Now and then, we run into a guest who knocks us out of our chairs with their success story. Today’s Growing Your Firm guest transformed the CPA business model to work for him with only 4 employees making over $1.2 million in billings... and without a single hour of overtime in a work week!
This is a work arrangement that people usually only dream of, but our guest, Erik Solbakken, talks to us about how running a CPA business without the hassle of work overload is a very real possibility.
- Erik Solbakken’s CPA History
- The Problem of the Billable Hour
- The Three Lies That Firms and CPAs Believe
- The 4-Step Path to Every Problem-Solution
- Erik’s Webpage
- YouTube Channel
- Find Erik’s book The Accountant Success Formula: Freeing Today’s Accountant from an Oppressive Business Model on Amazon
Erik Solbakken’s CPA History
Erik was born in Norway and lives in Canada. His professional experience in the industry is impressive. He began working at a firm at a young age writing articles for 18 years, and eventually, his article writing led him to a partnership that lasted for 15 years. Industrious, Solbakken’s hard work yielded financial success as he scored “wins,” accruing the most billable hours.
When the partnership suddenly dissolved, Erik reflected on his work. He had been working hard just to create more stress to work harder towards success. As he stepped into his own, he used his first-hand experience from his partnership and in-depth research on business models to break out of the normal billable hour box that defines several CPA firms today.
The Problem of the Billable Hour
The result of Erik’s work earning a revenue of $1.2 million in billings with just himself and 4 employees. Even more astonishing, neither he nor his employees worked a single hour of overtime. Compared to how much he made when he was working at other firms, he made well over 3 times the amount while serving only 150 clients. Erik tells us that from time to time, he calculates how much he would have made by the billable hour: $2500 per hour. Not a single client would enlist his services if he were to say that he charges $2500 per hour.
So what is his secret?
He charged a subscription fee instead. We explained the benefits of the value pricing model in our previous interview with Ron Baker Erik’s testimony reinforces the power of value pricing.
Erik’s research led him to discard models that involve the billable hour and instead implement value-based pricing. To further explain his secret, he also defines the problems many firms accept as an inevitability.
Erik unpacks 3 lies that firms and CPAs believe:
- Their worth is conditioned by how long they work. In Erik’s past, he worked incredibly hard, working overtime, to attain the monetary goals he wanted because he valued his work by the hour.
- Clients are naturally price-sensitive to their work. The contrary is true. Clients seldom care how much time you spend on work. Instead, they worry about the outcome: the quality of the services provided. As mentioned before, if Erik were to divulge how much he would make per billable hour, clients would turn away. By agreeing to a price beforehand, it helps to create stability for the client. Instead of the client being hesitant about asking questions or requesting his services for fear of pricing, they would feel comfortable approaching him frequently.
- Tax time has to suck. By transforming the business model from billable hour to value-pricing, that eliminates the need for overtime, offering a new perspective on one of the normally most hectic times of the year.
We have previously stressed the importance of satisfying clients: being held accountable for the status of their work. The fact of the matter is, according to Erik, charging by the hour benefits neither the client nor the business. It’s an oppressive model. In the model that Erik offers, it keeps the client’s needs in mind: clients can cancel their subscription at any time.
And yet at the same time, business owners can eliminate purchase fatigue, concerns about having the right equipment and resources to provide stellar services and products to clients. Removing price-sensitivity betters his business’ relationship with the client because the emphasis is no longer placed on time, but performance. The client treats the business and its employees as a trusted adviser rather than a potential obstacle.
While this model makes perfect sense for optimizing revenue, does it really eliminate the need to work overtime? This question is founded upon lie #1,” Our worth is conditioned upon how long we work.” Fortunately, Erik gives us the tools to work through this concern.
Erik quotes Thomas Paine in Common Sense saying, “...a long habit of not thinking a thing wrong gives it a superficial appearance of being right, and raises at first a formidable outcry in defense of custom.” Just because something isn’t labeled as “wrong” doesn’t mean it’s right. It’s up to us to call out potential issues and create more efficiency in our work.
The 4-Step Path to Every Problem-Solution
By using Erik’s 4-Step Path to Every Problem-Solution, we can steadily peel back our assumptions of what is possible in our business operations while actualizing our customer relations and revenue goals. Erik’s 4-Step Path to Every Problem-Solution is the following:
- Realize that there is a problem. This realization may come as an inspiration, similar to how Erik realized he was vehemently against working overtime.
- Define the Problem. Erik later defined the problem as an issue pertaining to the business model being used. This step is important as it could have led to the realization of other problems, such as tense business-client relations.
- Find a solution. Though he found a solution to various problems via value-based pricing, Erik also found solutions to making his business operate smoothly by finding the right office manager, Grace, with previous CPA experience and a great personality. We mentioned the importance of finding the right team in an interview with Susan Wilson.
- Implement the solution. After finding the solution, all that is left is to follow through with implementing the solution.
By going through this 4-step process, CPAs and businesses can define the absolute boundaries they are willing to operate within, which may seem intimidating. However, the truth is that these boundaries activate creative thinking and problem-solving to find unique solutions to your unique problems. No matter the boundaries you prescribe, work will fill the space that you give it.
Listen to the interview for more invaluable information from Erik Solbakken. If this topic interests you, consider reaching out to Erik through his website, https://www.accountantsuccessformula.com/. You can also read his book, The Accounting Success Formula.