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Until recently, billing time by the hour was by far the most common way for accountants to charge their clients. However, over the last decade, the rise of cloud accounting, alongside the use of complementary technology tools with automation features, have given accountants an array of different options for how to price their services.
Whereas previously, productivity in accounting firms was measured by the number of transactions a bookkeeper could physically complete in a set period of time, efficiency is now measured by how successfully technology has been leveraged to take advantage of automation.
Common examples include whether rules have been created to automatically reconcile recurring transactions from the same supplier and use receipt scanning tools to reduce the need to enter transactions manually.
Accountants should take the time to review the different types of pricing models to help forecast future firm revenues and make sure they are maximising their profits.
Monthly retainers are best suited to compliance-based services (i.e. bookkeeping, annual accounts, tax and VAT returns) due to the nature of them recurring and being relatively simple to deliver if firms can implement accounting technology successfully.
The roll-out of Making Tax Digital (with MTD for VAT introduced from April 2019 and MTD for income tax set to follow in 2023) means that record keeping for clients is increasingly digital, giving accountants opportunities to take advantage of automation tools.
Firms should offer clients tiered options for monthly retainers, consisting of essential compliance services, with premium offerings consisting of weekly bookkeeping and a high-level review of management accounts.
Compliance services that occur quarterly or annually should be broken down throughout contracts so that clients are billed the same cost each month.
Wherever possible monthly retainer fees should be collected via a direct debit bank mandate once assignments commence. This will save accountants time debt chasing and enhance their working capital. Additionally, monthly retainers taken by direct debit will allow accountants to predict monthly and annual recurring revenues and plan staff resource to scale up their activity.
Contingent fees are typically based on success factors related to clients accessing a new funding line or increasing revenues by winning a new contract.
They are attractive to price-sensitive clients who may have poor cash flow but still have the aspiration to grow their businesses.
Services relating to accessing finance are particularly suitable to sell on a contingency basis. If successful, they will unlock additional capital or debt finance, which can be used to pay associated fees.
To counter the risk associated with fee recovery, accountants either need to have high confidence in projects being successful or work with third-party partners to deliver services with minimal time and cost commitment.
While accounting trade bodies tend to allow for accountants to take commissions, finance professionals should read legislation most relevant to their memberships to disclose fees from third parties correctly.
Fixed fee assignments
Fixed fee assignments are relevant for annual, one-off or project-based services, which have efficient and repeatable processes.
This could cover set up work relating to cash flow forecasting software (entering opening balances and syncing to core accounting software) or R&D tax credits for firms that have the expertise to execute this.
Fixed fee assignments give certainty to clients who wish to engage in new activity but who are mindful of costs spiralling out of control if charged on a time basis.
Annual fixed fee assignments can be more profitable in future years as accountants become more familiar with clients. R&D tax credits are a perfect example of this as, in most instances, the narrative part of the claim written in year one can be rolled forward to support financial analysis in future years.
Value-based pricing assignments are charged based on how much a client is prepared to pay instead of an off the shelf price.
Advisory services (such as app integration and cash flow forecasting) are most relevant to be sold via this approach, with clients needing to be convinced to pay a premium based on the outputs.
They are the holy grail of pricing strategies as they can substantially boost profits if delivered effectively.
Value-based pricing requires an in-depth consultative sales approach, with accountants needing to engage with clients in person or video conferencing to understand their needs. Taking the time to understand their pain points can help identify how to pitch services most relevant to them and which they may be less price-conscious of.
Quoting a price near the end of conversations will give accountants a hunch about how likely they are to agree to a formalised proposal.
Picking the right pricing approach for different clients and assignments is often achieved through trial and error. To allow for price increases in monthly retainers, associated contracts with clients should detail that fee levels are reviewed every 12 months.
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Accountants and their clients are relying on overly manual and time-consuming payment processes.
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