The Billable Hour Is Losing Badly in Tax Prep

Tax prep is where hourly billing is the weakest.

According to the Ignition data, just 5.2% of tax prep firms charge by the hour. That means the old “hours times rate” model is no longer how most firms price basic compliance work.

Instead, firms are leaning into fixed fees, value pricing, minimum fees plus complexity, and set pricing for forms and schedules. That makes sense. Tax prep often has clear deliverables. The client wants the return done right, filed on time, and without surprises.

They do not really care whether it took three hours or seven.

That is the problem with hourly billing. It makes the firm’s time the product. But the client is usually buying certainty. They want to know what it will cost. They want to know what they are getting. They want the job handled.

Fixed pricing makes that conversation cleaner.

Bookkeeping is not far behind

Bookkeeping is also moving away from hourly billing.

Only 8.2% of bookkeeping firms in the Ignition poll said they charge by the hour. Most use fixed fees, value pricing, or another non-hourly model.

That tracks with how bookkeeping is sold now. Clients often want a monthly service, not a mystery invoice. They want clean books, reports, payroll support, and someone watching the numbers. A flat monthly fee is easier to understand and easier to budget for.

It also helps the firm.

Hourly billing punishes efficiency. If software, better systems, or AI help a firm do the work faster, the firm earns less under a pure hourly model. That is backwards.

A fixed fee lets the firm benefit from getting better at the work. The client gets a clear price. The firm gets a better business model.

Advisory is still in the middle

Tax planning and advisory had the highest use of hourly billing, but even there it was still a minority.

Ignition found that 20.9% of firms offering tax planning and advisory charge by the hour. Meanwhile, 63.5% use fixed-fee billing, value pricing, or minimum fees plus complexity.

That makes sense because advisory work can be harder to scope. The first year of a planning engagement is often messy. The firm is still learning the client’s situation, the complexity, and how much work will really be needed.

Greg Strickland, Ignition’s CEO, said this may be part of the transition. Firms may start with minimum fees or hourly pricing while they figure out the work. Then, once they understand the client better, they move toward fixed or value-based pricing.

That is a normal path.

The first year is the inspection. The later years are the service plan.

CFO services are also shifting

Outsourced CFO and controller services are still more mixed, but hourly billing is not dominant there either.

Only 11.4% of firms offering those services said they bill by the hour. Many use fixed fees, value pricing, or minimum fees plus complexity.

That is important because CFO work is not just task work. It is judgment work. It may include forecasting, cash planning, reporting, meetings, and helping the owner make better decisions.

Hourly billing is a weak fit for that kind of service.

The value is not in how long the meeting took. The value is in whether the business owner avoided a cash crunch, understood their margins, or made a smarter hiring decision.

That is why CFO services often support higher fees. The work is closer to business impact.

AI may speed up the shift

One reason hourly billing is under pressure is automation.

As AI and better software reduce manual work, firms have to rethink what they are charging for. If a task used to take five hours and now takes one, the client still wants the result. But under hourly billing, the firm just lost four hours of revenue.

That is why value pricing becomes more attractive.

Strickland said AI could accelerate the move toward value and outcome-based pricing. If technology helps firms deliver faster, pricing naturally moves away from time and toward results.

That is the right way to think about it.

AI does not have to destroy firm revenue. It can improve firm leverage. But only if the pricing model lets the firm keep the upside.

If you price by the hour, speed hurts you.

If you price by value, speed helps you.

What firms are charging

The Ignition data also gives a look at actual fee ranges.

For basic individual tax returns, the most common price was under $400, with 23% of firms falling into that range. Another 22.4% charged between $400 and $599.

Business tax returns were higher. The most common range was $1,500 to $1,999, used by 26.9% of firms. Another 24.8% charged between $1,000 and $1,499.

Tax advisory and planning had more variation. About 20.3% of firms charged more than $2,000, while 20.9% charged between $500 and $749. That spread shows how broad the category is. One firm may be doing basic planning. Another may be handling complex strategy for a business owner with several entities.

Bookkeeping was more concentrated. Few bookkeepers charged $750 or more. The most common ranges were $250 to $499 and $500 to $749.

Outsourced CFO and controller work had the highest pricing. The most common price point was over $2,500, used by 24.6% of firms. But even there, pricing varied widely.

That is the bigger lesson. Firms are not all pricing the same way because they are not all selling the same thing.

Most firms plan to raise prices

The data also shows that many firms know their prices need to go up.

Overall, 77% of firms said they plan to increase prices. Most are planning modest increases. About 38.9% said they expect to raise prices by around 5%, while 24.9% plan to raise prices by 10%.

Only 9% said they do not plan to raise prices at all.

The main reason is rising business costs. That was cited by 55.8% of respondents. Improving profit margin was a distant second at 12.3%.

That part is telling.

Many firms are raising prices because they have to, not because they are confidently pricing the value they create. They are reacting to cost pressure instead of building pricing into their strategy.

That is a missed opportunity.

The fear of losing clients may be overblown

A lot of firm owners worry that higher prices will scare clients away. That fear is real. Nobody wants to send a price increase and watch good clients leave.

But the Ignition data suggests the outcome is usually not that bad.

About 23.6% of firms said they were concerned that raising prices could cost them clients. But among firms that raised prices, 42.7% said most clients accepted the change without issue.

Another 26.4% said they lost some clients, but profitability stayed the same or increased. Only 1.9% said they lost clients and saw profitability suffer.

That is the part many firm owners need to hear.

Losing some clients is not always a bad outcome. If low-margin clients leave and the firm keeps or grows profit, the business may be healthier.

A packed client list is not the same as a profitable firm.

Benchmarking may expose underpricing

Ignition also pointed to its price benchmarking tool, which uses aggregated proposal data to compare service prices and suggest optimal pricing.

Strickland said firms using the recommendations increased their pricing by an average of 40%. That is a huge number.

It suggests many firms are not just undercharging by a little. They may be far below what the market will support.

That also makes the planned 5% to 10% increases look small. For some firms, a tiny annual bump may not be enough to close the gap.

The hard part is that most firm owners price in the dark. They know what they charged last year. They know what a few competitors might charge. They know what clients complain about. But they often do not know where the real market is.

That makes pricing feel emotional.

Benchmarking can make it more factual.