the great marketing hoax

dump “differentiation.” embrace profitability.

by frank stitely
the relentless cpa

there are only two ways to succeed in a commodity market: 1. differentiate or 2. get really efficient.

more: the cure for commoditization | ruthlessly efficient workflow management | the annual tax meeting is dead. clients killed it.
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if you’ve been drinking the kool-aid from industry consultants who have never worked in cpa firms, you’ll likely choose differentiation. when you differentiate, you get paid what you’re worth – at least according to these experts.

but let’s take a closer look.

the experts recommend two main differentiation strategies.

the first strategy involves explaining to prospective clients just how much better you are than joe down the street. your 1040s are modern art masterpieces. several hang in art museums around the country. the irs has a wing dedicated to your schedule a’s. the most interesting man in the world reads your supporting schedules.

but joe down the street gets a voice in this. here’s what he says about you: “she’s horrible. her clients get nasty letters from the irs. none of my clients get these letters. her prices are outrageous.”

like beauty, differentiation is in the eye of the beholder, the prospective client. if your target clients see no difference between the quality of your services and joe’s, they will choose based on price. they see no difference in quality, because they aren’t qualified to see the difference.

most clients don’t understand their tax returns beyond name, address and social security number. we’ve all seen clients who can’t even get their children’s birth dates correct. they think section 179 is at the 50-yard line near the beer concession stand. good luck explaining why you’re the best cpa in the united states.

the second differentiation strategy is specialization in a niche. this strategy has some merit. there are two basic requirements for a good niche: limited competition and a large enough market to earn a living. so specializing in red-haired, swedish mafia hit men located in palm beach, florida, might not work.

let’s assume you’ve picked a good niche, and you actually know something about the market. how does an overweight guy in his 50s (me), with 2,000 tax returns in industries ranging from boil sucker to outhouse construction, transition to a niche in professional trout fishing?

i would start by calling my kids and telling them that even the state colleges are out of reach. going from 2,000 clients to 20 overnight just might disrupt your life a little. obviously, this isn’t a one-year transition even though the end result might be fantastic. if you’re within five or so years of retirement, you’ll transition just in time to retire on the 401(k) account you pillaged making the transition.

so differentiation might not work for you, at least in the short run.

becoming an efficient producer is the other approach. fortunately, you can achieve efficiency in a short period of time.

let’s start by killing the main argument against becoming an efficient producer in a commodity market: you can’t make money in a commodity market.

“erroneous!” as vince vaughn’s character says in the movie, “wedding crashers.”

the toilet paper market is, unfortunately, a great analogy for the 1040 market. both are headed to the same place. lots of companies sell essentially the same product with most of them claiming to be the best, differentiating themselves on minor characteristics such as softness and number of ply. how different can the brands be when ultimately, we do the same thing with all of them? we buy largely on price.

how do toilet paper manufacturers make money? they are low-cost producers. there’s not much of a market for a $4 roll of toilet paper. there’s also not much of a market for $1,000 1040s anymore. there is some market, but not enough to fill many cpa firms to capacity.

rolls of toilet paper are also manufactured to be identical. for starters, they are all round. i’ve never seen a square or triangular roll. they all go through the same manufacturing process using as little labor as possible to get the final result.

effective project management makes you an efficient preparer of tax returns or financial statements, or whatever services you provide. you will make money on lower-priced services. of course, the alternative is not making money on lower-priced services. the lower-priced services are here to stay.

effective project management also means that each of your services is delivered in the same way at the lowest cost possible.

wasn’t that a happy discussion? did you call your business broker yet?

unfortunately, a lot of us are headed for the exit at the same time. a very large percentage of cpa firm partners are older than 50. at most of the tax seminars that i attend, almost all of the attendees are older than 60. i feel like a youngster. so you may have to hang out for a bit before retiring. you might as well get paid well for doing it.

posted on november 28, 2018