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I currently have all my clients on hourly rate rather than fixed fees but I do see the benefit both to the client and to my own practice of having clients on fixed fees.
How to calculate hourly fees has been discussed to death but I'd like to open the topic for discussion about calculation of fees (fixed or hourly) and which is your preferred method of charging.
I have one client in particular who I think would benefit from being on fixed fees and I just wondered how you all see the pros and cons of each method.
3...2...1... discuss!
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Ah Clare,
This leads nicely on from Peasies thread. I charge a fixed fee. There are a number of reasons for this. Firstly, If I hire someone to do work for me I never like paying hourly. I think it does nothing to encourage efficiency. Even when I bought my house I got a fixed fee from the solicitor and saved a fortune compared with my sister who bought her new house at the same time for a similar value.
It's horses for courses, but I don't see how my practice could survive on hourly rates. The average in this area seems to be £12 per hour. Once I take into account insurance, practice licence, electricity, phone, internet, web hosting, advertising, stationery etc. I would come away with slightly over minimum wage.
As it is this week so far I have charged on average £35 per billable hour, how many clients would agree to that as an hourly rate?
To work out the fees I have a simple menu of services a few ticks and a bit of simple adding and I have a fee. I know some will argue that they'll offer a fixed fee after a year? Thats as much use as giving your clients a chocolate teapot. So after you see the average cost you give this to your client, covering your downside. I'm sure most clients could work out an average too, that doesn't really help, all you are really doing is speading the annual cost.
For me, and I've only been in business just over a year, but I know how long everything takes. I know I can process the average transaction in under a minute. I know how many entries are on a page of most bank statements, and how long it takes to reconcile, I know how long a VAT return takes, I know how quickly I can create an invoice and the on costs of that. I'm not special, we should all know these figures. I know my overheads and can break that down into each job.
The big question is what if a job takes me double the time I quote? Well, if you know your numbers it shouldn't but the first few times you might under quote. Even if it takes you double the time, my average hourly rate this week divided by 2 is still 17.50/hr far more than if I quoted an hourly rate.
Hope I haven't rambled, but it makes perfect sense to me. Anyone who has not read Michael Gerber's The E-myth Accountant I would encourage you to get a copy and read it.
Kris
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I'm interested to hear the pros of hourly. Whats stopping you jumping ship clare and joining us fixed fee folk?
Kris
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Thanks Kris, that's exactly what I wanted when I started this thread. Now I need someone to give me the other side!
Personally I agree that I like to know a fixed fee for services. For example, if I have a tradesperson do work at my house I don't expect an hourly rate but a complete quote for a whole job. The way I look at that is that if they have a problem with whatever they are doing - say installing a hypothetical bathroom, then it is their problem if they encounter something along the way that means it takes longer. I would expect a plumber to know roughly how long it would take and what potential problems there are and give me a quote that takes that into account. If he (that's sexist isn't it, let's call it a she!) arrived and gave me an hourly rate I'd then be thinking that I'm paying for her to drink tea. Perhaps not the case but it would be in my mind nevertheless.
However hourly rate seems to be the way that most bookkeepers around here operate. Do you find Kris, that it gives you a USP of sorts? That you are able to sell yourself on being fixed cost bookkeeping?
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At the moment it is simply client expectations stopping me changing. Clients ask and expect to be told an hourly rate! Have you ever been asked what hourly rate your fixed fee equates to? I'd imagine that would be a question some clients would ask...
I'd be interested to see your "menu" too, as it might clarify any potential sticking points that I have with making the switch
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To be honest when I started fixed prices was my USP, but it's no longer unique enough. However, type fixed price bookkeeper into google and see what happens.
My mission is now 'organising small businesses in Ayrshire' and I'm now starting to move away from limited companies to specialise in Sole Traders accounts from Bookkeeping to self assessment.
I'm desperate to hear the arguement for hourly rates though, I may have overlooked something fundamental.
Kris
Oh, and I'll email you the menu
Edited at 10 Nov 2011 02:11 PM GMT
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- Member PM.Dip
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I'm still trying to figure out how long each transaction takes.
With one small client I use their paperwork as practice. Let me explain - I have VT Transaction Plus and Sage 50 Accounts. It is mostly a cash based business. In September there were 56 receipts ranging from A4 size down to till receipts from shops. It too me approx 19 minutes to process these in VT and approx 23 mins in Sage. In October there 52 receipts and it took me 19 minutes in VT and 24 minutes in Sage. Those purchase receipts took longer to sort out than to process - they took just over an hour to separate into the two months and then punch holes in them for filing in a ringbinder (then lever arch file after processing).
For another client where the transactions were on credit it took me (in Sage) 7½ minutes to process just 4 invoices. This was because there were three different suppliers and they all needed setting up. 7 sales invoices took 10¾ minutes to process as all 7 customers needed setting up. A wages journal takes about a minute to process which includes pension contributions from both employer and employee.
Do you separate out each transaction into its type or do you just take an average of all the transactions (some you win, some you lose)? I asked elsewhere - do you sit there and physically count all their bits of paper? I really haven't a clue what to expect.
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Hi Peasie, Personally, I take a transaction as a transaction, I don't really differentiate between different types. Looking at your figures your average transaction takes 1 min 12 secs to process. So you could deal with 50 transactions per hour.
You can work this out from my website so it's not any great secret, I charge £35 for up to 50 transactions. Heres the even better thing, the clients sort them out for me. Why? because I ask them. Most of my clients, like everyone else here went into business to take photos, or sell pet food, or build walls. They don't want to do VAT and bookkeeping. But they are terrified (most of them) of the tax man. Peace of mind is what bookkeepers sell, not transactions.
So if you say to them I'll take all your accounts problems away but you need to do something to help, they will (generally, no ones ever refused me, and no one I've ever quoted for has said no either). I give them some folders and tell them Sales stuff in here, purchases in there, bank statements in there, payroll there etc. If it's back dated work then I give them a few for each month.
With the how many invoices that can be tricky to work out, so ask them. How many purchase invoices do you have on average a month, and sales. Do you have staff, theres your payroll transactions. Do you buy or sell on credit, whats the majority of your transactions (cach or credit). After they tell me I put this in the letter of engagement. I also tell them I will take 20% over that, but anymore and they will fall into the next price bracket.
Hope this helps
Kris
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Hi ,
I have always used fixed fees as i found that it was what clients wanted as they would have no hidden costs and they knew how much it was costing them each month.
I,like Kris have found out that with a new client you probably will have underquoted yourself but once you get it sorted out to the way you want it then it takes far less time and you then start to see the benefits.
Stephen
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Hi all
A fixed fee is my preference. In addition to those benefits already mentioned it gives the client confidence and you both generally know where you stand. Obviously write some flexibility into the engagement letter. I would never say no outright to an hourly charged job, but a fixed fee I find easier to sell.
That said nearly all new regular bookkeeping jobs I get require a bit of backdating work. Rather than do a fixed fee for this I will offer a 'lower' hourly rate and say I will propose a fixed fee after. This also gives you the opportunity to have a good look at what the previous bookkeeper/acccountant charged before as well as the transaction type/quantity.
I don't use a fee calculator like Kris, although I did design one for my previous employer, an accountant, but I do give the client different options of service, tailored to the sort of business personality they are. The more they want the more the charge is, but, like Kris suggested, not necessarily selling each individual add-on job but the service as a whole - eg Basic, Gold and Platinum - diff sorts of people will choose diff option and perhaps you could increase the margin of the one you think they may choose!
I am still learning with every client!
Regards
Andrew
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A mixture of both is working for me at the moment.....
I have such varied clients that each require totally different services (everything from call handling to invoicing and credit control to just Accounts & Self Assessment Tax Returns.
One is on a stop watch, the other is fixed (after a year of trying to work how many hours Id spent), another is straight forward go his office for an unspecified amount of time per month sometimes quarterly until the work is done and others are just one week a year.
not that im sitting on the fence or anything - lol
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Claresaid:
“Have you ever been asked what hourly rate your fixed fee equates to? I'd imagine that would be a question some clients would ask...”
Strangely, this is not something I've ever been asked. I wouldn't enter into that conversation. I offer a price for a job, how long that job takes me is irrelevant. Even if I gave them my hourly equivelant, they couldn't really compare as it wouldn't be apples with apples unless everyone else agreed an upper limit and that takes the point of hourly away surely?
Kris
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kjmccullochsaid:
“Claresaid:
“Have you ever been asked what hourly rate your fixed fee equates to? I'd imagine that would be a question some clients would ask...”
Strangely, this is not something I've ever been asked. I wouldn't enter into that conversation. I offer a price for a job, how long that job takes me is irrelevant. Even if I gave them my hourly equivelant, they couldn't really compare as it wouldn't be apples with apples unless everyone else agreed an upper limit and that takes the point of hourly away surely?
Kris ”
Hi Kris
Any chance of sending me your "menu" as I'm seriously considering changing my charging method...
clare@brutonyoung.co.uk
Many thanks
CLare
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I'm finding this thread really interesting. I have only recently started in practice and to date have had one client - a one-off set up - which I charged hourly. I have just, literally five minutes ago, had a guy ask me about doing some work for him, and he wanted to know if I charge hourly or a fixed rate. For the work he would require - quarterly bookkeeping with VAT return, I think I might now try to work out a fixed rate based on the number of transactions.
Could I be really cheeky and ask you to send me a copy of your menu please Kris? email is tula@globalnet.co.uk
Thanks
Tula
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Hi Tula,
I'll send you a copy this afternoon when I'm in the office.
Kris
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Hi Kris,
Would you be so kind as to forward to me also? I had requested on another thread, but not yet received anything.
Many thanks in advance.
Kind regards
Kerry
(kerryb_6@hotmail.com)
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- Fellow PM.Dip
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kjmccullochsaid:
“Hi Tula,
I'll send you a copy this afternoon when I'm in the office.
Kris ”
Hi Kris
Would be so kind to email a copy to me as well?
adabe@blueyonder.co.uk
Many thanks
Adam
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Hi Kris,
I would be very grateful if you forward me your if you e-mail me your quote/copy of your menu on nathe135@gmail.com
Just like Kerry, i had requested on previous thread.
I am seriously considering charging on a fixed fee basis. I will mention hourly option in my engagement letter though.
Thanks for sharing your thoughts!
Kind Regard,
Nathaliexxx
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Due t the number of requests I have decided to automate the process. Just fill in your email address at the following and you'll get a copy as if by magic:
http://www.kmbookkeeping.co.uk/download.php
Kris
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kjmccullochsaid:
“Due t the number of requests I have decided to automate the process. Just fill in your email address at the following and you'll get a copy as if by magic:
http://www.kmbookkeeping.co.uk/download.php
Kris ”
Kris - thanks for this. You're now going to get inundated with queries about how you set up the automated download 
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- Member PM.Dip
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kjmccullochsaid:
“Due t the number of requests I have decided to automate the process. Just fill in your email address at the following and you'll get a copy as if by magic:
http://www.kmbookkeeping.co.uk/download.php
Kris ”
Sorry if I've caused you extra work Kris - 
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Not at all Clare. I have no issues sharing, however I was receiving a fair number of emails asking for these so decided it was easier to automate it a bit.
Kris
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kjmccullochsaid:
“Due t the number of requests I have decided to automate the process. Just fill in your email address at the following and you'll get a copy as if by magic:
http://www.kmbookkeeping.co.uk/download.php
Kris ”
Thanks Kris, that will be a real help
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To Kris,
Thanks so much, you are a star.
Kind Regards,
Nathaliexxx
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I'm keen to hear some feedback from anyone who has downloaded these, positive or negative. I know there are at least 20 so far.
I also know at least 1 person has turned the flowchart into a spreadsheet and may be willing to share.
Kris
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Thanks Kris for your forward thinking - I've also downloaded a copy!
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To Kris,
I suggest you approach the institute and let them know how inundated you have been with request for this instant quotation. May be a similar tool could be offered as part of practice start up package. Hopefully with no extra fee!
Kind Regards,
Nathaliexxx
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kjmccullochsaid:
“I'm keen to hear some feedback from anyone who has downloaded these, positive or negative. I know there are at least 20 so far.
I also know at least 1 person has turned the flowchart into a spreadsheet and may be willing to share.
Kris ”
Have a spreadsheet I've built using Kris' pricing template I would be willing to share if people are interested.
E-mail me at: lou@parkerbusinesssupport.co.uk
Lou
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