Subscription pricing and AI: The tax practice of the future

The traditional model of hourly billing and “turn-and-burn” tax practices is becoming a thing of the past. As technology and client expectations evolve, a new approach is emerging: the subscription-based model. By shifting to this modern approach, tax professionals can build more sustainable and profitable practices.

The shift from Blockbuster to Netflix

Think about the way we consume media today. Do you want to be a Blockbuster with limited inventory and a late fee for every mistake, or do you want to be a Netflix, offering a vast library and a predictable monthly fee?

The answer is clear. The subscription model allows tax firms to transform their client relationships from transactional to a true partnership. This shift encourages clients to see their firm as a valuable asset on their balance sheet, not just another expense on the P&L.

This approach, pioneered by some ahead-of-their-time tax professionals, is now more relevant than ever. The industry is facing a “retirement cliff” where fewer people are entering the profession. To build a sustainable business and attract top talent, firms need to create a model that provides stability and predictable cash flow.

The benefits of a subscription model

Adopting a subscription-based model offers significant benefits for the firm and its clients:

Predictable cash flow: With recurring monthly payments, firms gain confidence in their financial stability. Predictable cash flow makes it easier to manage workflow, and invest in attracting and retaining talented team members.

Deeper client relationships: When clients aren’t on the clock, they feel more comfortable reaching out with questions, which leads to deeper and more open communication. This increased interaction helps tax professionals identify new opportunities to provide valuable advice and services. For example, a simple question could lead to a firm advising a client on converting a sole proprietorship to an S corporation, which can generate thousands of dollars in additional revenue through services such as payroll processing and tax planning.

Increased revenue: A more open dialogue with clients naturally leads to more opportunities for advisory services. Firms can generate significant additional revenue from implementing tax strategies and other advisory services that stem directly from these enhanced relationships.

Taking the first step

Making the transition to a subscription model can feel daunting; many professionals worry about losing clients. However, the move doesn’t have to happen all at once.

One great way to start is by testing the model with one or two trusted clients. Suggest a 3- to 6-month trial period to see how it works. You might be surprised to find that your clients are already receiving many of the services you would include in a membership for free, such as answering quick questions or handling tax notices. By formalizing these services into a membership, you can set clear boundaries and ensure you’re being compensated for the value you provide.

The key is to give clients what they value most: certainty. Clients are willing to pay a premium for price predictability and the assurance that their tax professional is available when they need them.

AI for workflow automation

AI is not going to replace the tax pro, but those of us who use AI will replace those who don’t. While the idea of implementing new technology can be overwhelming, it’s essential to evolve or risk being left behind.

A great way to start is by using AI to enhance your email communication. Tools can help draft emails, summarize meeting notes, and even identify action items. By starting with these small steps, you can save significant time on administrative tasks. Those saved minutes and hours can then be reinvested into higher-value activities and client relationships.

For example, a note-taking AI can create a summary of a client meeting with actionable to-dos in seconds, freeing you up to focus on the conversation instead of taking detailed notes. When using AI for communication, remember to add a human touch. A personal detail or a warm closing can make the interaction feel authentic, ensuring that technology serves as a tool to enhance your relationships, not replace them.

Pricing and packaging your services

Developing a pricing model for your subscription service involves carefully considering all the services you will provide. A good starting point is to create a tiered system based on the clients’ needs and the complexity of their tax situation. Be sure to include services you are already providing for free, such as tax notice support and year-round access to you and/or your team.

ProTip: Consider adding a one-time setup fee for new clients. This fee helps mitigate the risk of clients leaving after their tax return is completed and compensates you for the initial work of onboarding them.

Your pricing model should also be dynamic and able to evolve. As the market changes, you can adjust your fees. You can also include clauses that allow for price increases based on inflation or changes in the client’s scope of work.

Ultimately, the goal of a subscription model is to transform your practice into a sustainable, scalable business that provides you with more freedom and a better quality of life. The subscription revolution is here. Will your firm lead the change or struggle to catch up?

Editor’s note: This article is part of a large conversation on the Deduct This! podcast featuring Chris Picciurro, and moderated by Lexi Bonicard and Carrie Hammond. Access the podcast on any of your preferred streaming platforms or find it at Apple podcasts.