369 The Business Math Your Accounting Firm Needs to See

Gang, my hope for you today is that you come away from this podcast episode with a newfound inspiration. To do what you got to do, to set prices where they ought to be, to consider going further up the value ladder and to reframe the thinking in your accounting firm to the very most important things. That is what this exercise achieved for me. And I'll tell you the story of the biggest transformation I ever led for any accounting firm and how it all ties back to this very vague I know, Come on in, let's talk about. All comes down to the maths of it. And whenever I start talking like profitability maths, people are like dudo like that. Their first reaction is you think I'm an idiot. And then I get about 20% into it and they're like, I don't believe you. Because none of us want to admit to be to not like understand, like yeah dummy, you increase prices, you find a new more profitable service, of course you make more money. But I'll tell you a story that's probably going to feel relatable to to a lot of you. So in my last firm, it was an 80 year old tax firm and it came with all the baggage you would expect with a legacy firm. After buying out a couple of the partners, I built a cast practice. But we still had like kind of the relationships of 80 years of good old boy accounting firm like is really what it was. And all those folks that you brought with you that you kind of helping out, nobody kind of had the gumption to make those hard decisions and cut loose some of those not profitable clients. And I ran the numbers and by client headcount at this stage we had just shy of 2,000 clients, something like 75% of clients by head knows, 80% of clients by headcount accounted for about 10% of revenue. And inside of tax firms, especially tax firms that have been around for a while, I actually think that's the norm. You have a huge spectrum of types of people that you serve at this stage, I had built a cast practice, it was about one and a half million or so in revenue. And most of those engagements, our biggest one was around 350 grand a year. But the minimum for an engagement in our cast practice was like 15 to 20 grand. And in a tax practice where you're doing everything from itty bitty 1040s to you know, business tax prep, comparatively, those are really big projects. So when we started doing that bookkeeping work and building that cash practice, these were much larger or I should say much higher revenue projects than more of the volume work that the firm was used to. And that's part of what led to this inequality where you had a huge percentage of clients by headcount amounting to less than 10% of our revenue. And it was the old adage of there not being a willingness to walk by a hundred dollars bill on the sidewalk. What do you, why wouldn't we just do one more? Like we make, this is how we make our good money. Like we pick up these little 1040s, we knock them out in 30, 40 minutes. You charge 400 bucks for them. Why wouldn't we do those until the end of time? Well, the problem is for every one of those there are, there's another one that goes, you know, 2x over budget and you're never going to make your money back on that. Or they get a notice and it takes, you know, eight hours to solve that notice in the winter. And those people don't have the money to pay for eight hours of your time. But also, just the collective attention span of an accounting firm I think will always follow where the inputs are going. Whatever people are working on inside of your firm or will be the focus of your firm. And that might go without saying, but there's ways to manipulate that to pull you in the direction of what you actually want to do. And one example of that was when I outsourced our lowest level bookkeeping work in the cast practice. The projects that weren't super profitable, but we still had to get that work done one way or another. We carved out part of that business, outsourced it to a group, and overnight, like the perspectives of the things that we were focusing on became completely different. They were higher level things. They were, how do we add more profitable services to these engagements where we do bookkeeping? But we would really rather be doing all these other things that the client will pay us better for. If all my team is doing is bookkeeping, their focus is going to be on bookkeeping. Likewise, if your client list is made up of a huge list of these, like small, inconsequential engagements, it's just going to take up a big percentage of the attention span of your firm. And if your goal is not to be a mill for those types of projects, then we shouldn't be doing them. There's firms whose goal is to be that, to be the 1040 firm. And honestly, it has never been a better time to be a 1040 firm. But I will say it's hard to be a 1040 firm. And all the other things And I think that's probably the bigger trap. I say 1040 firms like these are the small individual tax returns inside of US firms. There's versions of engagements like these 1040 projects all over the place from like once a year, bookkeeping jobs that are, that are not worth the headache. There's going to be a firm out there, a bunch of firms who will make a killing doing that thing. Being that tax return mill, being that bookkeeping mill for those small projects. I do think you can still build a profitable firm around that stuff. But to do that and all the other stuff and be getting more into like higher margin services is very hard to do all of those things. And so in my, I found myself in a place in my firm that many of you may find yourselves in, either with partners who don't see eye to eye with you, or maybe you are the, the one rolling the boulder up the hill right now. The, the upstart professional that's got it all figured out because you've listened to all 364 episodes of Jason Don't Call Me Daily and you go running back with that every week and you're like, oh, guys, I got this great idea. And they're like, just shut up and go do a tax return or something. Maybe that's you. That was me for a decade. So I can, I can definitely relate to that. And what ultimately got like the stakeholders I had to work with over the hump on this and it was my partner, and it was the partners that I had bought out. Bought out that were still kind of around and still had some of those relationships and weren't going to be jazzed if we just wholesale started cutting people. What got them around to my point of view, was math. And these are decades long professionals and it's not a sexy thing. It really isn't. But I hope after this episode you go and you actually do the math of that hard thing you're considering doing. Because the math is so motivational, not because I can then take that spreadsheet sell and go buy a Lamborghini or something like that. But it puts into perspective how hard we have made our lives by not doing hard things. And that next hard thing might be a 15% bump instead of a 10% bump. Cutting some of those clients that are itty bitty and you know you're not actually making any, any money on them at all. When you see how juicy this is, it changes the perspective of the things that you focus on in your firm. So let's get into this. I'M telling you like as I like, whenever I walk somebody through this, it starts them being insulted. Like, why do you have to explain math to me? Quickly evolves into I don't believe you and then usually ends in like, I'm confused and I'm going to have to actually go run that spreadsheet for myself to, to actually believe what you're doing. But then they don't. And that's where I want you to like think through what you're doing this year end put some numbies down. Because if everybody can actually see those numbers and imagine the life on the other side of those numbers, whether it be maybe it's just more profitability, but I think for most of us it ought to be more calm. It ought to be, I can make the money I'm making now and X percent less of the time. Like that's what we want to get to. So some basic examples here. The old adage which I pick on quite a bit. The notion if you double your prices and you go home at noon is patently false. The only scenario where that applies is if your business runs at 100% margin. If you have no costs, if you have any costs and you do, then doubling your prices juicier than that, you go home before noon. We're going to circle back to that like literally the time that you would go home. But first, just some very basic, just to kind of get, get the old brain juices flowing. Very basic scenarios. Now, the beauty of price increases. This is maybe the most obvious thing I'll say. Price increases go straight to your bottom line. We love to talk about workflow. Boy, do we love talking about workflow and software and tech and this and that and this. Like I love it as much as the next person. But improvements in workflow might help you out on the expense side. But most people aren't going to cut staff when they nail their workflow. If anything, they're going to pay more because they're paying more for software. Now it might let you serve more clients, but the only thing that's universally going to put more money in your pocket or give you more flexibility on do I really want to take this much work into next year? Is top line is the price. So 50% margin firm. Let's say our, our firm's making 10 bucks a year top line revenue. We do a 10% bump across the board. We're making 11 bucks, not making 11 bucks. Our top line revenue is 11 bucks at that point. But our costs are still 5 bucks because this was a 50% margin firm gone from making 5 bucks to making 6 bucks. Nice work. That is a 10% increase to the top line, but a 20% increase to the bottom line from $5 to $6. And this is the worst of all the scenarios we're going to get through because I know your firm isn't running at a 50% margin unless you're like a solo operator, 30% margin firm. They're making 10 bucks a year, clearing 3 bucks a year. Right, because 30% margin. So they're making $3 same 10% increase to the top line. Top line goes from 10 to $11. Bottom line goes from 3 to $4. This is a 33% increase in profitability. Let's do 20% margin because I think most, most firms are probably in this 20 to 30% margin range. Same facts here. Your top line is 10 bucks a year, increase rates 10%. Your bottom line increases from $2 to $3, which is a 50% increase in profit. Instead of having $10 of revenue and $8 of expenses and making $2, you're now making $11 of revenue. The same $8 of expenses, and you're making $3 a year. Nice work. So you're up from $2 a year to $3 a year. Why is that significant? Buddy, that's a 50% increase in profit on only a 10% price increase. Top line people pay 10% more for things every day. That's not a shocking number. Like, that is a very conservative price increase. But you know what is not like small and inconsequential. Making 50% more, that is, that's life changing. Like not only on a financial basis, but consider the flexibility that could give you over how many clients you actually want to take into next year. That's a fundamentally different way of living your entire life. If the profitability of your company increases by 50% now, that's at a 20% margin with a 10% increase. Couple other examples. Let's, let's do a 30% margin firm example. Let's say we're feeling aggressive and we want to bump prices 20%. And then I'm going to bring you back to the story of my firm where we actually bumped it just over 30%. We're going to increase prices 20%, well within what firms can do with a straight face and lose virtually no clients. In my experience, that price increase takes you from being a 30, 30% margin firm to being a 42% margin firm. You're making five bucks this year instead of three bucks last year, a 66% increase in profit. I would advise you don't take that 66% and go put it in the bank. I would advise you, like, dial it back. Refocus your efforts on like, okay, I've tasted the rainbow. All I did was increase prices 20% and my 30 margin firm and my profits increased by two thirds for the entire year. Maybe I need to hit pause, do a little less and, and figure out how to get the next 20% price increase. That's very quickly where this all goes. And inside of my firm, when we were at this sort of tipping point, whereas my first, after my first full year in ownership and I just, I stressed on everybody, like, we just got to make some hard decisions. We need to do some of the hard things that have been deferred that people have been unwilling to do. It was kind of the product of folks being near retirement. So they're not making the hard decisions that maybe they otherwise would have been willing to do if they were going to be in the business for another decade. But I'm like, we, we just, we got to rip some band aids off. And what we ended up doing was on our cheapest 1040s, we increased prices as much as a hundred percent. We basically went from not having minimums to saying we're not going to touch any of these for less than, I can't remember, 600 or 800 bucks or something like that. And for some of these returns, that was over doubling the price. Now, the minimum price increase that anyone got in the firm, with the exception of some, some of our just big contracts, which were priced pretty good to begin with, the minimum that like any of our tax clients were increased was 20%. So basically we set new minimums. The returns that were under those minimums were increased substantially. The thinking being if they leave, not a big deal. But across the board, everything else was increased 20%, in some cases more. And the concerns were everything that you would expect. Your mind first goes to, well, what if everybody just leaves and we're hosed? I would actually argue that's less of a concern for most people than it is the personal fallout. Feeling like these folks are going to leave and feel hard done by, by your decision. I think that's actually the bigger concern, that people have more of the human loss of credibility. Or what if I bump into that person at the bagel shop or at church or at the boat ramp, wherever that is. Like, I actually think that's probably front of mind for most people. But to, to like keep things in Perspective, you're running a business. We're talking about like a, a decision that the business has to make for the health of the business. This episode is sponsored in part by Live Flow. You see the the demo day we did on YouTube yet live FL dashboards encourage you to check it out. It's all of a, I think a seven minute demo showing off Live Flow's new release. Super simplified, easy to use financial dashboards. Gonna feel super familiar for anyone that's that's used that Live Flow product before. Connects your qbo, your Xero to your Google Sheets or your Excel like immediately have this picker to be able to pull any old data from any of your connected collections client files. But now we can pull them into these like super flexible little widgets like in a, in a dashboard view you literally just share a link with the client. Went through some cool examples in that video of like clients I had that were more like tradespeople that wanted mobile updates and I would text them something every morning. Man, I can make a little mobile friendly dashboard where they could hop in and as long as the underlying accounting ledger is up to date, they could see some really cool insights there that you customize yourself templates. Turn that dashboard into a template and then literally just from a dropdown connect another company or company consolidation and it populates the same dashboard with that different company data. Super cool stuff. You haven't seen that that demo day yet. Just go over to YouTube. How would I find it? I'd probably search Jason. Live Flow dashboards. Pretty cool release from the folks at Live Flow. Learn more about them. Check out the link down in the show notes. This episode is sponsored in part by Carbon, the practice management system. 2025 recommendations just went out. You better believe Carbon was on the list. Can I devote this whole ad read to their practice marketplace that they launched? I'm not supposed to do this, but this is my show. I'm going to do it. Carbon released maybe the smartest thing that I saw this year. And that's not an exaggeration. It is a platform for buying and selling carbon. Firms like and the only people that can have access are Carbon users. You go in, you see other firms that carbon users have listed because isn't that such a huge part of doing acquisitions is tech migrations. Oh my gosh, do your tech stacks align? Makes a really, really big difference. And Carbon can make a pretty compelling argument as a result of this that your firm might literally be worth more if you put it on Carbon. Like that's what makes this so smart to me, especially if we think about all these firms like aging out and everybody's like, I'm not gonna touch it. Cause is the tech stacks awful. If a bunch of these firms modernize their systems came to Carbon, think about the marketplace that that opens up when all the other firms there can see what they're doing. And the notion of merging, those things just got way easier. Even on the back end, they've got some cool ways to like either combine those practices or continue maintaining them as two separate instances of carbon. Super, super smart stuff. To learn more about Carbon, check out the link down in the show. Notes. A really interesting thing that fired up so many neurons in my head to like, oh, there's an entirely different way to communicate renewals and proposals and all that we did. I wouldn't say it was the sob letter. I think if I read it again I would feel a little bit ashamed. But we put a letter on the front because it was like we're increasing prices. This is actually the first year we switched to all of those engagements being on a proposal like cloud based payment proposal platform to everything to date before that had been built after the fact by the partners. And we moved like 1500 engagements to them, getting the proposal upfront and having to put in a payment method and then we immediately pulled that money at the end of the project. I hear a lot of firms say migrating to a platform like that isn't realistic because my firm is too big or this or that. There's no such thing. And I cannot tell you this is a total tangent now what a huge win this was. If you compare to the traditional approach of firms where your biggest, most expensive, most times scarce people are the ones billing every single engagement. What we did instead was we worked in this, this increase that was happening across the board and we made it very clear when we sent that out to clients. This is assuming the same scope as past years. And this is the biggest pushback people always have is, well, you don't know how much work it is until you've done the work. The reality is 90% of the time it doesn't change that much. So we would send out the proposals assuming the same work and if the final work came in within a like percentage range threshold of what we expected, then it would get auto billed immediately on completion. And because they had to accept that proposal and provide their payment information up front, we could immediately pull those funds on completion. It eliminated ar, it vastly simplified all the admin related to that. But if it went outside the range of what was expected. And we were pretty generous here. It was like, it had to be maybe over 130% of kind of what we'd budgeted for time. So if there was something that, like, came up, then we would hit pause and we would go and say, like, do we need to revisit scope, or did we have a new person that was working on this project? Was there something fundamentally different about the project where we need to revisit that proposal? That happened in less than 5% of scenarios. It ended up being like 3 and a half percent of engagements where we actually had to stop, right? Reassess what we were charging them and then move on. We were much less granular about who's paying what than we were in the past. We were looking at it as a portfolio of work. And at the end of the day, you could split hairs and try to make things as fair as possible for everybody. Or you can say, we can actually just not do all that, save ourselves a bunch of time and headache and come out and actually make the same money in the end, because on a portfolio basis, the top line and the bottom line, we still have control over and. And we know where that'll come out. So we sent out the letter, and the letter, among other things, said, we're having to increase prices fairly substantially. This was kind of, maybe not quite coming out of COVID This is maybe, you know, a bit into Covid, where it was like, the new tax legislation was still relatively new. You had all the COVID stuff, and we're like, here's the thing, this stuff's just more work than we thought it was going to be. Ever since the last tax law change, we've been doing more work and we thought it would get better, and it's just not. We're having to put more time into every project, but in there, we said we're having to part ways with. With a good number of clients because we just don't have the bandwidth to help as many people as we used to, and because it's hard to hire accountants. And then we hit them with a big old juicy price increase. And I don't, I don't. I say that with a heavy heart. I don't know, like, that we didn't. This was not a Scrooge McDuck type situation. This was like the business lost profitability several years and our folks are burning the heck out, ourselves included. We need a better path forward. And we just. We just did it because there wasn't an alternative that me and My partner and like the most important people in the firm. Like, there was no alternative where we weren't going to pay the price for that. That wasn't sustainable for us. So we just had to do that. So he put this letter out to clients and the overwhelming response was, I'm so happy I'm on the list. Thank you. And to be met with gratitude in the face of doing the scariest thing that you've ever done and increasing prices on a bunch of clients. This was something like 1800 projects or something like that. To be met with gratitude more than anything else, rewired my brain a bit to realize, boy, there's a lot in the messaging, in the communication, in the framing of not kind of getting too big for your britches and being like, you should be, you should be so happy to work with us. But when they came to me and they said thank you, it made me realize, oh, they are appreciative of working with us. Like, we're not just order takers. And they probably should be thankful that they're on our client list because we do really good work. In fact, by having the stones to do this and work with fewer clients and charge our worth, we're actually ensuring that we can do a great job for these people going forward. And that, that actually feels really good. And if I had B out, that's probably a bleeper, right? And not done the hard thing, we wouldn't have taken as good care of people going forward. Like we just wouldn't have because we wouldn't have had the bandwidth. And this is the thing a lot of people get stuck between, is they think increasing prices on someone is not taking care of them, is wronging them, when it's like, what's the alternative? What else are you going to do? And within our firm, in our biggest, scariest time, like in Covid and all that stuff, we got to a place where the firm was, as I think it was, more profitable than had been the prior year, serving way fewer clients than we had the prior year. And we did all the numbers. Like, we tried to do it as responsible as we could. We could afford a massive loss in client volume and still be just fine if that happens. The worst case scenario, doing 60% as much work and still making the same money, how is that a worst case? That is not a bad scenario. That is a win win scenario as far as I, I was concerned. And by actually going through and doing the numbers and mapping all that stuff out and putting it up and forcing people to look at the math and put their nose into it until they understood it and then make them talk me out of it. Like that was how I got everybody on board with it. And it's, it's like insulting like to put the math in front of smart, intelligent people. And they will say, I know, I know, I know. And then you say, but you don't. So like, here are all of the scenarios to tell me why this isn't a no brainer. And when you're, you're like up against people who don't want to go too far outside of their comfort zone of what they've always done year over year, cost of living bumps, whatever it is, inflation bumps. When you're up against those people, like, you can talk tech, you can talk lifestyle, you can talk about all these other things. Nothing beats the math. Nothing beats putting that in front of them. To prove your point, I want to run you through a little bit more maths and then kind of pull away from the maths and say, how does this reshape our perspective for how we run our firms? Let's say just what if you did double your price? Just hypothetically, could you do that with a straight face? Most of us, probably not. I will say universally across the board, all of the people who do hard, dramatic price increases and they're afraid that Everybody will be PO'd and leave near universally every single time that happens, people are surprised at how few clients leave. There's a, there's an evil person who will hear that as, I'm going to abuse this, don't abuse that. But know that the voice inside of your head that is saying everyone will leave, that voice is probably wrong and louder than it ought to be. And if you're in a situation that isn't sustainable, where you're running yourself into the ground, family's not happy with how much you're home, and it's hard for you to visualize doing another year of what you just did. Then I think you got to pay attention. Like, I think you need to take that really seriously. Maybe not doubling your prices, but I think the main thing I try to get people turned on to is, is the fact that price increases have, have a, a greater impact on profitability than we realize. Which is a very dumb and kind of obvious thing to say, but looking at a 50% margin firm, what if you did double your prices? When would you go home? Let's, let's go with the nine to five work schedule, the eight to four work schedule, because there, if you have no cost and you double your price. You. You go home at noon, right? And make the same money because you're working four hours from 8 to 12. So let's say somebody's working from 8 to 4 already. Laughable, because they're an accountant. But just play along. If you run a firm at a 50% margin and you double your prices, what time do you go home and make the same money? So we're assuming revenue is, you know, linear with the amount of time that you work, and we're assuming costs are linear as well, which isn't perfect, but stick with me for the science experiment. 50% margin, firm, you double your prices, you don't go home at noon. You go home at 10:40. You just worked from 8 to 10:40 in the morning, and you're making the same money. 40% margin, firm, double your price. You don't go home at noon. You go home at 10:15. 10:15 in the morning. What are you going to do the rest of the day? All the golfers listening are like, oh, yes. I got more comments when I kind of crapped on golf than almost anything else. Where I was like, at this stage of my life, I would just feel guilty golfing because my wife has a bunch of young kids. And I've started. I started rationalizing, like, I can't wait till the kids are in school all day because then I can do something irresponsible and, and not feel guilty to my wife because she's not having to watch the kids at the same time. But then I'm like, yeah, you big jerk. Then you're just. Then you're just screwing around whenever the kids are at school. And then the kids get home and you're like, daddy's got work to do. Like, what is this life? There's no escape. I guess that's kids for you. I don't have problems with golfing. I. I want to golf. I can't figure out how. Okay, 40% margin for me, double your prices, you go home at 10:15. 10, 18, 10, 15. My eyes are bad. I either 15 or 18. 30% margin firm, double your prices, you go home at 950. 20% margin, firm, you're going home at 920. If there's people that really need to hear this, it is the lower margin firms. Hopefully this is a message of hope to say, oh, my gosh, if we could just get there. Like, we're in an entirely different universe of profitability. 10% margin, firm, you double your prices, you're going home at 843. An easy 45 minute. Your Pomodoro timer hasn't even gone off twice yet. That was a dang. That was a good joke. And I stammered right in the middle of it. So lesson here. We think that like 50% increase in price or something like that is going to increase profit 50%. It doesn't is way more than that. So to put this in terms of, of renewals, which is what most of us are thinking about right now, let's think about a $1 million firm, a $1 million, 50% margin firm. So they're making half a million a year. You increase your prices 10%, you're taking home 600k a year. Now, a 20% increase. So it's easy math with a 50% margin firm, 10% increase on revenue, 20% increase on profit. Now most of our firms, they're not 50% margin firm. Let's look at a 30% margin firm, a mere 10% increase in price. And this is a very small number as far as I'm concerned. 10%. A 10% increase in price in a 30% margin firm yields a 33% increase in profit. You don't believe me? Million dollar firm in the base scenario, top line's million bucks, 700k in expenses, they're making 300k a year, 10% increase on price, they're now doing 1.1 million. Top line, same 700k in expenses, they're now making 400k a year. 400k over 300k, that's a 33% increase. The further down the margin you go, the juicier that gets a 20% margin firm, you increase your prices 10%. Your profit just went up by 50% from 200k to 300k. In the case of a million dollar firm, that's life changing. Let's look at a 30% margin firm, just to be conservative. You increase your price a mere 10%. In a 30% margin firm, your profitability increases by 33%. So you're making 400k instead of 300k. Wouldn't it be nice if you cut a quarter off of your business and then made the same money? Wouldn't that be nice? That sounds real juicy. If you're happy with the amount of money that you're making right now and you're like, I don't need to make any more, but I need to not have a quad, quadruple bypass by the time I'm 29. And if that's you, then increase prices. Chop that client list down. I Guarantee you, you Increase your prices 10%, a third of your clients or a quarter of your clients will not go walking. But now that you make 400k, 100k more than you made last year, consider do I need that extra hundred K? What would make you more happy? This is a great thought experiment. What would make you more happy? Another a hundred thousand dollars on top of your $300,000 that you get or 25% of your time back. I would argue 25% of your time back at that threshold. And we have to keep this in mind as accounting for a moment. This is a very, extremely privileged thing to say, but a lot of you that listen to this are extremely privileged. Like I am too. The amount of money we can make running accounting firms. I actually think people are very bashful about this because you just sound like an a hole talking about how much money you do make. And in some ways it's, it's, it's a problem, it's actually a blocker to getting more people excited about the possibility of running their own firm. But there's no way to say it out loud that you just don't sound like an a hole. Right at this level of, of income, we're talking 300 grand a year for most people. That next 100 grand is, isn't going to unlock a whole lot as opposed to the time that you can get back and like beyond a certain level of wealth, like financial wealth, I think wealth actually becomes not how much money do you have, but how much control do you have over your time. Because if you could look at, you know, if your 5 or 10 year old self could look at what you're doing now and you're like, holy smokes, you're a freaking bad. I could have never imagined making that much money. Like you're crushing it. Nice work. Like you must lounge around and like have a nice back deck where you sit in the sun and you do all sorts of nice things. And a lot of people are like, no, I'm actually, actually just work and I don't actually have any control over my time because I have a whole bunch of people that now need things from me and expect me to be at work at X time. And I'm actually more chained to my obligations than I've ever been before. And I think there's a stage of life where it's like you don't have any other choice and like that's what's putting like food on the table. You don't have the luxury of, of anything else. But Too often we get past that threshold and it's the only way that you know how to live. And you're like, what are you. Well, like, what are you doing with that agency? That freedom, like time. It has to be about time. And this is made worse by accountants generally kind of being cheapskates, I think. And I am too, like just generally cost sensitive people. And we're not willing to ever buy back time like that is. That is true wealth in my mind, that freedom. This episode is sponsored in part by Team up, who helps you hire talented accountants in the Philippines directly. You just, you're. You're paying the humans to work for you. It's as simple as that. Something I had great success with. I had four folks working for me in the Philippines by the time I had sold my firm. Let me tell you the stuff that's just kicked off a team up just this last week. First firm in Georgia looking for a senior accountant. They're turning to team up. Team up then deploys their recruitments in the in the Philippines. They've got on site recruiters there that are pulling in talented people gang. If you don't know regional firms, big four. Everybody has big old accounting offices in the Philippines. Like there are very talented folks over there. Another firm kicked off a search for a tax accountant. Oh, it's another one for a tax accountant. Just kicked off. Then another firm from Texas looking for a bookkeeper. I don't think I ever made any tax hires. I hired a bunch of folks from my casting from the Philippines. But I don't know, there's this weird perception that like offshore folks can only do the junior entry level stuff. Like no, anybody you can hire for like any role you can hire for in the US you can also hire for in the Philippines. Made a ton of sense for me. If you haven't done it before, you're going to have a bunch of embarrassing questions. Go to Team Up. They've dealt with all this stuff before. Stop trying to figure it out yourself. There are two offshore staffing providers I promote in my content and every time someone tells me they use them, I say, how did it go? And these two are still in my content because they're doing a great job for people. That's a better filter than I ever had when I was trying to make hires offshore. If you're thinking about it, check out Team up down in the show notes. Today's episode is sponsored in part by Client Hub. It is practice management season. You know that you're looking around. Am I on the Right platform. When it comes to picking a PM, Client Hub says it comes down to the 4C's capabilities, client experience, clarity and community. Today we're talking about community. You know I'm a big old fan of community. But is your PM platform, Are they in the community? Are they excited about the profession? Do they participate in community events? Client Hub, it's a small startup that was co founded by a former firm and top 100 pro advisor who knows a thing or two about accounting firms. When you adopt ClientHub, you don't just get a practice practice management system, you become part part of a community. Ah. As part of Client Hub you can ask questions, get advice, share your perspectives, all with a welcoming community of small firm accounting professionals like you. It's not cold, cold lifeless SaaS. It's a service the Client Hub delivers that's more than just software. Learn more about Client Hub. Check out the link down in the show notes. Okay, Client firing math. Because I think this is what a lot of us end up being afraid of. If I do increase my prices, how many people can I afford to lose? Let's just go straight back to that last example. A 30% margin firm that does a million top line a year. They increase their price 10% and their bottom line increases to 400 grand from 300 grand. So how many clients can you afford to lose? 25% of your clients can walk. Are 25% of your clients going to walk on a 10% price increase? Never in a million years. Now 20% price increase. Maybe some people start leaving at that stage. But. But still, I mean I've talked to people that have done 20 to 30% and not a single person leaves. So it probably comes down to other things. Like how tactfully did you communicate it? Were they already annoyed before you did the price increase? But even at a 20% price increase for a 30% margin firm in this case increases your bottom line from 300k to 500k, that's a 66% increase. In that scenario you're going a little more aggressive and saying let's increase by 20%. What percentage of them then have to leave for you to go backwards? Almost half. You're making 500k now instead of 300k, 2/5 of your client base have to leave. And if they did, what a worst case scenario to have. Talk about a silver spoon business problem right now. One last math consideration here. We've been talking about the value ladder on this podcast. How most firms are too concentrated around the middle of the value Ladder, you have one flavor of dog food that you sell to a whole bunch of people, and there's people on your client list who would happily go deeper and pay you more. But we don't deliver services to capture that. And if we actually went down the value ladder, more, more people would find you who wouldn't otherwise know you exist. Because if all you do is work for your clients, and that's the only people that ever get to have a peek into your expertise are the ones that are on the client list, then you're surely not optimized for reach for people finding you. If you don't share any of this value online, if you don't ever prove the fact that like, you are really good at what you do and ever go out and talk about that, have any, like free resource sources on your website, stuff like that, then nobody's like, I won't say nobody's ever going to find you. But you're not optimizing for the best people finding you. Right? And the profitability of our firm, what people are willing to pay as a product of who is the client roster. So you're not going to get to the very best client roster if you're not out there putting out helpful things. And I think of that as the bottom of our value ladder. The, the stuff we give away for free or for very cheap. Now, let's talk about building higher on the value ladder. If you have, let's say, beyond 20% of your client base in your most premium offering, then you haven't found your premium premiumist offering yet. And to be really clear about what a new offering would be, my bar for that is it has to be twice the price per input of anything else that you do. So for the folks that are willing to go higher, it's not enough to do more. I'm not just increasing the volume of work that I do for that person at the same level of profitability, going up on the value ladder means you're paying even more, let's say 2x for the same level of inputs. So that work ought to be twice as profitable. And on everybody's client list, these clients exist, and because we're not giving them the choice, we don't know what they're willing to pay yet. And my firm, our most premium tax planning offering, we had like 350 people on it. Surely of those 350 people, there were 60 who would have gone one level further. Now, what does that one level further look like? Maybe it feels more concierge. Maybe it's going deeper into technical stuff. Maybe it's more frequent planning. I think sometimes we're blocked on, like, I don't know what more I can do for people there. Like, it could come down to how the client service is delivered. There's a more premium version of what you're doing. And if you have a good number of people that are at your most premium offering right now, like, I had hundreds of people, you can go more premium than that now. Make sure that it doesn't just consume your more most scarce people's time. This is a big trap in bookkeeping practices where you're like, yeah, we're gonna start doing advisory. And your most senior people who are already super, super time constrained now just have to sit on all these meetings and you just have even less of their time available. We're not looking for that. It's oftentimes this next rung of the ladder that actually redefines what becomes normal for your firm. You, you find that first client who will pay you top dollar to do tax planning, and you're like, holy smokes, I can't believe they're happy to pay me this much money. I guess I can see it because we're gonna save them a bunch of money with this planning. Or it's this client that will pay you a bunch to do some tech advising or walk them through their financial statements each month. And you're like, okay, well, I can see how they could tie this back to profit drivers to their business. And so if they actually understand all this, that is. Yeah, that is helpful for them. You can literally run them through this math exercise that we're doing right here. Right. And they will pay top dollar for that. And your evolution as a, as a firm owner and an advisor, it's usually those clients who will pay for something that you almost can't believe that then redefine the new normal, and then that is what your firm is growing into. That value ladder shows you the path towards right now, this is exceptional. We have a small number of people here, but this eventually becomes the norm. And unless you create that path to the exceptional into doing something more valuable, then you're never going to find it. Like, that's how you get there. And doesn't mean you're going to nail the service on the first try. And it may take a few different versions to see what people are going to be super excited about, but if it doesn't exist, you will never get there. If you're thinking about doing this, build this into your model of what does next year look like. Because if you can even get 5% of your client base to commit to an offering that's twice as profitable, that changes how you think about some other things. Maybe it changes how many clients you cut loose. Maybe it changes the price increase that you want to do on the rest of your clients for them to still be worthwhile if you do have this group of your current clients that will move on to this new, more profitable service. So I would encourage you look at stacking, like working out the math of where are we going to be with the price increase of various different percentages. But then, then even stack that with where are we going to be in total if we roll out this new service line that we're considering that we think some people will bite on, not everybody. It can even be a very small percent, 5% or less. But how can that build into, like, our overall model for what next year's looking at or looking like? And as you're looking at that, I do that do, like the real life weighing of do I want more money or do I want more control over my time? What does wealth look like for me, if you're in a spot where the mortgage payment and the private school and all that stuff is like, you're on the ragged edge. Wealth is going to feel like more money, probably. But if you're at a place where you're feeling pretty good, then wealth is control of your time. I love working as much as the next guy, as much as the next sweaty entrepreneur bro. But what I want more than anything else right now is more control over my time. Hopefully I have insulted you before, bringing you around to like, yeah, okay, maybe I do need to think about this more because on the surface, you can see why people that you present this to are going to be like, yeah, no, I get all that. I understand it. And it's like, oh, really? Do you? Then why are you not, like, why do you not have the. The gumption to make this hard decision that we're kicking around and taking too long to just commit to? Right. And I think an interesting thing happens when you really get your head around this and you zoom out and you look at the firm as a whole as kind of your own coach? What where this is. This is easier to do when you're looking at other people's firms because it's not your own stuff. But if you zoom out and you look at the whole business, you start to see what actually matters, is all the things that are going to drive price. And I'm sorry to say it, but workflow doesn't matter. Your tech stack doesn't matter. All the things that we geek on and we pride ourselves on, that we want to work on, they matter. But where do they show up in this calculation? Really, you know, a better workflow that's going to save you 20% of the time that it takes to do work. Maybe you fully utilize that and you do 20% more client volume. Now you can do 20% more of whatever your profit is. If you're making 100 grand a year, like, great, now you're making 120 grand a year. But that pales in comparison to what, like, what can be price drivers. And this is where the conversation with specialization always comes in. Because the best example of this is in $100 million offers where it's like four different versions of pricing. And it's like one is blah, blah, blah. Guide for, for salespeople, $60 exact same guide, but for sales leaders, you know, $600. Same thing for equipment sales leaders, and that's like $1,600. And then same thing for like some industry equipment sales leaders, $6,000. The training is the same, but people will go and buy the $6,000 one when that applies to them. And I don't like, it doesn't matter if it's right or wrong. Like, that's the way that the world works. And when you pair that with the fact that most of what people consume these days are algorithmic and you have to be specific even to find people, for anyone to even see the things that you post online, then the very obvious choice is like, if I can get a little bit more specialized, then that $800 tax turn can be $1,000 tax turn. That $600 month end close can be an $800 month end close. And when you reframe this profitability math and how much opportunity there is then to say, I'm not a bookkeeper, I'm a bookkeeper for taxidermists. I'm not a tax pro. I'm a tax pro for pool boys. And it's not because you're going to throw out your client list overnight. It's how you're going to bring in your next client who will pay 30% more because you had that specificity, because you just eliminated a bunch of substitutes in the eyes of the client because they're like, oh, no, this, this person works with, with me, with folks that do what I do. I can tell you my firm like, this calculation caused us to put massively More investment into the client experience, into getting a little more white glove. Because we found that just, just a little bit more effort to be hands on with clients would increase their willingness to pay by so much. And it was not time consuming stuff, and it was not things that needed to be done by expensive technical people. It was like, can you drive out to my house and pick out my stuff? Like, pick up my stuff for me? Can you run out to my office and so that I can sign this thing in person, like when I'm between appointments? Like little, like kind of like white gloves, sort of things like that, that make a world of difference for people because their perception of the service we're delivering to them, like, and their level of happiness with it comes down to the few touch points they have with it and the degree of, like the degree of their understanding of the technical things. It's virtually nothing. And so all the other stuff, which is such a small percentage of the engagement, that's actually how they build their willingness to pay you. And so if you think about all the time that goes into a month end close or preparing a tax return, what percentage of time goes into the doing of the work versus the delivering and the coordinating with the client, so much more goes into the doing of the work when that's not what people are paying for. They are, but they aren't. Like, the way that they set their willingness to pay, their perceived value that they're getting comes from all the touch points. You can make an argument like, like, yes, there are things that you can just do blatantly wrong that will create problems for them and then you lose that client. But to put no thought into the packaging and the delivery and how we communicate it and all that stuff, when that's actually what pisses people off and makes people leave firms is not returning phone calls, not being available, being over capacity and all those things kind of falling off. It led our firm to think a lot more seriously about having people hands on that were responsive, that could get back to clients right away, that could make them feel taken care of, who are on standby to like go and run out and do that errand for the client. Like something, you know, going above and beyond. And then the next time you're doing like a 20% price increase, they're like, I, I will never leave you. Like, you're, I understand this. If you need this for your business, I'm your ride or die. Does that apply in the situation? Not actually clear on what that expression means, but you get the point. Okay, go out and do some maths and as we're as we're like thick into tech season and like rebuilding our tech stack for next year, keep the old eye on the ball. Are you posting on social media right now? Is anybody finding you who wouldn't otherwise find you? Is that new tech experience going to heighten the client experience and is that taking a priority? Or are we just thinking about our own workflows, which, which do matter, but unfortunately aren't going to be the biggest drivers of what people are willing to pay you? Gang, thanks for coming and hanging today and putting up with a whole bunch of maths. This was a big old unlock for my firm, as dumb as it sounds. I'll see you in the next one.