Creating a Floor Price

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In the last issue, I discussed why you should kill the billable hour in your accounting firm and move toward value pricing. You need to set a floor price to start value pricing. The floor price allows you to reverse-engineer capacity and gives you a starting spot to calculate a return on investment for your client. 

Setting a floor price involves knowing the following:

• The hours you and your staff want to work

• Fair value wages

• The clients you can serve

•  Solid gross margins for accounting firms doing Client Accounting and Advisory services 

Setting Hours

First, you need to calculate how many hours you and your staff want to work. I also factor in development time and paid time off. The CPA.com 2022 CAS Benchmark Survey showed that the median of top performers were the following: 

• Average Total Billable Hours per FTE (including equity partners): 1,425 Hours

• Average Total Hour Worked per FTE (including equity partners): 2,105 hours

• Average Total CPE and Training Hours: 40 hours

I would aim to be lower than the first two benchmark stats if you want to attract top talent. I firmly believe in the 'work smart, not hard' philosophy. 

For me, the sweet spot is working 3 to 4 days a week, but I am currently running a lifestyle firm. However, this approach would be a magnet for attracting top-notch staff. Who doesn't love the idea of achieving a fulfilling career while still having time to do what they love? 

Fair Value Wages

The CPA firms I worked for would use a combination of Robert Half's Salary Guide and talking to local recruiters. What they missed was only looking at the public accounting salaries. You should also look at private accounting salaries because most of the talent is in private accounting.

You do not need to provide the highest wage. You do need to provide the best overall package, which includes benefits, company culture, type of work (CAS), etc. I would first look at what private companies in your area offer before looking at other public accounting firms.

Capacity

The beauty of the floor price is it has a built-in capacity plan. You need to determine how many clients your people can serve with quality service. You can back into the number of clients by dividing the number of hours you decided your employees want to work by a high estimate of how many hours an average client takes to work on in a month. 

In my experience, the following are typically the high-end numbers by role, but they can vary greatly depending on the industry and the services you are providing: 

Solid Margins

The CPA.com benchmark showed that top performers averaged 42%, which is where my firm ended up in 2022. However, I suggest targeting 50% + when developing your floor price. 

Putting It Together

Let's assume a bookkeeper in your area makes $75,000 with benefits and only wants to work 32 hours a week with five weeks of vacation and two weeks of training, so approximately 1,440 working hours. I am also assuming this person needs no supervision for simplicity purposes. 

Your accounting firm must make $150,000 on the bookkeeper at 50% margins. Let's assume the bookkeeper can only handle ten clients to provide quality service. Therefore, your floor price should be around $1,250 per month per client, which I would round up to $1,500 to build in a cushion. 

My goal for every sales call would be to listen to how a prospect could attach more than $1,500 of value to our bookkeeping services.

When I start filling up capacity and getting yeses, I experiment with increasing the minimum. In the next issue, I will discuss how I attach more value to services. 

Thanks for reading, Luke Templin!

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