Drake Software blog for tax pros, covering tax, IRS news, and more

Beating the Big Chains

Beating the Big Chains

By James Stork
Senior Vice President, Drake Software  

 

They are everywhere.  Standing on street corners, at kiosks in the “big box” and office supply stores.  In some of the best retail locations in the nation.  These are the tax preparers of H&R Block, Jackson Hewitt and Liberty Tax, the top three tax prep franchises. 

By virtue of their franchise agreements, they have help with business expertise, marketing plans, management guidance, site location, training, and more. They have a strong brand name, national advertising and financial resources to draw upon.  Can an independent tax preparation firm actually compete with these big franchises? 

Well, you’re not going to outspend them, so don’t even try.  But you do have some advantages and opportunities - more about that in a minute.  To get a better understanding of the competitive space, let’s first look at the marketplace for tax prep services. 

The Tax Preparation Industry 

There are six distinct types of tax preparers in the United States: 

  • Attorneys
  • Public Accountants
  • Volunteer preparers
  • Self-preparers
  • Franchise preparers
  • Independent preparers 

The first three of these do not compete directly against the big chains.  While there is some competition from CPA firms and attorneys, this is generally for more complicated returns, or high-net-worth individuals, who require specialized attention.  At the other end of the scale are those who do not wish to pay a professional to prepare their returns and thus do their own or use free voluntary services. 

What’s left are the franchise preparers and independents who do compete head-to-head.  Making up these two types are typically Enrolled Agents, former RTRPs, and non-credentialed tax preparers. 

On the surface, the franchise tax preparation services might seem to have the competitive advantage.  They have ideal locations that have been carefully analyzed and tested.  They are supported by well-designed brochures, signage, and national television advertising.  And all of this is effective at drawing in customers – but comes with a steep price.  The franchisees must pay an upfront fee, annual marketing fees and an annual royalty fee.  This, in turn, means that they must charge more per return in order to make the same money as an independent. 

As an independent, you also have advantages that offer you a competitive edge.  For example: 

  • Most independents have been established for many years, so that customers already know who you are and what quality of work you do.  Customers place their trust in you, not a national brand.  This personal relationship is the strongest competitive advantage you can have – and it cannot be bought.
  • You can define your marketing strategy however you want, where franchisees are bound by restrictions.  They cannot easily switch their marketing mid-year to take advantage of opportunities.  Independents can, and often do, alter strategies to respond to market changes.
  • You can personalize better than the big chains, because you have one focus - the local market.  You can and should cultivate relationships by personalizing as much as you can.  Weave yourself - your good name - into the fabric of your community by sponsoring charity events, offering tax seminars, riding in the Christmas parade, and joining a civic group or local business organization.  And if you aren’t using social media, it is time to start.  By using outlets such as Facebook, and then tailoring your message to your local area or town, you can more easily reach your prospective customers where they are hanging out in 2014...online.  

But this might be the biggest indication that independents can take on the big chains – independents control their own destiny.  Sure, franchise owners have some control, but they are susceptible to the risks that come with being associated with a large national chain.  They are a small piece of a much larger, complicated puzzle.  They are at the mercy of the actions and decisions of others, and those actions and decisions can cause severe harm to the reputation and viability of the franchise, and there’s nothing the franchisee can do about it.

So what are the best tips to compete with the big chains?  Here are the starting points: 

  • Earn trust.  Trust is paramount when it comes to tax preparation services.  For most Americans, this is one of their largest financial transactions of the year.  Be honest, be fair, and stand by your work.  Gain their trust, and they will be back next year, no matter how many big chain ads flash on their TV screen.
  • Serve well.   It’s hard to find good service, and the bigger the organization, the more difficult it is to control service quality.  This means opportunity for YOU, so get service and get it right.  Providing a consistent, personalized service experience sets you apart from the big chains.
  • Exploit word of mouth.  Surveys show over and over again that word of mouth is the most effective way for tax professionals to attract new clients.  Say “Thank You!” to those clients who refer new business.  For example, in Drake Software you can generate reward coupons to incent referrals.  Remember – no amount of advertising dollars can best a referral from a trusted friend.
  • Read Drake’s resources on marketing: 

It is possible for independents to compete – and thrive – against the big franchise chains.  Like David battling Goliath, you need not have the most resources, the biggest budget or even a prestige location.  You only need a plan, a little faith – and a good slingshot.

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The Taxing Subjects staff is proud to cover the latest in tax-industry-related news, from tax law and IRS updates to technology and business strategies. If you have questions about an article or just want to reach out to the Taxing Subjects staff, email comments@taxingsubjects.com.

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