Art of Accounting: Revenue from tax clients
Every client, from the largest to smallest, pays part of your salary, so every client should be treated with respect, care and importance. I do. Yet, I know a lot of accountants that treat their smaller tax clients as if they, i.e., the preparers, are doing them, i.e. the clients, a favor. That is a terrible way to manage a business.
I speak to some accountants who feel that smaller-fee clients are not worthy of an extra call or two during the year, or do not “pay for” handholding if there is a surprise negative result on their tax return. These clients can be placed summarily on extension if things get too backed up, or their returns can get pushed to the end of the queue, causing last-minute deliveries. I look at “small” differently.
Every client represents a sustainable and predictable revenue stream and adds to the value to my practice. To put it in a better perspective, particularly for some partners and staff, I try to bundle like-size clients into a larger grouping. Here’s one illustration:
First I calculate the lifetime value of a client, say a $300 tax client. Over 20 years at $300, that represents $6,000 in revenue with no fee increases. However, I suggest increasing fees 5 percent a year (which is merely passing on increased costs and not really an increase due to greater work). Twenty years with 5 percent per year increases becomes $9,900, with a current fee 20 years later of $750. Multiply that by the 25 clients you lost because you did not care about them or because of a missed opportunity to show you cared and this becomes something like $250,000 of lost revenue. Plus you lost the revenues for additional services to this group of clients (I suggest succeeding in getting one added engagement a year every 20 years from each tax client—I do it, so know this is possible] and the potential for referrals from them (if each refers just one client over that 25-year period, you will have doubled this group of clients).
We are accountants, so we like numbers—review what I wrote and try to find a flaw in it. If you cannot, then try to adopt a change based on what I suggest. If you think I am nuts, please post a comment so I can reply.
Two final comments: Look at the large difference to you because of the modest 5 percent annual increases and compare the benefit to you versus the “cost” to the client. To me, this is a no brainer.
Comment two: Suppose the $300 client was a $3,000 client?
We are in tax season, but it is not too late to make some unobtrusive changes.
Also, have fun!
Edward Mendlowitz, CPA, is partner at WithumSmith+Brown, PC, CPAs. He is on the Accounting Today Top 100 Influential People List. He is the author of 24 books, including “How to Review Tax Returns,” co-written with Andrew D. Mendlowitz, and “Managing Your Tax Season, Third Edition.” Ed also writes a twice-a-week blog addressing issues that clients have at www.partners-network.com. Ed is an adjunct professor in the MBA program at Fairleigh Dickinson University teaching end user applications of financial statements.Art of Accounting is a continuing series where Ed shares autobiographical experiences with tips that he hopes can be adopted by his colleagues. Ed welcomes practice management questions and can be reached at (732) 964-9329 or firstname.lastname@example.org.