Don’t make these critical mistakes when starting your tax practice.
I wish I knew these things sooner. I had to learn the hard way over the years and I really lost out.
Starting a tax practice mistake #1 – prices too low
If there is one thing that you must know when starting off on your own with a tax practice, this is it.
It’s not just about failing to properly monetize your qualifications. This mistake goes way deeper than that.
I admit that I personally made this mistake when I first became a tax practitioner. It’s not like others didn’t warn me either – I just didn’t listen.
For some reason, I thought, “there’s no way someone will pay me a “full price” for tax preparation.
I was so wrong about that.
OMG, I wish I knew.
What I didn’t know was that there were PLENTY of clients, easily within reach, who would have been willing to pay me a full premium.
What’s worse is that this mistake was very difficult to reverse and it took many years to fix. It still haunts me in some ways to this day, 12 years later.
What happens when you provide “too good of a deal” to customers?
- You leave a crap ton of profits on the table
- You work too hard
- You delay your revenue growth
- The situation is a challenge to fix
- You attract the absolute worst pain in the ass (PITA) clients
- You do not serve an optimal demographic
- You increase your liability
What a mess!
Repeat after me:
“There is no reason why a plethora of clients will not pay me FULL price for my tax preparation services”.
Say it again.
No, really, read that again and say it like you mean it!
There, you see? You can charge full price at all times.
And I got you to say “plethora”, hehe.
Years of Tax Practice Profits: Wasted!
You’re a tax person, let’s do some math.
With help from my team, I have been serving about 600 tax client each year for about 12 years.
When I first started, my firm averaged about $240 per client.
Just last year, my firm averaged about $700 per client.
I’m still in the process of fixing my pricing errors, and now my fees are currently set to average about $1200 per tax return client. I expect to reach this goal in about another 10 years as I correct this terrible mistake.
Now, please understand that this is just for “retail income tax return preparation”.
For many “one stop shop” clients, I get $3600 to $4800 per client. More on how to do that later – it involves s corporations, payroll services, sales tax, and maybe just a bit of bookkeeping. Stand by, I have a lot to talk about here – I’ll get to all of it.
Let’s go back to retail tax preparation.
Had I correctly priced my work 12 years ago, I could have served 40 clients in the first year, 80 in the second year, and 120 in the third year, etc., and maxing out at 600 clients in the 15th and subsequent years. As a result, In 24 years, I would have made $(in progress) in gross revenue.
Instead, as I’ve mentioned, I started off way too cheap. I gained clients at 250 per year instead of 50 per year and I maxed myself out at 600 clients very quickly.
Show tables (in progress)
Client Prices and Demographic Mistakes
Remember when I said that it’s not all about the money? I really believe that. I think that tax practitioners should not always be focused on profits.
We should be kind to others. We should nurture a sustainable community with our actions and be aware of the way we impact our surroundings with our business decisions. We should give to charity, especially those supporting the homeless, family, education, and to those sectors of the population that need it most. We should do some work for free. We should do some work and some types of work that we usually wouldn’t – just to be helpful to the less fortunate.
With that said, it still does not make sense to create an ENTIRE stunted business model and book of business FULL of cheapo clients! That has nothing to do with being kind. It also does not make sense to build a practice based on a demographic that will leave you stressed out, starving, and working too hard in the long run.
A physician doesn’t intentionally set out to only make $50,000 in annual income. After all of that education and hard work, that’s just foolish. Earning a wage that is equitable to their level of education doesn’t mean that he or she doesn’t care about serving the community.
Also, it’s not like a majority of bargain hunting clients, especially those that are successful and self-employed, are part the “less fortunate” that I am talking about.
THESE are the “poor folks” in which we should provide charity?
When you start off with your prices too cheap, you are building your ENTIRE business premise on demographics that are going to increase your workload, increase your stress, and reduce your profitability.
I know why, actually, because as I said, I made this mistake myself. I was scared that I would starve trying to get clients.
But this is incorrect.
Don’t do that.
(website in progress, please bookmark and stand by)