How to measure ROI in a tax practice: beyond billable hours

For many tax professionals, profitability is measured in billable hours or the number of returns filed each season. Those metrics matter, but they don’t tell the whole story when it comes to a practice’s overall return on investment (ROI). Hidden costs, such as no-shows, client churn and inefficient communication, can quietly erode margins. In a competitive and increasingly digital landscape, tax practices need a more holistic view of ROI – one that includes operational efficiency, client retention and long-term value. This article explores practical ways to rethink how ROI is measured and improved without necessarily working more hours or raising prices.

The limits of billable hours

Billable hours and per-return revenue are familiar benchmarks for assessing success in tax practices. However, they provide only a narrow view of actual profitability. Two firms can generate the same revenue per return, but one might be spending far more time, effort or resources to earn it, resulting in lower real-world financial returns.

What’s often overlooked are the hidden costs: time spent chasing down missing documents, following up with no-show clients, or managing inefficient scheduling systems. These operational inefficiencies aren’t reflected in billable hour totals, but they directly impact your bottom line.

Key metrics for a clearer ROI

To better understand your practice’s performance, consider tracking these metrics alongside billable hours for a more accurate ROI:

1. Client acquisition cost (CAC)
CAC reveals how much you’re spending to gain each new client. It includes marketing, advertising and sales expenses. If your CAC is high, it may be time to re-evaluate which outreach channels are most effective. For example, lower-cost tools like automated texting campaigns can help bring in leads at a fraction of the cost of traditional advertising.

2. Client lifetime value (CLV)

CLV measures the total revenue you earn from a client over the life of the relationship, not just one tax season. Maximizing customer lifetime value (CLV) means focusing on retention, offering off-season services and maintaining regular touchpoints. It’s more cost-effective to nurture long-term clients than constantly seeking new ones.

3. Retention rate

A steady client base is the basis of a profitable firm. If clients don’t return year after year, your marketing expenses spike. Personalized follow-ups, thank-you notes and reminders (especially when automated) can meaningfully improve retention.

4. No-show rate and scheduling gaps

Every missed appointment represents lost time and revenue. Reducing no-shows improves throughput without increasing staff. Many firms find that automated appointment reminders, especially those sent via text, help minimize these losses and keep their schedules full.

5. Operational cost per return

This includes admin time, manual follow-ups and inefficient workflows. Tools that streamline communications and reduce back-and-forth can lower your per-return cost, improving ROI without raising fees.

Hidden ROI killers

Even experienced tax pros see inefficiencies in day-to-day operations cut into their profits. Addressing hidden ROI killers is an essential step to boosting your bottom line:

1. Inefficient client communication

If clients don’t feel supported or informed, they may not return despite quality service. Slowed responses, forgotten follow-ups or excessive email communication can frustrate clients and lead to lower retention rates. Streamlining communication with timely, automated messages helps clients stay engaged and reduces time spent on repetitive outreach.

2. Manual processes that drain staff time

From chasing down documents to appointment confirmations, repetitive and manual tasks eat up time otherwise spent on more lucrative work. This can lead to increased staffing costs or even burnout during peak season.

3. No-show appointments

Client no-shows can create significant scheduling inefficiencies. Even a modest no-show rate, if left unaddressed, adds up to significant lost revenue. Simple changes, like automated reminders or confirmations, can make a noticeable difference.

4. Lack of data visibility

To know what is working (and often, more importantly, what is not), firms must track core business metrics. Relying on instinct rather than real data usually leads to missed opportunities for improvement.

By addressing these silent profit leaks, firms can begin to reclaim both time and revenue without expanding workloads.

Ways to improve ROI without raising prices

Improving your firm’s ROI doesn’t have to mean working more hours or increasing your fees. Often, minor operational tweaks and smarter client engagement can lead to a better bottom line. Here are a few strategies that deliver results:

1. Automate repetitive tasks

Appointment confirmations, deadline reminders, follow-ups and more can be automated. This is a simple change but frees up staff time and improves client satisfaction. SMS platforms, for instance, allow you to automate these touchpoints while maintaining a personal feel.

2. Re-engage inactive clients

Clients who skipped a year may need a nudge. Reaching out before the next season can recover lost revenue with little effort. A short, well-timed message offering early filing incentives or helpful tips can bring them back.

3. Fill scheduling gaps strategically

Unfilled time is a silent profit drain. Consider using your off-season or less busy weeks to focus on higher-margin services, such as tax planning, business advisory services or amended returns.

4. Increase value, not price

Instead of reacting by jumping right to charging more for services, focus on delivering more value, like faster turnaround, real-time updates or added services. Enhancing the client experience can justify your fees and lead to more referrals and customer loyalty.

These improvements don’t require drastic changes, but over time, they can significantly enhance the return on investment (ROI).

Real-life scenario: Central Valley Tax Services

Central Valley Tax Services (CVTS), a firm specializing in tax strategy and preparation, sought ways to grow without compromising valuable billable time. Staff had been spending countless hours emailing, calling and manually texting clients to schedule appointments, send reminders and share tax updates – time that could be better spent serving clients.

By automating key parts of their communication using Textellent’s text messaging service and data from their tax software, CVTS introduced a more efficient system. Clients received personalized appointment invitations based on prior-year timing, automatic reminders and follow-up messages. Referral and review requests were sent after filing, and even birthday and holiday greetings were sent automatically.

The impact was immediate. The firm saved over 60 hours during tax season, and 80% of clients scheduled their own appointments through a link in the text message. With time freed up, the team could focus on higher-value tasks and new client opportunities. As a result, the firm saw a 20% increase in its client base in a single season, all without increasing staff or working longer hours.

Smarter metrics, stronger ROI

Improving ROI isn’t necessarily about doing more but doing things more efficiently. Looking beyond billable hours and measuring retention, acquisition cost and operational inefficiencies highlights opportunities to boost profitability. As the Central Valley Tax Services example demonstrates, even modest automation, such as streamlining client communications, can yield measurable gains in time saved, client satisfaction and business growth. The key is to track the right metrics and make minor, strategic adjustments that accumulate over time.