Tax Marketing HQ

Why Your Tax Season Business Model Is Probably Flawed

One of the beautiful things about being in the tax industry is that we have the flexibility of choosing any number of business models we’d like in order to create the lifestyle we desire. Very few professions permit this level of work/life balance.

For example, there is the business model upon which nearly the entire retail tax preparation industry is based: The purely seasonal model. In this model, the business is literally only functional, with the doors open and staff and clients in the office, for a few months each year. For 2015, this means generating nearly every dollar of revenue between Jan. 20 and Apr. 15. This business model allows even the solo practitioner to earn a comfortable six figure annual income with only a few months of work.

The greatest thing about this business model, in my mind, is that it allows the tax professional to spend the rest of the year (e.g., 6 to 8 months) doing something completely different, and far more awesome, such as sailing the south Pacific.

A variation on this business model involves a small year-round business, with a significant seasonal swelling of staff, clients, and revenue. This business model is great for the practitioner that wants to work year-round, but doesn’t want to work full time year-round. This is the business model that the majority of tax professionals I speak with actually desire. This model allows the practitioner significant flexibility for multiple, short vacations nearly any time of the year, and allows one to set their own working hours nearly at will. Revenues in the off season can be dialed up or down as desired simply by turning marketing campaigns on or off.

You’ll notice that a key element of these business models is choice. As a business, it’s completely up to you to select how you want your business to operate, and how much time you want to spend operating in it and when.

For most of the past four years that I’ve been in private practice, with the exception of the first few months of startup, I’ve operated largely part-time, but year-round, with no tax season, offering only one service (tax resolution). This business model worked well for me, as it allowed me to travel the world while still representing my clients and making a good living. This business model also has some flaws, particularly the lack of client retention, but I accepted those flaws in trade for having the ability to be forever traveling.

For most tax professionals, however, especially solo practitioners, a significant flaw exists in their business model, and they don’t even know it.

Here’s the flaw: Tax season represents the bulk of annual revenues, despite working full-time, year-round by choice.

I’d like you to think carefully about this, because it’s important. Notice that I’m not referring to the second business model mentioned earlier, where a large swelling of temporary, seasonal staff is brought in. I’m referring to the full-time, year-round solo practitioner, or near solo. This is the small business that might have a single part-time or full-time assistant or receptionist, and maybe brings in one additional seasonal tax preparer to help out (but mainly busts through tax season by working an insane number of hours).

This is the business model for the bulk of independent tax professionals in the United States, Canada, and Australia. From anecdotal evidence, I also presume it represents the bulk of this blog’s readers. I figure that there’s about a 70% chance that I’m talking about YOU.

If you want to work full-time, year-round, then great. That’s your choice. But here’s what’s wrong with this equation for the vast majority of independent tax practices: When 1/4 of your work year represents 3/4 of your annual revenue. If this is what your business looks like, then you have a fundamental flaw in your business model.

From the perspective of an 80/20 analysis, if your business looks like this, then you’re doing something wrong during the other 3/4 of the year.

Are you in the office 40 hours per week during the “off season” (tax work is only seasonal if you choose to make it so), but don’t have any billable hours? If this is the case, then you have serious problems on your hands, I’m not going to sugar coat this. If you’re just doing busy work or hanging out on Facebook all day during the rest of the year, then you have significant time management and marketing issues that you need to address.

Do you have plenty of billable hours during the rest of the year, but your revenues are still incomparable to tax preparation season? Then you need to re-evaluate your pricing for your other services, such as bookkeeping, payroll processing, tax resolution, audit representation, etc.

Many tax professionals tell me that they’re thrilled during tax season because they’re hourly rate skyrockets. Don’t they realize how ridiculous that sounds? The value of your time shouldn’t be based on the time of year. If you average $175 per hour during tax season, but only charge $50 per hour for taxpayer representation during the rest of the year, then all you’re doing is shafting yourself and devaluing your services. If this is what you’re doing, take a moment to recognize the fact that it’s your own fault, and then fix it.

I could keep going on an endless diatribe about this, but I won’t. I’m sure you get the point. Your business model, how much you work, or even whether you work certain months, is totally up to you. This entire post is geared towards those folks that make the choice to work full-time, year-round. If that is your choice, then your revenues should reflect that — you should not have a massive February-March spike like far too many tax practitioners do.

If you’re in this situation, know that it can be fixed. You can utilize time management strategies to make better use of your time. You can implement marketing campaigns to attract clients for other services during other times of the year. You can adjust your pricing to reflect your value in the marketplace.

These are the types of solutions that I’m working with Platininum Inner Circle members to address in their businesses. If you’re interested in fixing these sorts of problems in your own tax practice, please consider becoming a PLatinum member for yourself.

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Tax season client reactivation process

Do you lose tax preparation clients each year?

Some tax offices experience a higher rate of client turnover than others. Depending upon your target market, business model, and fee structure, your turnover rate can vary quite widely. There are offices out there that experience turn rates in excess of 20%. For some of you reading this, that might sound insane. For some others reading this, you might love to have the problem of “only” experiencing 20% client turnover.

Never forget that acquiring a NEW client is the most expensive thing you can do in terms of marketing your professional tax services. While marketing to acquire new clients is definitely my primary focus on this blog, never forget that it’s far easier to obtain future revenue from current and past clients.

If you don’t have an active client retention marketing program, then you’re committing a cardinal sin of running a business. You should never simply expect your clients to keep coming back year after year, especially if you are only in contact with them once per year.

But even if you have an active client retention marketing program, you’re still going to lose clients. It’s inevitable that you’ll have some turnover rate, no matter how small. Since those clients have already developed some sort of working relationship with you in the past, however, it’s easier to win those clients back than it is to obtain a brand new client.

As we enter the holiday season, most service businesses literally give up on marketing. They incorrectly think that people are 100% focused on the holiday season. The reality is that they are still living there lives, and plenty of other things are going on that are reminding them about the upcoming tax season. For example, open enrollment for the health care exchanges is right around the corner (Nov. 15), and this is on the mind’s of some folks. For others, last week’s mid-term elections and the shake up in the Senate has others concerned — and tax provisions may be among those concerns. Also, the mass media is doing us all a favor by reminding people about tax extenders and the potential for delays in the filing season.

Even without all this going on, you should still have an annual Lost Client Reactivation Campaign. Basically, go through your tax office CRM system (you do have one, right?) or through your old return files and look for those people that didn’t come back in 2014. Make a list, check it twice, and let’s get some of them back.

Before I delve into the mechanics of your Lost Client Reactivation Campaign, I want you to consider the value of each of those clients. What is your average tax prep fee? You should be willing to pay that amount, or more, in order to acquire a client.

Why should you be willing to invest so much to acquire a client? Because that client should not just represent one year’s worth of tax prep revenue. You need to think about the future revenue value of that client. What are they going to spend with you over the course of five, ten, or 20 years? What is the value of that one client when it comes time to sell your practice?

The lost client you gain back this year isn’t just worth $200 or $300. Nay, nay. That client is worth THOUSANDS of dollars to you over the course of your working relationship with them. For some clients, it could be in the tens of thousands of dollars.

Enough of my rambling, here’s what you’re really reading this for…

Tax Season Lost Client Reactivation Marketing Campaign

The rest of this tutorial is restricted to subscribers only. To continue reading, please login here or purchase Premium membership

By adding this Lost Client Reactivation process to your arsenal of marketing campaigns, you are investing a fairly small amount of money and time into recovering clients that already had a working relationship with you in the past. It’s inevitable that, during the course of this campaign, you’ll be contacted by past clients that do NOT want to come back, but they’re calling to be removed from your list. Don’t neglect these calls.

Use any contact with non-returning clients as an opportunity for discovery and improvement. Learn why they didn’t come back to you, and take their feedback to heart. This is how you uncover customer service issues, areas for process improvement in your systems, and even new marketing opportunities.

This Lost Client Reactivation system is just one example of the type of systems that Platinum Inner Circle members have access to as part of my “look over my shoulder” program. Click here to learn more about Platinum.

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Four years later, it’s the end of an era

Today marks a special anniversary for me: It was four years worth of Mondays ago today that I made a life-altering decision. I walked out on my day job to enter the world of private practice and become a nomad.

Six weeks later, I was traversing a still-slick Vail Pass on a heavily overloaded motorcycle, threading the needle between two major snow storms. I remember stopping for gas along I-70, and people looking at me like I was nuts. I was also freezing my butt off.

But it was all worth it. I managed to rapidly build myself a successful, “stereotypical” tax resolution practice, and then just as quickly scaled it down to “boutique” size. While doing that, I’ve literally circled the globe, spent a decent amount of time in 13 foreign countries, met wonderful people, and experienced amazing cultures.

I wouldn’t trade that experience for anything in the world.

I’m a firm believer in living the life that you want to live right now. The whole fantasy of working your tail off for 40 years so that you can retire at 40% of your previous earnings and then going off to travel the world is exactly that: Very few people accomplish it.

Either they don’t have enough money, or they’re in poor health, or they’re simply dead. Yes, that’s right: It’s amazing how many stories are out there of people that wanted to travel the world “when they were able to”, but then kicked the bucket before everything was “perfect” for them to do it.

Not this guy.

Maybe I’m an odd duck. OK, I’m definitely an odd duck. But I’m OK with that. My life has had it’s ups and downs, just like anybody else, but I’ve made the best of it, I think, and it’s worked out well. But the single best decision I’ve ever made was to live life on my own terms, rather than what’s expected of me.

Fortunately, I’m not alone in this. There is an entire world of lifestyle design and location independence enthusiasts out there. The other nomadic types that I have met in my travels, and the “famous” ones I’ve chatted with online, all say that eventually they get burned out on being a nomad.

I’ve always been incredibly conflicted between the nomadic life, and having a home. It drives me nuts at times, because after a few months on the go, I’m ready to settle down. But inevitably, after a few months in one place, I’m itching to go again. My incessant indecision on this matter has been particularly frustrating to my mentor and my family.

Recent relationship events have made me examine this even more closely, which I actually didn’t think was possible. In case you weren’t already aware, I got married a month ago. We were ready to settle down, start a family, start two new brick and mortar businesses — everything that was the antithesis of the life I’ve been leading for the past four years (some analysts would say even longer, in some regards).

I’ll spare you the details, but the fantasy didn’t last long. I had found somebody that met every criteria on my 37-point checklist. What I never considered was that such a person might have itchy feet syndrome, too. We’re both traveling in from out of the area to file our annulment petition in what is legally my home state on Thursday.

Am I done being a nomad?

Alas, the answer is no. I don’t think I ever will be. When I look back on my very early childhood, my nomadic ways make a LOT of sense.

But at the same time, I want the best of both worlds. It’s nice to be in one place for a few weeks or a couple months. It’s nice to sleep in your own bed now and then. It’s nice to have a sense of community somewhere — to belong to something. Being a solo permanent traveler can be a lonely life.

As most people know, I’ve recently set up shop in Port Orchard, WA. This was going to be where I planned on being for three solid years. We had grand designs, but they just weren’t meant to be. My original business plan (available in the members area for Platinum Inner Circle members) called for extensive, personal one-on-one relationship building between myself and local high-end clients.

I sent an exhaustive explanation to Platinum members about this last week, but the bottom line is this: The business plan is changing, but the market area is not. In fact, I’m also giving consideration to adding one or more market areas.

At the same time.

For the same first tax season.

In different states.

Plus maybe Japan.

What on Earth am I jabbering on about?

I want to have my cake, and eat it, too. I want the best of both worlds. I want a home base, a place to call my own, but I want to keep traveling, also. And I’m recognizing the fact that I wouldn’t be happy with my original business plan, which essentially allowed me to take 2 or 3 trips per year of about two weeks each. That just ain’t enough, folks. Not for this guy.

This whole train of thought had a mid-air collision with one of those light bulb idea bubbles: What if I remove myself from face time with clients?

Kind of a no brainer, right? After all, I’ve worked in tax resolution for almost seven full years while only meeting THREE clients face-to-face. But tax preparation is far more personal. Yes, there are plenty of preparers doing mail in or strictly uploaded work, but the vast majority of Americans aren’t yet comfortable with that approach. They want to be eyeball to eyeball with their tax preparer.

But they don’t have to be MY eyeballs!

I realize again that this should be a no-brainer, since that’s how most tax prep work is done. But I have zero interest in the bottom end of the market. My original business plan was to build extremely strong relationships with extremely high-end clients: The absolute top of my local market.

But what about the middle or upper-middle of the market? Would I be happy still doing 300 returns, but at a $300-$500 average fee, instead of the significantly higher average fees that come from doing multiple Schedule E’s and their 1120S?

What about my plan to offer packages of services, and charging monthly fees? (Example: Real estate investors that need monthly assistance across multiple rentals). Well, maybe I scale back that plan, but don’t need to abandon it entirely (Platinum members: I’m working on this, you’ll hear about it soon).

I realized that I could build any kind of business I want. I can still refuse to offer bank products, go after a higher tier client, but not actually do all the work. I can rely more on direct response marketing, and less on relationship building. I don’t have to be the face of the operation.

And on a related note, I can be in two (or more) places at once. Technology, which I’ve already proven in tax resolution, allows me to work from anywhere. I can review returns from anywhere. I can manage multiple offices, as long as I have great office managers, from anywhere. In other words, I can operate a somewhat traditional chain/franchise type operation, but simply using smart marketing to attract a better clientele.

As an aside, I can also buy practices, but that’s a topic for a future post.

So that’s what I’m doing. My four years of being full-on nomad are definitely over. That chapter of my life has closed. And I’m comfortable with that.

Now it’s time for me to buckle down and become a tax office tycoon. This will require me to be in one place for at least a couple months each year (you know, that whole tax season thing). Trying to be an absentee owner on the go will just be too difficult. So, I’m going to have a home base (hint: It won’t be Washington). But I’m also most likely going to spend most of January in Japan. And next summer I’ll be on the road again doing tax marketing seminars in a city near you, hitting up the various trade shows and tax forums, etc.

Will it be different? Very. Strange? That, too. But this is how life evolves… How business plans evolve.

Interestingly, there’s ONE THING that anchors all this for me. It’s one thing that I’ve been fighting against embracing to the fullest extent possible. After years of over analysis and too many emails (sorry, James!), all my “talking points” and “decision matrices” boiled down to one, single thing that, once I acknowledge and embrace it, makes every other decision easier.

Of course, this was all from just yesterday, so you know me… :)

In the near future, I’ll be writing extensively about the following topics:

  • Absentee ownership
  • Buying vs building a practice
  • The concept of your one thing
  • Elaboration on my one thing and how it strangely ties everything else in my life together.

Times, they are a changin’!

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