Last week our washing machine broke. It washed clothes just fine, but it wouldn't spin. Those of you ,who know me, know I am not exactly a domestic God. I don't and can't do squadoosh around the house. If you need a guy to patch your drywall, I ain't that guy. Call a real man. I disclosed this fact to my wife, Laura, early on when we were dating. I told her I do a few things very well, like tax returns, but I am utterly worthless around the house. I describe myself as a thoroughbred. In reality, around the house, I am more like teats (the polite spelling) on a boar hog. No, I have no idea what a boar hog is, but people in Pennsylvania, from whence I come, use this phrase annoyingly often.
We called an appliance repair company to fix the washing machine. Since I don't have any clients, who do appliance repair, Laura found someone on the internet. Google knows all. The repair guy, obviously more of a real man than I, showed up on time and fixed the washer. The problem was a door sensor. It took about an hour and a half to fix it. The bill totaled $369. For that amount we got a fixed washing machine and some snarky advice to Laura to not slam the washing machine door anymore.
Looking at the washing machine door / sensor, I am guessing the part cost about $50 at the most. That means we paid $310 for an hour and a half of labor. Based on my vast knowledge of the appliance repair business, I am guessing $155 per hour is a bit steep. Here is something you should know about Laura and I. We live in a nice house in one of the Belmont communities in Ashburn. We have a half acre lot, which is extremely rare in the suburban utopia of Ashburn. One of the things Laura learned not long after we bought the house is that people assume we are very well off, based on our house. We are pretty well off, but that's not the point. When we call someone for service, which we do quite often since I am useless, they normally try to give us the highest price possible, since they believe we can afford it. It's like we owe them extra money, because they really deserve more from life and we are the people to give it to them. The price isn't based on the job. The price is based on what they perceive we can afford. Sometimes this is done out of outright malice and sometimes it is done from good intentions. Some people assume, incorrectly, that we are always looking for the Cadillac job and won't settle for the Honda Accord. Believe me, I will settle for the Accord. I have a number of clients, who have the same issue.
In our CPA firm, I sometimes run into this problem with new staff. We bill for personal income tax returns by the form completed. There is a minimum charge for the basic 1040 federal form and one state return. Beyond that every form has an additional price associated with it. Very few of our clients have really simple returns. People with very simple returns can do just fine using Turbotax or visiting one of the national franchised tax preparation firms. Most of our clients, at the very least, own rental properties or have small side businesses. On the more complex side, many of our clients own multiple successful corporations and partnerships. They literally can't prepare their own tax returns and most are better off doing what they do in their businesses and not wasting time doing something they aren't very good at – preparing tax returns. We charge about $500 on average for personal tax returns. For a regional CPA firm, this is a very competitive price.
Sometimes, we prepare returns that are really pretty simple but have a lot of forms involved. For most of these forms, there is very little work involved on our part. Our price schedule will show that we should bill $500 or $600 for these returns. That doesn't mean that is what we automatically charge. Paul and I look at the time we have spent on each return and frequently determine that the $500 charge isn't really justified. We may charge $350 or $400 instead.
New staff members find this difficult to accept. If we can get $500 for a tax return, why should we charge only $400? You might justifiably ask why they even care. They care because our staff tax preparers earn monthly bonuses based on their billings. The amount of their billings directly and immediately affects their compensation. They care and they should. You might also be curious why we charge $400 for a tax return when we could collect $500.
The explanation involves my Golden Rule of Billing. I should trademark this phrase. Consider it done. The Golden Rule of Billing states that you should charge only what you would be willing to pay yourself. If I wouldn't pay $500 for a tax return, I won't bill $500. This seems damn generous of me, doesn't it? Well, not really. I do it for very selfish business reasons.
If I charge $500 for a service with a going market rate of $400 what happens? I lose the client either immediately or pretty quickly. What would I rather have, $500 this year or $400 per year for at least the next five years if I treat the client well? The last time I checked $2,000 is more than $500. Nonetheless, this concept seems to elude some of our staff at the start. They soon learn from experience, however. The client they charged $500 either complains, which is the best case, or he / she quietly leaves, which is the worst case since there is nothing we can do to save him / her as a client for the future.
The Golden Rule of Billing may at first seem altruistic, but it is firmly grounded in economic incentives. Laura and I didn't enjoy paying an outrageous amount for our washing machine repair. Our CPA firm clients don't enjoy being overcharged either. If I hate one situation, I have to hate the other. The fastest way to lose customers, other than providing poor service, is to overcharge them. Do you think we will be using the appliance repair company that overcharged us again? Does anybody know a good appliance repair shop?
Thanks for reading. Our main S&K web site is http://www.skcpas.com. My blog there is considerably less snarky and primarily covers important tax topics. Please take a look.
No comments:
Post a Comment