind of complexity, um, all of that, that, that there's an asterisk there, that this is where your price starts. Now, everyone who's looked at the website and calls, they assume that's [00:32:30] their price like they see the number. And I think that's just something for everyone to be aware of. When you put a number out, people automatically say, that's my number. And so when you tell them something different, again, it's just the conversation. Um, and just clearly stating, you know, and communicating what they're getting for what price. Um, and so you mentioned if we needed to increase prices. And I think that this is super important, [00:33:00] um, we've learned this over all of the years, but you have to obviously, inflation and market like the prices of everything increases. And as an accountant or CPA firm, you to have to increase prices because the cost of your technology and um, everything, but also the cost of your team is going to increase. And so you have to make sure. So [00:33:30] even though that this is a fixed fee engagement, it's not fixed fee for the life of the client. Right. And so do you want to talk a little bit about our engagement letters. And you know when's appropriate for a CAS client to increase pricing.

Marcus Dillon: Yeah. So our our engagement letters that we move to for now, um, it's been at least a year and a half, probably Q1 of 2022. Um, two years, let's say, [00:34:00] to almost two years. We moved to Evergreen Engagement Letters, where, um, the process of getting a new engagement letter signed for these monthly recurring revenue clients, uh, whenever it was a 12 month engagement letter, was the was more stressed than I needed in my life. And, um, at that time, it was real easy to increase price based on that new engagement letter. Um, but you just had to have the conversation more often about, um, what the value you bring is what their new price is. [00:34:30] And so having that once a year, I didn't care for it. So we came up with the, um, language that we now have in our evergreen engagement letter where it is. Um, set. And if there are changes along the way, we do an amendment or an addendum to that engagement letter and not necessarily require a whole new engagement letter. So any time additional outside of scope services are added, additional business lines, additional team members, growth in general and transaction volume, we can review [00:35:00] it and set new pricing, um, and give the clients time to evaluate that new pricing and not just push it on them, which we think is the respectful thing to do. We have just as much a vested interest in our clients being successful as they do, and that's part of as their financial, um, you know, guide. We want to make sure that we're being respectful at the same point. So we did that in Q1, really [00:35:30] Q1, Q2 of 2022, and we did not address pricing for some of those clients since then. So a lot has changed in DBA in the world, in our clients businesses since May of 2022, when those new prices took effect. And that's where we're at today. Those are the conversations that we've recently had with clients. So, Rachel, I'm going to let you, um, kind of give the background of where we're at, where we've been the last couple of weeks.

Rachel Dillon: And maybe that's a warning for moving [00:36:00] from like an annual engagement letter to an evergreen engagement letter. It's easy to shy away from changing pricing because you don't necessarily have to get that signature. Before we had to get the signature anyway. And so because we had to get the signatures, like if we need to have a pricing conversation, we need to do it now rather than later. Um, but for us, those we just went through pricing conversations because we waited [00:36:30] two years, um, which in our case we feel was too long, we needed to send out pricing updates. And so with that pricing update, because there were so many clients that were part of the firm that started before we had the pricing that's now on our website, we really wanted to show them what current pricing looks like. Again, like you said, so that if they wanted to go shop out there services somewhere else, they would know exactly what they were getting and what we charge for [00:37:00] it. But also, if they're referring people over, we don't want a client who's paying well below our minimums to tell a prospect, oh, well, I only pay this much. Um, I don't know why they're charging you, you know, whatever the new pricing is.

Rachel Dillon: And so just wanted to make sure that everything was super transparent. And if we say that sending pricing updates or pricing increases is easy, um, we would be lying like, [00:37:30] it is so hard. It, you know, we kind of pored over that list and what would the amount be and what are every single client I mean, almost 100 clients. And we're looking at every single one, like, what are they going to think? How are they going to feel? You know, what are their other options if they think that this isn't right? Are there other people that we could refer them to, or is there even looking at their services? Are there places we could scale back what we do and [00:38:00] their business and their families still be just as well off? Um, if they if they want to decrease from this increase, um, which for, for those types of clients that we were having that conversation, it would still be more than what they were currently paying because they really had just come in at a time, or their business looked a lot different at the time that they came in.

Marcus Dillon: Yeah. So the way that the way that DBA is structured, currently [00:38:30] we have two thirds of our revenue coming in from CAS engagements or monthly recurring revenue. The other third is through um, client families that we serve, um, very similar with monthly touchpoints, but they're more tax related. So it's more tax advisory. And those tax returns for those. Third, we still invoice, um, at the time of deliverable and those clients, [00:39:00] we just continued to increase price year over year. We never stopped. So it was only the CAS clients that we did not increase, um, the tax services that we provided to that group of families that make up about a third. We went up 10% across the board last year on those from just the prior year invoice. Um, if nothing changed, that was kind of the approach we took. If complexity or simplicity came into play, we would adjust it based on who was reviewing or preparing [00:39:30] that return. But if, same as last year, we're going with a 10% bump, 2023 returns, which were in the middle of right now, uh, we did a 5%. Increase. So, um, we got some feedback. You know, that 10% was, uh, a little bit, uh, last year. And so this year we're kind of dialing that back to five on that third. Um, and those are really important relationships, really, uh, quality families that we work with. So we want to make sure that they feel value, [00:40:00] um, on the cast side, as Rachel mentioned, um, we had about 25% of our client base on Cass came in after we implemented new pricing.

Marcus Dillon: So 25% of that base was already on the pricing that we wanted. Um, and we were okay with about 25% being staying where they're at or adjusting based on maybe they added an employee and their payroll cost needs [00:40:30] to go up $50 a month. If that was the case, that was an easy kind of conversation. And the other 75%, we had to figure out how to get them up because we we had not had a pricing conversation in a long time with most of them. March of 20 or May of 2022 was was kind of majority of those. And then some of the other clients were even prior to May of 2022, because in May of 2022, I may have said [00:41:00] they've only been a client for nine months. I don't want to increase them just yet, which means I have an increase their price in almost three years. And so those are the pieces that if you are going to move to Cass, if you are going to move to evergreen engagement letters, you have to do better than we did and evaluate pricing. So we rip the band aid off, so to speak. And um, it's never easy. You feel it in your gut. We took 75% of that Cass, um, service and went up [00:41:30] on, on every one of those clients. And so what we did is we built out estimates that showed all the all the services that they receive and the cost of those services, as our website shows.

Marcus Dillon: So that was the total market value that we were providing to them at today's rates, per our website. And then for most clients, we couldn't bring them up to market rate all at one time. So we did actually show a loyal client discount, um, to kind of bridge [00:42:00] the gap, um, hopefully temporarily or just show that, hey, we're not we're not in this for the wrong, um, aspects, you know, like, we really want this to work long terme and we want to get you to kind of market value. But I think building out those estimates, showing everything that we provide the, the level, the package that they really aligned with. So we did move some clients to a central, um, where they were only scheduling a meeting once [00:42:30] a year. We, we kind of started them at a central. And then the ones that needed to be at Premier, which is a four, uh, quarterly, uh, quarterly call with their CFO. We kept at that level and we kind of added in a discount. We also showed pricing on what payroll is based on their number of team members, and how that kind of goes back to our website. The same with bill pay and then sales tax, property tax renditions, 1099 package, all of that good stuff just so they could see everything that [00:43:00] DBA was doing. Because way back in the day, we just called it this random acronym, and everybody had their own definition of what this acronym meant, and we couldn't even tell you what that acronym meant for two different level of clients.

Marcus Dillon: It just means that we're going to do it all. And that client expected us to do it all. So now we're in a much better position. We're much more defined both on our website and our service offerings in general. So this was a very stressful season. [00:43:30] Um, I think the other thing to mention is we did it in February or March with an effective date for their new price to be April 1st. And the reason why is because it kind of aligns with the last time we increased price. Last time we increased price in March April with an effective date of May 1st of 2022. Most of the clients who were on Cass were able to wrap up their tax returns, both personal [00:44:00] and business, before the end of March. And so if they need to make a change in their provider or in their service offerings, we wanted there to be a good break. We didn't want to necessarily keep a client longer than they wanted to be here or, um, or vice versa. We didn't want to kind of drag anything out, let animosity build. We wanted it to be a good break, and that's why we thought April 1st would be it if, for whatever reason, we need to [00:44:30] hold a couple of weeks and, you know, issue whatever may be outstanding, we'll just carry them over for a month if they're okay with it. But ultimately, that's where we thought it was a good time.To do it.

Marcus Dillon: The other reason right now worked out as far as good time for price increases, uh, is because capacity, just making sure that the team is properly structured, that the team is well balanced between the number of clients they serve and with team members, um, coming and going and [00:45:00] just, you know, summer coming up. It also provided a really good time to go up on price increase. So, um, that's kind of a couple of reasons why. And then finally the third, uh, that we chose to do price increases at this time are we're moving to a new, uh, client communication platform in Q2. And if any clients are going to churn out, we want them to churn out before we move to that new client communication platform. And it's one [00:45:30] less client to bring over, one less client to hold their hand throughout that process. And then they can sunset with our previous software. Um, so that's kind of the reasoning behind why in the world did we do it right now? Um, it's going to be stressful regardless of when you do it. I'd much rather have the stress all in one season of life. Uh, you know, with that Q1, you've got some tax stuff, you've got year end. Let's just throw some more stress on there with price increases as well, um, and get it all done. And then that way we're not worrying [00:46:00] about it in, in the summer or when we're trying to take time off. But those other reasons were really the reasons why those three, three reasons between time of year so the client could be released, the team kind of restructuring and then also the software coming up.

Rachel Dillon: Yeah. So we looked at kind of how we arrived at pricing. We looked at how we arrived at even increases for people, because now that we have those add on services that [00:46:30] have the add on services are add on because they have so many variables. For example, is it a requirement or not? But also how many team members are there, how many states for filing sales tax? Um, how many different numbers of invoices and accounts payable that we need to be responsible for. And so because of those variables, then we're able to give a range and a pricing set to that range for the most recent clients that have come on. But some of the legacy clients they [00:47:00] came on before that pricing. And so, you know, when they started with us, we probably included stuff because maybe they were only in one state, or maybe they only had five employees. Well, now they've got 25 employees and they're operating in 4 or 5, six states. And so that looks a lot different. And we weren't we may have done small increases along the way, but not to accommodate that type of growth, uh, in their businesses. And so really helping line that out. But I think the last piece of this [00:47:30] is just to share how we delivered.

Rachel Dillon: So when you are increasing a client's price and it's a monthly price, it's not an annual it's not a one time. Sometimes that's easier to swallow if it's one time like, oh, that's a lot, but it's just once and then I don't have to do it again for, you know, maybe a year or two years, however long this is every single month. And so some of the increases were significant either due to the business or just due to where their pricing fell. And so what we did [00:48:00] is, like you mentioned, we created the estimate that had line items out with the pricing. Definitely clearly showed a discount of, you know, we're we're working with you. We're not we don't want to be a burden. Uh, and then we we emailed that and I emailed it from my personal email address, um, so that people could respond. This isn't conversations that we necessarily want, you know, like every team member to have to have with a client, we want that relationship to be solid. We want them to feel comfortable [00:48:30] talking to and from each other. So either you like as owners, we just felt like it should come from one of the two of us. There may be somebody else in a firm who's appropriate for that, um, to hold those conversations with clients, but sent that and made sure that we had like a receipt tracking so that we knew that the messages were getting to the client.

Rachel Dillon: And we emailed. It was a lot. So it wasn't a schedule, a meeting with every single one of these people and sit down for 30 minutes to [00:49:00] talk through it. It was, here's all of the information. And then if we need to schedule to talk after, some people are fine with it. Um, others are fine with email communication, and then others want to have like a video call to go over it once it was received. But I think the, the one thing there that was important was to either have, like depending on how you're sending it out to have a read receipt, we use HubSpot as our back engine. So HubSpot tracks our emails and opens how many times they [00:49:30] open when they open all of that, but more so that we can see we don't want any surprises on April 1st. And really, we needed to be sure clients were aware before. For March 1st so that they could give the proper 30 day notice for any changes that they may want to make.

Marcus Dillon: Yeah. I think the, the we delivered it on a Thursday. Um, and we did that a couple weeks before. So they had a full 45 days really before that price increase took effect. And then [00:50:00] they could review it over the weekend or whatever. Um, you got a lot of clicks, you got a lot of opens, but you didn't get a lot of responses. So we also made the decision to email again, reply all to that message again, reattach that, uh, estimate the following Thursday. So a week after, just as a reminder that this would take place on April 1st, we you know, there is the 30 day notice requirement. And we just want to make sure if they have any questions. So that [00:50:30] following week communication got a lot more response. We got a lot more hey this is great. How do I confirm this is good? Um, we track, uh, we ask clients all the time for feedback through NPS surveys and everything. But you want to get some feedback, do a price increase. Uh, you know, and you're going to get feedback both positive and negative. So it's just one of those that, uh, people come out, uh, whenever things like that happen. And I'll say the other thing that we did, um. After [00:51:00] the change in how we price, we no longer cover some of the technology costs associated with the clients, one being their QuickBooks online account subscription. And we'd love our friends at Intuit, but it's just hard to build that technology cost while it's constantly changing.

Marcus Dillon: So we actually now, for the last two years, have required any new client to just be on QuickBooks online and pay that subscription directly with Intuit, and we serve [00:51:30] them. And then if they want to move relationships, they they just kick us out of their QuickBooks online account and we're okay with it. So but for some of our grandfathered clients, we did absorb that. So we did break that cost out on the website on the estimate. And then that way they knew if they were going to shop services that that they would then be responsible for full retail on that QuickBooks online subscription. So that was just another change that we made just to show, um, be very transparent in pricing [00:52:00] what all we do, what all we pay for and what discount we're willing to give. Um, given the relationship so very stressful, I think we're almost to the end of it. You know, we're recording this on the other side of, uh, you know, that 30 day, hopefully, uh, notice it may not all end at 30 days. Some people may take a couple of months to find their new service providers because we are in the middle of tax season, so. And that's fine. But what I would say is we've studied price increases a lot. We've [00:52:30] advised other businesses, we've advised other firms on price increases. It's a lot easier to give advice than do it yourself. Um, but in all of our, you know, all of our research, all of our, um, results that we've seen, it's always an 80, ten, ten or kind of close there in, uh, as far as 80% will accept the price increase, if reasonable.

Marcus Dillon: Um, and kind of give you some feedback and just 80% will accept it, 10% [00:53:00] will respond and want to negotiate, want to kind of talk through or understand. And then 10% will identify another option, which means they will churn out. And so of the 75% of our cast clients, I think that 8010, ten is holding true. So all of this to say, like we are going to have more revenue, uh, serve fewer clients and be more profitable. And, you know, I think that's just good business. Like [00:53:30] as an advisor, I would tell any owner to do this, uh, it's just a little bit harder and stressful when it's yourself. So we'll share a little bit more about this whenever we get a little bit more confirmation on, like what the dollar amount or what the percentage increase on a monthly basis was, um, number of clients churned. I think what we've also seen is price point alone, uh, we can no longer be under $1,000 a month for some of these grandfathered clients. So the people that are [00:54:00] churning are price so thousand, you know, kind of just can't support that level of, uh, expense in their business, which we understand, which we wanted to give them options. So it's it's usually price, um, personality. Um, so some of the personality conflicts that have kind of been bubbling up, it's now coming to a head with the price increases and we're okay if personalities conflict, uh, that they go find another [00:54:30] provider and then then the other one is just, you know, overall kind of relationship and just making sure that the team really loves who they serve.

Marcus Dillon: And then that client loves, uh, getting served by the team. So it's okay. Churn or uh, clients, you know, all forwarding is natural for any business. And even in a situation like this, whenever you force it, um, it's okay. So I would say if you haven't done this in a while in your firm, there's never a good time. Pick a time. Move forward, [00:55:00] do it. Have some, um, have some reasoning behind why you're choosing to do what you're doing. Because we could have real easily done it off the hip. No estimate. And we would have been answering a lot more questions about why we were going up, what we were. And just for, you know, kind of, um, just for, for your knowledge, like, we're going up anywhere from 5% on the low end because we price that person. Right? Or I think the highest was 138% on one [00:55:30] client. And he accepted. He was like, y'all do a great job, appreciate it, and let's move forward. So those are, uh, kind of where we're at today. But pricing is pricing is an art form. And every client, every firm is going to do it different. Um, but I would just encourage you to do what you feel is comfortable and, uh, do the best for you and your team.

Rachel Dillon: And a huge shout out to our team. And we've shared these individually as they've come in. But whether someone was asking to negotiate. Their [00:56:00] price, asking questions on their prize, or even saying, I'm going to have to find a different solution. My business just can't support that price point. They have raved about our team and the services that we provide, and so I think there might be 1 or 2 very quiet, um, we'll call them quiet quitters, but quiet people who are like evaluating a different solution who didn't give, you know, all the compliments [00:56:30] and accolades to our team. But the the overwhelming majority of people who responded, even if they were having to quit, even if they were asking to negotiate price, they were very, very complimentary. And that just speaks volumes about our team and does show there is value here, whether they're individual business can support it or not. This is what clients are looking for, and they realize it's hard to find [00:57:00] that type of service in the accounting industry. So just why we spend our time talking to each other about an accounting firm and, you know, hopefully better ways to do it and better ways to serve clients. They're looking clients are looking for that small business owners are looking for. You know, what we all can do in our industry. And so just hoping to be able to help more people for sure.

Marcus Dillon: Yeah. No, it's been a great conversation. And as Rachel says, you know, we share the [00:57:30] wins and the challenges. So if you have, um, some challenge on your side, we'd love to hear from you in any way we can help. Um, hopefully this conversation did help give you a little encouragement to price what you're worth.

Rachel Dillon: All right. Great conversation. Talk to 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 [00:58:00] us again next week for another great conversation.