How to Guide: Profitable Pricing for Accounting Practices

 Running a successful accounting firm isn't just about providing top-tier services—it's about ensuring that your practice is financially healthy, “future-proofed” (of course) and able to grow sustainably. One often-overlooked aspect of this is how we manage client engagement and pricing. Many practices send an engagement letter when they first onboard a client, but then never revisit it. This can lead to underpricing, profitability issues and missed opportunities to adjust for inflation or wage increases.

Here’s why you should consider regular client engagement letters and how you can streamline the process to ensure your practice stays profitable.

Why Annual Engagement Letters Matter

Engagement letters are a key tool in setting the scope of services and managing expectations. However, sending them only once (usually when you start working with a client) is a missed opportunity. By issuing engagement letters annually, you create a natural touchpoint to:

• Communicate any updates to your services or terms.
• Adjust pricing based on changes in scope or increased costs.
• Reinforce the professional relationship by showing that you take both their needs and your business seriously.

This simple step can significantly reduce the awkwardness of unannounced price increases and prevent underpricing, which often happens when you don’t review your fees regularly.

Adjusting Prices: It’s Not Optional

Let's face it—costs are rising, and your practice is likely feeling the pressure. We regularly increase wages for our teams, cover rising overheads and invest in new technology, but many accountants fail to raise prices to match these increases. Some practices do adjust fees, but without telling clients. This can create distrust or confusion when clients see a new figure on their invoice. Instead, use an annual engagement letter or even a simple email to notify your clients about any price increases. Explain the rationale—whether it’s due to inflation, cost of living, or increased complexity in their accounts. Clients are more likely to accept these changes when they are communicated transparently.

Tools to Streamline the Process

With the right tools, you can automate much of this process, saving you time and ensuring consistency across all clients. Practice Ignition, for instance, integrates with Xero Practice Manager (XPM) to create automatic engagement letters, manage recurring jobs, and update pricing seamlessly. Other solutions like GoProposalcan also help with streamlining pricing and proposals, providing clear quotes that reflect your value.

Review Client Profitability Regularly

Your pricing structure should be based on the actual effort it takes to serve each client. It's crucial to regularly review client profitability to ensure you're charging appropriately. If you've charged a client $2,000 for the year, but a profitability report shows that you actually lost money on their account, it’s time to adjust. Tools like Xero Practice Manager can give you insight into this data, allowing you to assess where your practice is making or losing money. By conducting quarterly or annual profitability reviews, you can ensure you're not underserving your business. If a client’s account shows no profit, consider raising their fee to reflect the true cost of service. Then, communicate this clearly in your next engagement letter or pricing update email.

Make It Timely

For Australian accountants, the new financial year is generally a perfect time to reassess client engagement letters and pricing. As you plan for the year ahead, ensure you have a process in place to issue updated engagement letters and review client profitability. This proactive approach will help future-proof your firm – which is what we all want!