Using Tax Services as a Loss Leader
You might be thinking, after reading the title of this blog, “Did I read that correctly?” You sure did and let me explain…
I’ll start off by saying that tax preparation fees have come a long way and a lot of money can be made in it. I remember 20 years ago when my father was charging $50 for a tax return when others would’ve charged $100. Or 10 years ago when he was charging $150 when others were charging $300. Did he under price his services and miss out on all that additional revenue? I don’t think so. What he realized was that preparing a simple personal tax return didn’t take very long, so even at $50 he was still making money. If he could do 4 of those in an hour, he could make $200/hour back then. Now multiply that by other office staff and suddenly you were billing out $800/hour…again 20 years ago. Not too bad.
More importantly, however, is the ability to cross sell other services to your new client and/or create promotions for referring other new clients…known as viral marketing. Under a relatively common scenario today, let’s say you entice a new client to have their taxes prepared for a low first time fee. From there:
1. Since you also offer insurance products in your office, you’re able to sell them auto and home owner’s insurance policies. (You just earned a commission of $400)
2. Since you offer financial services in your office, you’re able to have them transfer their investment accounts and/or open new ones with your office. (You just earned a commission of $1,000)
3. You find out that they also have a small business entity return that needs to be prepared. (You just charged them an additional $500)
4. You find out that they want to start a new business and need to form a corporation, which is a service you provide. (Your profit, after service fees is $500)
The list goes on and on but as you can see, this small personal tax return has easily lead to approximately $2,500 in fees. Not to mention the fact that your service is great, they’re really happy, they write positive online reviews, they come back for years to come and refer you to everyone they know. Yes…personal tax preparation can be a loss leader and done properly you’ll experience never before seen revenue growth.
Glen Ross is a CPA, CVA and has been practicing in public accounting for over 20 years. Besides running a local CPA firm in NY, he is also the CEO & Co-founder of Prosado.
Dec 16, 2012 @ 13:41:02
Very nice article and it actually makes a lot of sense.
Feb 26, 2013 @ 20:37:06
I noticed that of the few customers that have accepted bids so far, at least two of them accepted the highest bid. As a congenital cheapskate I find this hard to understand, but perhaps the business gurus who say that people perceive value as a function of price may have a point. But I believe that most of the bids were higher than they should have been, and the ones that were accepted seemed grossly out of line with the relative simplicity of the returns. On the other hand, the one person who accepted my bid mentioned the reasonable low rate. So for me, pricing remains an impenetrable mystery. I hope that by providing an open market in tax preparation with fees established openly up front, the tax preparation market could change. Let’s keep trying!