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Accounting Firm Pricing Realization Review
River reads your engagement letters against the time records, splits the realization gap by cause, and writes the conversation for each client.
Every template for this computes one ratio: what you billed, divided by the hours logged times your standard rate. It is the right numerator and the right denominator, and it still cannot answer the question you opened the spreadsheet with. A client at 60 percent might be underpriced, might be absorbing work nobody agreed to, or might be a job your team is slow at. The number is identical in all three cases and the correct response is different in all three.
Separating them takes a document nobody opens during a pricing review. The engagement letter is where the services were named, and for a preparation engagement the standards require the terms be documented in a written agreement signed by both the accountant and management. So River tags every hour against the letter that governs it. Work on a service the letter names is yours to explain. Work on a service it does not name is the client's to pay for, and the clause is the evidence.
Written for the partner with twelve letters to reissue in December and a suspicion about four of them. It starts where the scope was first written, in the onboarding diagnostic, and reads the hours against the recurring cycle those letters actually sold, in the monthly close pack. The same letters also fix each client's delivery day, which is what the monthly reporting pack scores the firm against. None of it needs a new time system. The hours you already have are enough, provided somebody can say which service each one was spent on.
The worst engagement on the report is the one to leave alone
Run the worked example and the list inverts. Alto Verde is worst on realization at 54.9 percent, and 23,265 dollars of its 27,615 gap is hours on bookkeeping, which its letter names, so no part of it is the client's to pay. Norbridge ranks fifth of six at 82.3 percent and carries 28,710, which is 64.44 percent of everything the firm can collect. Its fee already exceeds the scope in its letter by 18,480, so the ratio nets out and hides it.
Then each letter is graded on whether it can carry the argument. Three of the six describe the work in general terms, so 17,655 dollars of genuine out-of-scope work cannot be evidenced and is not billable this cycle. That is not unusual. AICPA peer review found over 300 matters for further consideration on preparation engagements, numerous ones for letters that were missing or left the services out. A vague letter is a drafting fix rather than a fee conversation.
The output is two numbers per client rather than one percentage. Norbridge keeps its 66,000 for the scope its letter enumerates and gets a 28,710 addendum for the 174 hours it does not, at 2,392.50 a month. The same total read as an increase is 43.5 percent, the version clients refuse. If one of them says no anyway, a fee dispute generally does not relieve you of returning their records, so the script plans for that too.
How it works
Add the letters
Upload each engagement letter for the clients you are about to reprice, current version and prior.
Add the hours
Time records for the same period, by client and by task, plus your standard rates by level.
River splits the gap
It tags each hour against the letter, grades the letter, and prices what is actually recoverable.
Have the conversations
Send the restated fee and the addendum separately, in the order the review puts them.
What you get
- Every hour tagged against the engagement letter that governs it, in scope or out of scope
- The realization gap split four ways, so you know which part a client actually owes you
- Each letter graded on whether it can evidence the creep, before you try to argue it
- Two numbers per client, the restated fee and a priced addendum, rather than one percentage
- The clients to leave alone, with the reason stated in hours rather than in feel
- The letter language for next year that would have made this year's unbilled work billable
Common questions
Is this different from a realization report?
A realization report gives you one ratio per client and stops. This splits the same gap into out-of-scope work the letter can evidence, out-of-scope work it cannot, in-scope hours over your own standard, and the scope simply priced too low. Two of those four are billable to a client and two are not, so the single ratio points the wrong way about half the time.
Our letters say monthly bookkeeping and not much else.
Then that is the first finding, and it arrives quantified rather than mentioned. In the worked example three of six letters read that way, which parks 17,655 dollars of genuine out-of-scope work in a column marked asserted rather than evidenced. It is not billable this cycle. The output includes the enumeration those three letters need, so next year the same work is.
Can we invoice the out-of-scope work retroactively?
Sometimes, and the review prices it either way, but an addendum going forward lands far better than an invoice for last March. Where the letter enumerates the services, a retroactive bill is defensible and the clause is the argument. Where it does not, you are asserting a shared memory of a conversation, which is why the grade on each letter comes first.
Which client do we open with?
Not the worst one on the report, which is the habit this review exists to break. Open with the largest evidenced number, because that conversation has a document behind it and a clean answer. In the worked example that is a client sitting fifth of six on realization and carrying 64.44 percent of everything collectable.
What if a client refuses and leaves?
Price that before the meeting, and know what you owe them on the way out. Circular 230 says a practitioner must promptly return the client records needed for their federal tax obligations, and that a dispute over fees generally does not relieve you of it. State law may permit you to keep your own work product. The records that attach to the return still go.
Could we price off the savings instead?
Not on tax work, mostly. Circular 230 bars a contingent fee for services rendered in connection with any matter before the IRS, with narrow exceptions for an examination, a timely amended return or claim, and a judicial proceeding. So a repricing has to be a fee, which is the reason the two-number script exists rather than a share of the benefit.
The biggest bucket is our own overrun. Now what?
That is the usual answer and it is worth having in dollars. In the example 43,890 sits in hours over the firm's own standard, of which 20,625, or 125 hours, has no external cause. That is a staffing and process number, so it goes to the close cycle review, and the service line view says whether it is one client or the whole line.
Accounting Firm Pricing Realization Review
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