Believe it or not but when you become a business owner you are in the business of sales. Many people like to make money but they do not like to sell. There are a variety of reasons for this that range from feeling sleazy to fearing rejection. Which category do you fit in?
To overcome your dislike of sales you have to come face to face with why you dislike selling.
If you feel sleazy when you are selling that may be an indicator that you don't believe in the services that you are selling. This could be your ability to perform the services promised. Maybe you believe in your ability to perform the services but you don't feel like it will be beneficial to the person you are speaking with.
Do you dislike people telling you no? If you are doing a good job of paving your way in the marketplace people should be telling you no. You and your service should not be a good fit for everyone. In addition to that, this is a business, not a popularity contest. People say no for a variety of reasons, don't take it personally. Brush your shoulders off and get better at understanding your ideal client and making the ask.
Now that we got that out of the way. The thing that a lot of Enrolled Agents get caught up on is their price. They don't like their prices and they are afraid to raise them. Is that you? When you first start your firm you may have no clue where to start when it comes to pricing. There are 4 common models that I see.
Flat fee pricing - one price for the service with stipulations.
Forms-based pricing - you determine the price based on the forms needed to complete the return.
Hourly billing - Â you charge an hourly rate for all work.
Value pricing - your price is set based on the value that you provide to the client.
I will cover each one of those things in a separate article. So make sure you are on the e-mail list so you don't miss them before tax season. For now, I want to share some things that you need to consider: your overhead. For people who may be working from home, you have lower overhead than someone who has a traditional office. However, that does not necessarily mean your prices should be lower. It just means that you can afford to have lower prices.
It can be tricky to figure out, whether you have no experience working in a tax or accounting firm or you do. Let me use myself as an example. I worked 3 seasons for one of the top 10 firms in the world. I knew what my billing rate was when I was at the firm. When we created a budget for a client we projected that I would work a certain amount of hours and multiplied that by my billing rate. Let's say that number was $100.
The firm used that number to figure out how much the overhead of my working one hour would cost them. In 2011 my hourly pay was $20, not $100. So there was still $80 to go towards other overhead. When I went out on my own I billed based on what I wanted to make an hour not factoring in overhead. If you are doing tax preparation these are the things that you should take into consideration when figuring out your tax preparation prices:
CRM/Portal
E-signatures
Tax Software
These are going to be your fixed costs. Let's assume that you don't have a set number of signatures or returns with your purchase. Your goal is to do 50 tax returns this season and you have the following costs:
E-signatures - $388
CRM/Portal - $800
Tax software - $2,500
Total costs - $3,688
If we take that $3,688 and divide it by the 50 returns you would like to do your costs for each return will be $73.76. That's the minimum because we haven't factored in your insurance, postage, etc. Doing 100 tax returns would take the cost down to $36.88. But you also have to increase your marketing efforts to double your output.
The point is, there is no reason you should be doing $85 returns like some of the big box shops. Even if the return is basic. You cannot afford to do a return for $85 even if it only takes you an hour. You didn't make $85 in that hour. You just lost money. Does this make sense?
When you set a price for your services you should have a budget created. This budget should help you determine how long it will take you to finish the tax return. It should also allocate part of your overhead costs to that return. Think of the way we figure the business use of home deduction. We allocate different home expenses to the business. The same thing applies here to help ensure you cover all of your expenses. This will tell you your true costs for filing tax returns.
You can apply this same strategy when figuring out the costs of your other services. To determine the price you need to determine how much you need to make to cover costs. Then how much do you want to make as a profit in your business, and last but not least how much you'd like to make for your pocket.
Using our example above it would look like this.
Goal Profit - $25,000
Total direct costs - $ 3,688
Indirect costs (website, e-mail marketing, insurance) - $5,060
Let's say that you want to file 75 tax returns for the year. To figure out what you need to make to cover your costs we need to add your direct costs + indirect costs. In this example, we don't have any variable costs and we are assuming you are working from home. Please keep in mind that there will be some things that are variable in cost. Especially if you are just starting out and using a pay-per-return tax software and portal.
$3,688 + $5,060 = $8,748
So the total cost to complete 75 tax returns is $8,748. Now we want to take that $8,748 and divide it by 75.
$8,748 / 75 = $116.64
If you hit your revenue goal your cost to complete each tax return is $116.64. You have absolutely no business doing a tax return for $85 unless you just like to lose money. Without taking into account the cost of your time you will be paying $31.64 for someone to file with you if you only charge $85. So $116.64 is the bare minimum.
We need to figure out how much of a profit from each return we need to make $25,000. So let's divide that by 75 returns since that is your goal.
$25,000 / 75 = $333.33
Based on our costs of $116.64 to make a $333.33 profit we need to charge $450 for each return to make a $25,000 profit. But wait, are you going to do all these tax returns yourself? Will you hire someone? Will they be remote as a contractor or an employee? Now we need to figure in payroll taxes and the costs of additional equipment and additional user licenses for the software you use.
Maybe you are going to do all the returns yourself. How are your clients going to pay you? Are you going to hold up your payments by accepting cash only? Well, that will limit you to only working with people who can pay you in person. Only taking checks? That poses other problems, what if you receive a bad one?
Make it easy for people to pay you! That convenience for you and your clients does come at a cost. Even if your merchant services are "free" they will still charge you to process payments. I recommend budgeting 2.3% - 3% of your fees to go toward merchant fees. Depending on the state you are in and the service you are offering you may also have to pay sales tax.
All these things are part of owning and operating a business. This article is not meant to discourage you. Instead, my desire is to help you take all costs into consideration before you set your prices for your Enrolled Agent Firm. I want you to have a profitable business that you enjoy.
Now It's Your Turn
How are you feeling about pricing after reading this article? Have you been losing money or are you in a good spot?
I have a checklist of things for you to complete before you can determine which pricing model will work best for you. You'll be ready for the next pricing article after you complete these steps.
1 - Set your revenue goal for each service before determining how many clients you want to service. Doing this will help you figure out how many clients you need to serve to hit that goal. Don't be shy - what is your 2025 revenue goal? If you need help breaking this up by service download the worksheet that I provided in - Goal Setting for Enrolled Agents: Are You Tracking with Me? This worksheet will help you with the breakdown of revenue and your marketing for the entire year. Plus you can share it with me for my input and collaboration.
2 - What services are you going to provide in your Enrolled Agent Firm? In mine, we offer Tax Preparation, Tax representation, and some consulting. With that in mind, there are different costs associated with each service that help me determine the price. I use forms-based pricing for tax preparation and value-based pricing for the other services. Let me know below:
a) What services are you offering?
b) What is the true cost of each service?
c) Do you need to adjust your prices?
3 - Are you interested in learning about another type of pricing model? Let me know which ones down below. If you haven't already, join How to Start an Enrolled Agent Firm. We talk about these types of things that pertain to running your business regularly.
Timalyn S. Bowens EA is America's Favorite EA and Tax Expert who will work hard to find a customized legal solution for you! As an Enrolled Agent licensed through the Internal Revenue Service Timalyn is able to fight the IRS for taxpayers in all 50 states. As the host of Tax Relief with Timalyn Bowens and a YouTube content creator she empowers taxpayers to make educated decisions about their tax situation.
When you are facing questions regarding your personal or business taxes, working with a professional makes all the difference. At Bowens Tax Solutions, we serve our Louisville-area neighbors by providing the tax services and knowledge needed to succeed. We are here to assist you with your tax issues and preventative care. Visit our website at www.bowenstaxsolutions.com for more information.
Excellent article!!