Most accounting firms absorb software cost increases without making a deliberate decision to do so. This guide covers the three options every firm has when a vendor raises prices, a framework for choosing between them, and how to build a billing structure that handles future increases automatically.
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The Three Options Every Accounting Firm Has When a Vendor Raises Prices
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Most accounting firms that absorb software costs on behalf of clients did not make a deliberate decision to do so. It happened gradually.
A client was onboarded and software costs were built into the monthly fee because it was easier. A price increase came and the fee did not move because the conversation felt awkward. Another increase came and the same thing happened. Over time, the gap between what the firm is paying and what it is recovering grows without anyone making an active decision to let it.
Most firms that look at this properly for the first time find the gap is larger than they expected. It is fixable, and fixing it does not require a difficult client conversation for every subscription on the books.
Why the same pattern keeps repeating
The pattern persists because absorbing is the easier choice. Every time a vendor raises prices, the firm faces the same decision. Have the conversation with the client, or absorb the increase and protect the relationship. Most firms absorb because the amount feels small and the conversation feels disproportionate to the cost.
The problem is that it compounds. Each increase that goes unaddressed makes the next conversation harder. The arrangement becomes the expectation. And across a client base of any size, the cumulative cost adds up to a meaningful amount of margin leaving the practice every month.
Bundled pricing also creates a visibility problem. When software costs sit inside a fixed fee, it is difficult to know what each client actually costs to serve, which subscriptions are being recovered, and which are absorbed without recovery. A client that looks simple on time alone can look very different once software costs are factored in.
The three options every firm has
Every firm managing software subscriptions for clients has three options when a vendor raises prices.
Option 1: Absorb it.
The firm pays the difference. The client sees no change. This is the default for most firms. It protects the client relationship in the short term but continues the pattern. Across a client base of any size, the cumulative cost adds up. And each time it happens, the eventual conversation about changing the arrangement becomes harder to have.
Option 2: Pass it on.
The firm updates its billing and communicates the change to clients. This protects margin but creates work. Every price change triggers an internal review, billing updates, and client communications. None of that work is billable. It is the right call on margin but it means running the same project every time a vendor moves. For firms managing software for a large client base, this is a significant operational burden.
Option 3: Set it up so it passes through automatically.
When software subscriptions are billed separately from service fees, vendor price increases flow directly to clients without the firm having to do anything. The increase belongs to the vendor. Clients understand it differently. The margin stays intact and there is no project to manage.
