What’s a good profit margin for an accounting firm? Is it 15%? 25%?
Here’s my answer…
That’s not the right question.
The question firm owners should be asking is, “How do I get the profit margins I want without overworking myself?”
And in this guide, I will show you how to increase your margins without sacrificing your sanity.
Let’s go!
Table of Contents
- What Profit Margins Do Accounting Firms Make?
- What Do “Good” Profit Margins Look Like?
- 5 Strategies to Increase Your Accounting Firm’s Profit Margins
What Profit Margins Do Accounting Firms Make?
When I first started coaching firm owners, I was shocked by how low their profitability was.
I’d work with firms that looked incredibly successful from the outside.
They were growing fast, had polished branding, big teams, and a lot of clients.
But when I dug into their numbers, some were sitting at 0% to 5% profitability.
The normal profit range in the accounting industry is 15% to 35%. A lot of firm owners fall in that range when I start working with them.
However, these aren’t numbers I’d be happy with if they don’t improve significantly after two years of coaching.
What Do “Good” Profit Margins Look Like?
You might find this strange…
But I don’t consider myself a good accountant — I don’t even do my own books or taxes…
I do, however, know a thing or two about business development and profitability.
I’ve run two profitable businesses, and the first one I sold to a corporate acquirer that isn’t the type to buy non-profitable firms.
Here’s what I did differently when I look at the firm’s financial performance.
I only tracked two metrics, which I shared in my Future Firm newsletter:
Other firms would go into the nitty gritty and track their time, their revenue per client, their operational efficiency — all kinds of stuff to optimize their profitability.
But I kept it simple.
I looked at the bottom line and realized our profits sucked because we were charging clients $150 per month.
(Yes, the prices I charged were atrocious when I started).
From there, I understood that I had to:
- Increase those prices
- Figure out how to land those higher prices
That’s it. No complex formulas or fancy dashboards.
With that said, I also learned something very important…
Higher profit percentages don’t always mean more success.
I’ve seen firms with 60% to 70% profitability where the owners are overworked and miserable.
Sure, their cash flow looks great on paper, but they’re trapped in their business.
On the flip side, I’ve worked with firms that have lower profit numbers, but the owners work reasonable hours and reinvest smartly in growth.
There’s no perfect number.
There just has to be balance, because a profit margin that’s too high can also hurt you — Brandon Hall explains this really well in this article.
My general rule is to aim for over 30% net margin, after paying yourself.
And ideally, while working only as much as you want.
This guide will show you how to increase your profit margins without working extra hours — and maybe even work less, just like one of my Future Firm Accelerate members below.
5 Strategies to Increase Your Accounting Firm’s Profit Margins
1. Price and Package Your Services
This is the number one thing that will impact your profitability.
I’m a big fan of the three-tiered pricing strategy, which you can use regardless of firm size.
Here’s an example of a three-tiered pricing plan I created with Ignition.
Unlike hourly billing, three-tiered structures are based on value-based pricing.
You productize your accounting firm services into standardized Gold-Silver-Bronze packages, allowing you to bake strong profit margins into each plan.
Here’s what each plan is going to look like.
- Bronze Package: Your minimum acceptable client. This covers the essentials with a healthy profit margin built in. No frills, but still valuable.
- Silver Package: Your sweet spot. Most clients land here because it balances value and cost perfectly. This should be designed for your ideal client profile.
- Gold Package: Your premium offering for clients who want the best and will pay for it. This also serves as a price anchor, making Silver look more reasonable.
The beauty of this approach is simplicity. Instead of custom proposals for every prospect, you have three clear options.
Clients can easily understand what they’re getting at each level.
Your Bronze package might include monthly financials and basic support. Silver adds quarterly strategy calls and faster response times. Gold gets everything plus priority access and enhanced reporting.
And like I shared on LinkedIn, it increases your profit margins.
It’s designed to guide prospects toward higher-value options naturally.
When someone sees three clear choices, they rarely pick the cheapest one.
They gravitate toward the middle or premium option because that’s where they perceive the best value.
How to Set Your Prices
To set prices, think about the ROI your clients are getting from your services and pick the highest number you can think of based on that.
You can add scalable features that add more value to your clients without significantly increasing your workload. For example:
- Financial planning and tax preparation newsletters
- Loom video financial reviews
- Growth plan meeting with the CFO
Your Gold plan can easily have a 70% gross margin. I recommend a minimum of 50% gross margin for your Bronze plan.
The key is thinking value, not hours.
What’s it worth to a client to have clean books every month? To get their taxes done without stress? To have someone they can call for peace of mind?
Price based on that value, not on how long it takes you to do the work.
To give you an idea of how much other firms charge, I recommend checking out the 2024 US Accounting and Tax Pricing Benchmark, which I helped Ignition create.
You can also read my guide to pricing your accounting services.
How to Communicate the Price Increase to Clients
Like I mentioned earlier, focus on value.
I mentioned in one of my podcast episodes that client acquisition is a sales process, like everything else you do in your firm.
So think about it like that — how do you convince your clients that the price increase is worth their money?
The first thing I recommend is not including your costs in the mix like many firm owners do, for reasons I provided in one of my LinkedIn posts.
Instead, highlight the improvements you’ve made that directly benefit your clients.
For example:
- New technology that makes their experience smoother
- Enhanced support that gets them faster responses
- Additional expertise on your team
- Better security measures protecting their data
Clients are more likely to accept price increases when they understand the tangible value they’re getting.
Yes, you might lose some clients with the increased prices.
But the truth is that clients who truly value your expertise will stay.
And those who leave likely weren’t a good fit for your firm’s long-term growth anyway.
This approach does two things:
- It improves your profitability immediately
- It frees up capacity to focus on higher-value clients
The clients who stay after a price increase are usually your best clients.
They refer others, pay on time, and don’t nickel and dime you on every little thing.
One of my Future Firm Accelerate members did this while doubling his pricing, which allowed him to earn the same margins while working much less.
Feel free to read my guide to writing an accounting price increase letter — I’ve included a template you can swipe there too. 🙂
2. Plan Your Team’s Capacity
Overworked teams are a recipe for inefficiencies, errors, and burnout.
These affect your profit margins.
Capacity planning ensures your team’s workload aligns with your firm’s resources and revenue goals.
And as I discussed in my podcast, it’s the most effective way to cut through the chaos in your firm.
Without it, you’re either stretching your team too thin or carrying unnecessary overhead.
Here’s how capacity planning works:
- Forecast workload: Estimate how much time each task or client will take. If you have 10 clients and each needs 15 hours per month, that’s 150 hours of work.
- Calculate available capacity: Figure out how many hours your team can realistically work. If there are 20 business days in a month and each person works 6 productive hours per day, that’s 120 hours per person.
- Compare the two: If workload exceeds capacity, you’re overbooked. If capacity exceeds workload, you have room for more work.
- Make adjustments: Over capacity? You need to hire, outsource, or adjust deadlines. Under capacity? Time to bring in more revenue-generating work.
Here’s an example of a capacity plan:
I recommend operating with a little headroom.
Being over-capacity equals overwork. On the other hand, being under-capacity means you’re heavy on expenses.
When I coach firms, I emphasize that every operational decision boils down to capacity.
It’s your firm’s scarcest resource, so protect it well.
3. Protect Yourself From Scope Creep
Scope creep happens when clients request work outside your agreed-upon terms. It’s a big threat to your profitability and capacity.
To protect yourself, set clear boundaries from the start.
- Define your scope clearly: Your engagement letter should outline exactly what’s included and what’s not. If you’re offering bookkeeping, specify the number of transactions covered or frequency of reconciliations. Without these boundaries, clients might assume everything is included.
- Set turnaround times: Be explicit about response times and delivery dates, like “We’ll respond to emails within 24 hours” or “Monthly reports will be delivered by the 10th.” This prevents unrealistic expectations.
- Establish communication limits. Define how and when clients can reach you. For example, email during business hours only. Or use the client portal for non-urgent requests. This will minimize constant interruptions.
- Train your team. Make sure everyone understands the boundaries and can spot when requests fall outside scope. They should flag these before any work begins.
You can also listen to more ways to prevent scope creep in this podcast episode.
Setting boundaries helps improve client satisfaction too.
Clients appreciate clarity and professionalism. When everyone knows what to expect, there’s less friction.
Plus, you’re protecting your time and profits.
Every hour spent on out-of-scope work is an hour you don’t spend on revenue-generating activities.
And if you do run into a client that’s asking for too much, I’ve got 2 email reply templates that you can access through this LinkedIn post.
4. Let Go of Unprofitable Clients
You might think that you need to sign as many clients as possible (like big accounting companies) to be highly profitable.
However, that’s not how it works.
Most accounting firms have unprofitable clients, which drain their capacity and profitability.
They require excessive time, pay below your minimum rate, and/or don’t align with your service model.
In a LinkedIn post, I shared a story about a firm owner who became successful after letting go of 900+ clients.
That’s because holding onto these clients limits your ability to take on better opportunities and creates unnecessary stress.
Here’s how to handle this process.
- Identify unprofitable clients: Review your client list and look for those who:
- Pay below your minimum acceptable rate (less than $500/month)
- Require excessive hand-holding or frequent out-of-scope work
- Are generally difficult to work with
- Reprice or let go. For underpaying clients, you have two options:
- Reprice their services with your three-tiered pricing strategy: Their current service level becomes the Bronze plan at a higher price. Silver and Gold plans offer additional value at premium rates.
- Let them go: If repricing isn’t an option or they’re simply not a good fit, it’s time to part ways.
If your pricing structure is right, you can let go of clients without hurting your profitability.
Just make sure to be professional even when letting go of clients.
If possible, consider referring them to other accountants in your network.
5. Delegate the Work That’s Not Bringing Value
Delegation is one of the most powerful tools for freeing up your time and focusing on growth…
But it’s also one of the most underutilized.
Even if you’re just a small accounting firm, you should always be protecting your time from client work.
For many firm owners, the issue isn’t that they lack good team members — it’s that they don’t know how to delegate effectively.
When I ran Xen Accounting, I had a great team…
But I held onto a lot of tasks, thinking I was the only one who could handle them.
It wasn’t until I sold the firm and had to transfer 100% of my responsibilities that I realized how much I could have delegated earlier.
Almost everything I was doing could have been handled by someone else if I had just let go.
Here are tips to help you delegate effectively:
- List all your current tasks: Write down everything you do over a week or month. Many firm owners typically don’t see how much they’re holding onto until they see it laid out.
- Identify where you bring the most value: Which tasks require your unique expertise? Focus on high-leverage activities like strategy, growth, and key client relationships. Everything else is a candidate for delegation.
- Delegate low-leverage tasks first: Start with tasks that provide the least ROI on your time like admin work, data entry, basic bookkeeping. These are easiest to offload and free up significant capacity. Even a basic spreadsheet like the one below will help a lot.
- Create standard operating procedures. Document step-by-step instructions for tasks you’re delegating. This will enable your team members to deliver consistently good quality every time with minimal reviews.
- Start small and build confidence. If you’re hesitant to delegate, start with one or two tasks and gradually increase as you build your team’s confidence in their ability to handle them.
The whole point of delegation is to accept that your team may not do things exactly as you would, and that’s completely fine.
Why?
Because like I talked about in the Future Firm Accounting Podcast, perfectionism doesn’t scale.
I was able to grow two successful businesses because I had great teams, and I learned to accept that the work they do is good enough. 🙂
Ready to Build a More Profitable Firm?
That’s a wrap!
Five strategies that will fix a lot of your firm’s profitability challenges on a foundational level.
Remember that you’re not just building a business. You’re building a life.
The goal isn’t to create a job that pays you well but traps you inside it. These strategies will get you there.
Now, I’d like to hear from you.
How do you achieve the profits you want in your firm? Did I miss anything?
Share them in the comments below!
