Hey {{first_name | there}},
You know better than I do that what you KEEP matters far more than what you MAKE.
But there’s a specific area I see a lot of accounting firm owners losing a lot of margin, and it’s by offering little add-on services for free or at a discount.
Let’s say you sell a $4,000 cleanup project. Your gross margin on that service is 40%. So your gross profit is $1600.
Now, you give a "small favor" to that client. A $1000 add-on that you don't bill for. It's not a big deal, you tell yourself. They're a good client. You don't want to nickel-and-dime.
But what if you actually billed for that work?
Your margin on the extra revenue is likely HUGE since this is an existing client and it’s probably easy to deliver on, so let’s say your gross margin is 80%.
So if you bill the client, your gross margin goes from 37% (because you ate the cost on the “free” service) to 48% (because you billed what the add-on was worth)
Translated to actual dollars, your profit goes from $1600 → $2400.
That’s a significant difference! And you’re just giving that profit away because you’re a nice guy?
So here are two principles worth installing:
1. Surface scope creep the moment it shows up.
The client asks for something outside the engagement letter, you say something like: "Happy to do that. Quick note that's outside our current scope. Here's what that would look like as an add-on." That ONE sentence can make you tens of thousands a year.
2. Build the system to catch it automatically.
A team without a process for flagging out-of-scope requests will ALWAYS bleed margin. Your operations need to make scope flagging frictionless and routine.
Day 3 of our Summer Scaling Strategy workshop this week is all about systems that scale, including the operational pieces that catch scope creep before your margins disappear.
My business partner Ryan Bakke is going to show off the systems he’s used to build a $5.5M/yr CPA firm in the last 4 years, and how he’s folded two other 7-figure firms into his operation at the same time.
- Peter
P.S. If you want direct feedback or advice from us, the best opportunity for that is our VIP ticket option. Details at the link above.