TaxCoach Briefs:    March 12, 2009

Volume 4, Number 13

• Marketing Minute: Raising Fees in a Recession
• TaxCoach Recommends: EntryTracker Software
• Member Event: 2009 TAMMY Awards

*****Attention All-Stars and Hall of Fame members ***** The March webinar is now available on the All-Stars page. We were pleased at how many of you joined despite the seasonal crunch. Our next call will will be Tuesday, April 21. (This will be the third Tuesday of the month, rather than the usual second Tuesday.) If you have questions or ideas for the group, let us know. See you on the 21st!

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MARKETING MINUTE (EAL)
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RAISING FEES IN A RECESSION

Here at TaxCoach, Keith and I are constantly worrying about your fees. I'm a glass-half-full kind of guy, so I sleep well knowing you've absorbed our lessons on pricing your services at what they're worth. Keith, he's a glass-half-empty kind of guy, so he spends some sleepless nights worrying you aren't making enough.

Earlier this week, we discussed "getting paid" on our monthly All-Stars Mastermind call. I was gratified to learn that three of our members, in Pennsylvania, Arizona, and Florida, had successfully raised fees for 2009 -- in at least one case, by an average of 25%.

How loud did those clients squawk over higher fees in the middle of our current economic meltdown? Hardly a peep -- in fact, one All-Star reported that very few of his clients even noticed the higher fees. (My response to that, of course, is if they didn't notice, fees didn't go up enough!)

I got a question along those same lines from one of our members. I'll call him "Carl" because that's what we call everyone who writes in with a question -- and we haven't published a letter from "Carl" in a while:

A new referral came to me to prepare her tax. I reviewed her prior tax return and along with the receipts there is a billing from her last-year tax preparer done by a legal firm for $1200. The fee identified some Schedule D, some donations, property tax and mortgage interest deductions. The return was rather simple and would normally go for around $400.

You as the preparer wonder if the legal profession can charge three times the going rate. You wonder if it's ethical to creep up his fee to $800. Is this ethical or is this charge what the market will bear?

Carl's email raises several questions worth answering as we head into the season's home stretch:

1. Lawyers Preparing Taxes

Everyone loves to bash lawyers. Heck, I'm a lawyer myself and I love the lawyer jokes. (As I write these words, the American Bar Association is hosting a conference in Atlanta. Terrorists have seized a planeload of lawyers. They're threatening that if we don't meet their demands, they'll release one every hour.)

Lawyers do tend to charge more for tax-prep services. They tend to charge more for everything when they can get away with it! Of course, that's one reason they don't do many returns. (Why don't lawyers eat snakes? Professional courtesy! -- Keith)

Lawyers also tend not to be "numbers" oriented. I went to law school because there was no math. Of course, there's one calculation that any good lawyer can do in his sleep. Give him a random seven-digit number and he'll take a third off the top, instantly!

I can see several reasons why Carl's new client would pay a premium fee for tax prep. There may be a personal relationship with the firm, one of the attorneys or staffers, or the actual tax preparer. Or the client may just not be sensitive to fees. Ultimately, though, the "lawyer" issue is a smokescreen. The real question is why any tax preparer can feel justified charging a client three times more than a competitor.

2. The "Going Rate"

This question goes to the heart of "value pricing" and maximizing fees. Carl states that his new client's return would "normally" go for around $400, then wonders if the legal profession can charge 3 times that "going" rate. (Apparently, yes! -- Keith) But I disagree that such a thing as a "going rate" even exists.

Back in October, Keith and I opened the last three of our six Roundtables with a pricing quiz. We presented a sample return (married couple filing jointly, $160K income, typical itemized deductions, two sideline business Schedule Cs, a home office, and some business asset sales) and asked the participants to anonymously estimate their fee for the return.

The "hypothetical" client turned out to be Sarah Palin -- and I was appalled that at all three events, the average price was less than the $578 that H&R Block actually charged for the return. But the range of fees was also shocking, starting at about $300 on the low end and climbing all the way up to $1,200 on the high end. In my mind, that disproves the notion that there's any such thing as a "going rate."

This lack of standardized pricing is a challenge for those of us just starting in the business. How do we price our services in the absence of a clear "going rate"? Far too many accountants try to "guesstimate" a going rate, then wimp out and price themselves under that amount.

But that same lack of standards becomes an opportunity for those who realize that value, like beauty, is in the eye of the beholder. Once you learn how to show your client that the ROI on your fee is enough to justify paying you more than your competitors, you'll unlock the door to a whole new way of doing business. Helping you do that is our real value here at TaxCoach.

3. Ethically Maximizing Fees

Now that we see how one tax preparer justifies charging three times the fee of another, we ask ourselves if the pricey preparer should charge three times more.

Carl asks if "creeping" the client's fee up to $800 is ethical, or if it's simply "what the market will bear." I say charging her $800 actually saves her $400 she would have paid her old preparer. And ethically, I have no problem charging "what the market will bear" so long as the client is satisfied with the value.

Let me close with a couple of stories that illustrate these points:

• A couple of weeks ago, one of my longtime clients actually asked me how I calculate her $1,800 tax-prep fee. I paused a bit to try and remember how I set it in the first place -- then just gave up, smiled at her, and said "I just try to guess how much I can charge without you squawking about it." She laughed, and that was the end of the discussion.

  Lesson: Most clients don't worry nearly as much about your fees as you think they do. They certainly don't worry about them as much as you do!

• Earlier today, Keith, Catherine, and I went to lunch with a friend who is helping revitalize Rookwood Pottery, a historic art pottery and ceramics maker. Here in Cincinnati, Rookwood is a household name -- literally, because many of the houses and buildings in the area, including our own TaxCoach office, have Rookwood fireplaces and other architectural elements. But you can find Rookwood's work throughout the country, including New York City's Grand Central Station. And back in 2004, a Rookwood vase by Kataro Shirayamadani sold at auction for $305,000. (Try saying "Kataro Shirayamadani" three times fast. It's fun!)

  Before heading out to lunch, our friend gave us a tour of the company's 94,000-square foot facility. He walked us through the complete manufacturing process, from pouring wet "slip" clay into a plaster mold through drying, firing, and glazing. I'm no artist, but I loved seeing a living part of Cincinnati history.

  In the end, Rookwood's product isn't technically much different than what your 8-year-old brings home from elementary-school art class. A better lump of clay, sure. Better quality glaze, of course. And better hands to sculpt it. But still . . . clay, glaze, and a little bit of vision.

  Rookwood sells a 6x6 kitchen tile for $200. Your kid's ashtray ends up in a desk drawer, and sits there until after she gets married because you feel guilty throwing it away. Why such a difference for what essentially amounts to the same lump of clay? It's because Rookwood's history, brand, and artisanship create enough distinctive value to justify that price.

  Lesson: How can you justify your value so that you can feel good about charging premium fees?

If you're like most of your clients, you start your day reading the newspaper or listening to the news. You hear which corporate icon is lining up at the government bailout trough. (I thought I was just being cynical writing last week's Briefs, predicting the price of General Motors stock could fall below the price of a gallon of gas. It happened before the end of the day!)

But not everyone feels the crisis. You have the power to "opt out" of the recession, in the same way that your clients can "opt out" of sending $3 to the Presidential Election Campaign Fund.

It might take a little planning to justify your ROI to your clients. It might even take a little practice asking for higher fees. But you can do it, in a way that both you and your client will respect in the morning.

Well . . . what are you waiting for?

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TAXCOACH RECOMMENDS (EAL)
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ENTRYTRACKER SOFTWARE

Here at TaxCoach, our job is to give you tools to set yourself apart from your competition. And we're always keeping an eye out for complementary tools to make your practice even more valuable. This month, we've got a great one for you. Let me introduce you to "EntryTracker," a new tool that saves your time and your clients' tax dollars, all in one convenient package.

EntryTracker is an online version of Sandy Botkin's classic tax organizer that helps clients track their business expenses and organize their documents to legitimize their deductions. And it's far more powerful than just an expense ledger. Does QuickBooks let them take a cell-phone picture of a receipt -- then send it directly to the software? EntryTracker does. And EntryTracker even trains your clients how to use it!

The real opportunity isn't just the practice management benefits. The real opportunity is in practice development. You can license EntryTracker for a low monthly fee, then offer it to your entire practice. Give it to them free as a value-added service (They would have to pay $49/month to subscribe on their own, making it a nearly $600 value.) Or charge them for it and bundle access into your regular fees.

I realize you're heading into the busiest part of your year. But now is actually the best time to add EntryTracker to your practice. That's because now is when you're seeing clients and confronting the cost of poor recordkeeping. And that makes now the time to score points for giving them the solution.

Click here for more information and an eye-opening demo!

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MEMBER EVENT (EAL)
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2009 TAMMY AWARDS

Excitement is building as we move closer to April 16. Because "the season" will be over? Don't be silly! No, excitement is building because April 16 is when Keith, Catherine, and I will present the very first annual TAMMYs -- TaxCoach's eagerly-anticipated and highly coveted Tax and Accounting Marketing Awards. We're looking for your web pages, newspaper ads, direct mail pieces, TV or radio ads, and other marketing materials. (Don't worry about categories -- we're making this up as we go, and if we like it, we'll figure out where to put it.)

Send your materials to Catherine by April 1. Don't miss your chance to make tax marketing history!

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We're happy to answer your questions on TaxCoach content, features, or marketing. While we give first priority to our All-Star and Hall of Fame members, we work to answer all questions. For best response, email support@taxcoachsoftware.com. If we think the answer will be useful to all of our members, we'll publish it (anonymously) here in the 'Member Q & A' section of TaxCoach Briefs.

Regards,

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