Poll Results: 2023 Pricing Increases

We polled our audience of partners to find out what CPA firms are doing when it comes to 2023 pricing increases for services. Based on 232 responses, the most common average percentage increase planned for pricing increases was 10%–13%, followed by 6%–9%. Not surprisingly, larger accounting firms are making larger adjustments.

Between labor costs and inflation, these percentages are warranted. Firms looking at only 6%-9% increases may have made sizeable price updates in 2022 or may simply be more concerned about client sensitivity to the changes.

Here are the results of our poll by firm revenue size:

Noteworthy comments about pricing increases were:

• “We have notified our clients that we will have a 20% increase in fees, which started on Sept 30, 2022. This is based on our cost increases and what firms around us have done.”
• “We raised our billing rates 10% each of the last two years. We also increased our minimum fees by approximately 30% over the last two years. We only had one client leave as a result of fee increases.”
• “Fee increases will track with compensation increases.”
• “We are having to pay huge salary increases to keep people and pay very high wages to attract new staff. We have to charge more to offset the salary increases to keep/retain staff.”

Additional Comments

• “Price increases will be slightly higher than wage increases of 7-10% in an effort to maintain similar net income.”
• “Costs of labor and benefits have gone up 15+% over the last two years. Supply of qualified staff and seasoned CPA’s is extremely constrained. . . We are not minting nearly enough new CPAs to replace the outgoing.  The profession is in trouble.  Since it is hard to find a good CPA and we are all overworked, pricing must go up aggressively.”
• “We are finding we need to increase 25+% in order to remain competitive for staffing challenges.”
• “10% is the minimum with higher increases where possible. In some cases, with multiple year fixed fees, it might not be possible to get that increase.  We are changing how we commit to multiple year fixed fees by adding a clause that considers inflation.”

Using Price Increases to Capture Value

In our experience, many firms have been under valuing their services for quite some time. The common excuse is “our clients are price sensitive.” While this may be true, your clients may also have limited options for service at this point. Firms are actively culling clients that don’t fit their model of profitability, types of industries they serve or because they’re a pain in the ass to work with.

If you’ve found it hard to raise prices to keep up with inflation and labor costs, let alone partner profitability, consider starting with the following:

1. Review profitability by client. Make a list of your low-profitability clients that reduce your capacity to serve high-value clients.
   • Yes, there will be “friends and family” and some community-service type clients you may want to keep at low profitability. The problem only arises when this pool is too large.
2. Select most or all of your low profitability clients and plan to either raise their prices to match the value you provide or disengage with them. Keep in mind there is value in the following:
   • Access. Being available and responsive to clients is a cornerstone of our profession. Whether a client needs you often or infrequently or almost never, there is value in being on your client roster.
   • Answering an excessive number of calls or emails to ask questions is a different level of service. How many is typical for your firm? At what volume should a needy client be priced accordingly?
   • Additional Work. It’s hard to balance not wanting to nickel-and-dime your clients with wanting to charge for the value you provide. Consider a subscription model or menu pricing to capture some of the lower-level additional work, and hone in on scope changes when the request is larger.
3. Implement the increases. If you are concerned about sticking to your plan for profitability, try these tactics:
   • Work with a partner to help hold you accountable to stronger pricing or billing practices. Choose someone with strong pricing instincts, in some cases this could even be a manager. They often like profitability just as much as you do, even if it doesn’t directly line their own pocket. Have them help you set the prices and review bills or engagement letters before they go out the door to ensure you’re not slipping in a courtesy discount or writing off time that was value-add to the client.
   • If you’re billing by the hour, in most cases you don’t need to announce the increase, especially if it’s around 25% or less. Your doctor doesn’t write you a letter to tell you about their price increases, do they? Of course, if you don’t share your rates with clients annually and someone’s bill is going to go up 50% or more, it would be courteous to let them know in advance so they can decide if you’re still the best fit for them. This can be a strategy for having a client self-select out of your firm, but beware that most firms find far fewer of their clients leave than they were hoping. Be sure the increase is big enough and don’t be afraid to disengage from those who you really just don’t want to work with for any price.
   • Prepare for the backlash. Just kidding! There likely won’t be much, but many CPAs do worry about how to explain it if a client pushes back on pricing. Consider sharing any of the following: “labor costs and inflation have gone up significantly and we have to increase our pricing to be able to provide the same level of service we have in the past” or “as our firm grows, we are aligning our pricing and client base to meet our strategic goals” and “we understand if our firm is no longer a good fit for you, would you like me to send you some names of other service providers that you could look into?”

What are your pricing increase success stories? We’d love to hear your comments below.