Charge-out rates

A new client recently contacted me and asked for some advice. I provided it and asked if I could send an invoice. The client e-mailed with a further request and did not answer my question about the invoice. I provided the further advice and told the client that the bill would be £75. The client expressed disappointment that the bill was so high but promised to pay it anyway. I suspect I will get no more business.

It taught me to agree a price at the outset. My question here is - does anyone think that £75 is reasonable or unreasonable? The advice related to a benefit in kind and was very specific to the client, who had quoted a number of figures. It included income tax and VAT advice and took over two hours in total to deal with.

Comments
Bob Harper's picture

Scope creep

Bob Harper | | Permalink

I think this is a case of not being clear what is and what is not included in the service agreement.

Tip...pick up the phone

Bob Harper

Marketing for Accountants

Charge-out rates

peter4lc | | Permalink

Please can you read the question - this gives advice which was not asked for and does not answer what I asked.

Bob Harper's picture

Specifics

Bob Harper | | Permalink

 @Peter – I did read the question; a client called you for some advice, you gave it and billed and the client is not happy but will pay you.

The answer is not what I think, or even what you think but what the client thinks and so I suggested you manage client’s expectation by explaining what is and not included in your standard fees and instead of email I recommend you pick up the phone to discuss fees.

Do I think £75 is good value for this issue? This depends on the specifics, not how long you took to work out the answer.

Bob Harper

Portfolio Marketing

Charge-out rates

peter4lc | | Permalink

The question was very simple - is £75 reasonable or unreasonable for two hours' work? No other advice was requested and the replies I have received appear to be indulging in point-scoring, which I find distasteful.

Please either answer the question or do not answer at all.

dbowleracca's picture

Agree with bob

dbowleracca | | Permalink

I am afraid I have to agree with Bob here.

You shouldn't really be doing anything for a client without agreeing the fees, or the basis on which they will be calculated, with the client.

You should have telehoned them and said, I can do this for you and you will get a short report on the tax implications, VAT implication and my advice, and the fee will be x (or I will charge you an hourly rate of £x) for preparing and researching this.

In response to your question, I don't know exactly what you did but £37.50 an hour looks cheap to me!

Bob Harper's picture

My answer, your question

Bob Harper | | Permalink

@Peter - the rule in communication is that you own the question, the person responding owns the answer.  

I am not point scoring as suggesting a few things to help you avoid future problems. You do not need to like the answer but if you take it and apply it to your question it is obvious that your charge was expensive because that's what the client thought and that is all that matters.

Bob Harper

Marketing for Accountants

Charge-out rates

peter4lc | | Permalink

I do not need your advice on client relationships. The whole purpose of writing in my original post "It taught me to agree a price at the outset" was to dissuade anyone from focussing on the way I approached the task rather than on the reasonableness of a charge-out rate of £75 for two hours' work. You do not know the exact nature of previous communications between myself and my client and it is therefore patronising of you to attempt to advise me in the way you have.

I fail to understand your opening sentence about 'owning' answers, but a rule I follow is never to offer advice which has not been asked for, as it is not always kindly taken, and indeed I do not take it kindly myself.

The sole purpose of my post was to find out whether I am charging too much, too little or about the right amount for technical advice. I do not need marketing advice. Unless you are in the business of providing advice on taxation and similar subjects I suggest that you do not reply further.

Bob Harper's picture

Interesting attitude

Bob Harper | | Permalink

@Peter – bit of an attitude there! For the record, I am not offering you advice on client relationships; what we are talking about here is a pricing and price is a marketing function.

I do not know the exact nature of your communications with the client but I know the outcome; you have an unhappy client, are frustrated and suspect you will get no more business. You also have the risk of this client spreading negative word of mouth about you.

Having said that, you probably don’t need my advice because I am not selling something like an iron lung.  You may not want my advice or like it (or me) and you can continue to focus on the time it took you and the technical nature of the work if you want but you will be looking is the wrong direction.

My commenting about owning the question and the answer is that you get ask the question and I can choose my answer. My answer is designed to get you asking yourself a different question. Why post here when you should be talking to clients?

By the way, post the tax question and I’ll see how I get on, it must be a cracker if it took two hours. 

Bob Harper

Portfolio Marketing

 

I am with the OP on this one.

chatman | | Permalink

I think Bob's response failed to answer the question that was asked, and seemed unnecessarily inflammatory to me.

To answer the question the OP asked, I think £75 sounds perfectly reasonable. I do not see how you can charge less.

Charge-out rates

peter4lc | | Permalink

I was hoping for an indication from other professionals on what they would charge for two hours of tax advice. I'm afraid I cannot put it more simply than this. You should realise that a minority of clients want advice for next to nothing, so to say that if a client thinks I am too expensive therefore I am too expensive is disingenuous. I ask you again not to reply unless you can give me an answer which focusses on the question I asked.

To give a few examples relevant to my original question: I have been charged £25 for telephone discussions; I also have a client who was charged £500 by a Big Four firm for what was described (by the client) as a simple VAT question on the change of the standard rate. I also heard about a gentleman who charges £20 for a day's work. It is some years since I worked for a high street firm and I am just interested to know what firms are charging at present. Technical advice can in my case range from a very quick question which can be answered over the phone to visits or reviews of accounts which can be a day or more.

Charge-out rates

peter4lc | | Permalink

Chatman's reply was posted while I was posting my last reply - thanks.

Bob Harper's picture

Infalme

Bob Harper | | Permalink

@Peter – I know exactly what you were asking and my answers are very relevant because you keep banging on about the time it took/takes and the “technical” nature of the work. It does not matter if it takes hours or you can answer in a second over the phone. What matters is value.

Two hours is irrelevant because what would you charge if another client calls tomorrow with the same question and it only takes you five minutes to rework the numbers and cut and paste the answer? What if I would answer the same question in 30 minutes?

I fully understand clients want free advice and that can be turned into an advantage for your firm by agreeing fixed fees with support included. Spread the time out over all the clients and you can win big, so can clients because they know they have your support without the clock being watched. Just scope the work and level of support out when agreeing the fee with the client and keep in mind the lifetime value and it may take a while to get it right.

Whether you charge an annual fixed fee of a one-off, the focus of your price should be value. And, to do this you need to talk with clients – I know this maybe very different to what you may have done in the past but times are changing. The dynamics between an accountant and client is different; accountants cannot just assume clients value the time. This is a technician’s mindset applied to a marketing principle.

I have worked for one of the big four; we charged a premium because of our brand. Some people want a name to give the reassurance. You will only know what the value is when you talk with clients.

I personally believe a good accountant should expect an effectively recovery rate of at least £125 an hour. That does not mean I would charge £250 for the work you did.

@Chatman – my answer wasn’t what the OP wanted; the client’s reaction probably wasn’t either. It is not my intention to inflame but to get the OP to think because they are demonstrating the attitude of a technician who expects his/her time to be valued by the client without question.

Adopting a marketing mentality is the answer to this question and the value needs to be built before the question is answered - quoting a price upfront is just part of it. 

Bob Harper

Marketing for Accountants

 

petersaxton's picture

Right and wrong

petersaxton | | Permalink

Peter

You may be right that other accountant's think you are charging a reasonable price for your time.

Bob's point is that your relationship is with your client and you should make it clear to your client the basis of your charges before they incur them.

having said that, Bob was trying to help you and you were unnecessarily rude.

Bob Harper's picture

Confrontation

Bob Harper | | Permalink

@PeterSaxton - thank you, I understand why I got the response I got; this is an emotional and fairly confrontational issue. When someone questions a price when you have worked hard for them it hurts - I have been there. Anyone who says it doesn't is lying or just doesn't care enough.

The brutal truth is that the mindset of time based billing is rife in the profession, even where firms use fixed fees. And, it takes a big person to acknowledge what they have been doing is fundamentally wrong! However, they should understand that it is not their fault, they were taught by someone who was not a pricing expert.

If a firm can get their head around value pricing everything else makes sense and falls into place. Firms can understand the value of branding, packaging, explicit customer service standards/guarantees as well as a new style of marketing and a drive to get a deeper understanding of clients and developing a wider range of services to support their clients.

Bob Harper

Marketing for Accountants

sparkey999's picture

Wow!

sparkey999 | | Permalink

Such a small question, such an emotive response!

Seriously though Peter, it really isn't a small question, and I would find it impossible to answer the question on a standalone basis without understanding more about:

(a)   your client

(b)   the work done and the value you and client attach to same

(c)   the structure of your own firm

 

But please do try to see that Bob is trying to help. I think you can see he is directing you towards the bigger picture for you to refer to in the future. Clients don't like hourly rate charges. Clients want to feel special, and how you bill them and how they can pay makes all the difference. If all clients pay based on time x charge-out rates, they will feel that you don't value them any differently than other clients. And if a client refers work to do and always pays on time, they deserve to feel special and should be treeated accordingly!

If I had a gun to my head and had to give you an answer Peter, I would say £75 seems a bit cheap assuming that you provided advice and computations and that you gave your answer within, say, 24 hours.

However I agree with Bob's overall theory here. And the fact the you already said "it taught me to agree price at the outset" shows that you are moving in that direction too.

 

I have struggled with charge-out rates myself, having started out on my own this year with half a dozen clients. I now have about 30 clients. All clients have had their prices fixed in advance. Whilst I have built the price up based on hours x charge out recovery rate, the client doesn't know this and they are simply given fixed fees upfront. Also, all are paying monthly to help my cash flow. If an assignment needs to be done now, I agree price upfront, agree when the job will start and finish, keep the client informed of progress during the assignment, and I get paid either before I start (if I think they could try to haggle on price again at the end) or upon sign off of the job (if I feel they will be reliable). I don't always get it right but I believe it's best to try these things out and learn as I go along.

 

Even for one-off pieces of work like the job you refer to, agree price upfront. But sell it to the client based on what they need as part of the service, what you will provide and when, the options you will cover for them, and the benefit to them of having these options/computations prepared by you. That way, I believe you could easily negotiate a higher fee for the tax work you carried out (prob £150 to £200 in my reckonings). If you feel this is high, don't forget that speed of delivery adds value!

 

In terms of agreeing prices going forward, try to build an annual fixed fee for your clients covering compliance work and a certain amount of time each year for ad hoc/one off advices etc. Giving an annual fixed price and monthly payment plan means you don't have too worry about haggling over 2 hours of work. I reckon you may have spent another hour or two trying to resolve this issue with the client whereas you could have been using your time on the next assignment, or even meeting a new prospect. I know what I'd rather be doing............

@Bob - I still maintain timesheets but only to monitor time spent on each client versus my fixed fee. This allows me to see if I underestimated fixed fees for any client. I only discuss increases to fixed fees if my time on a client's affairs is over 10% of the fixed fee. And I sell it to the client based on better/more service value going forward. Any thoughts on whether or not this method of "value pricing" seems reasonable? I also worked for a big Four firm in the past and a practice who always billed based on time (never again!!!)

Bob Harper's picture

Time sheets are evil

Bob Harper | | Permalink

Sparkey – thanks.

I call what you are doing fixed pricing and it is in between time and value pricing but you are moving in the right direction. 

I believe your time sheets are holding you back because they force you to think about resources, not the value. If you did not record time you would be looking for value all the time. Manage the job using project management but agree the price on value.

Rather than “giving” clients fixed fees, develop service agreements “with” clients. Factor in the experience and the transfer of knowledge and it is great that you are agreeing when the job will start and finish and keeping the client informed of progress during the assignment.

I have a audio CD of Trashing the Timesheet which I think you will find interesting. In explains how to value price a project when you don't know how long it will take. It is not available from the Website..I use it as part of a consultation but I am happy to send you a copy, email me if your address and I will pop a copy in the post next week bob@portfoliomarketing.co.uk

Bob Harper

Marketing for Accountants

sparkey999's picture

Ditching timesheets

sparkey999 | | Permalink

Thanks Bob!  Email is on its way.

I have a fear of taking that final step and ditching timesheets completely as this is the only way I know at the moment of monitoring client assignments........and creating the initial "fixed" price.

Also, I can think of certain cases where the service is the same, books the same quality but my fixed fee is different due to size of client and affordability........hopefully your CD will help.

Really appreciate it!

carnmores's picture

peter try and calm down

carnmores | | Permalink

we have no idea what advice you gave and whether 2 hours was a realistic time if it was 75 seems very reasonable - its all about managing client expectation and how the client perceives your attitude. i always rememebr some one at an ICAEW saying dont give the client an immediate response go away and think about it so you can bill them more , i always thought that coming fom them that was disgraceful

Bob Harper's picture

Systems

Bob Harper | | Permalink

 @Sparkey – fixed prices and timesheets are a pricing system. My suggestion is that they are not as good as value pricing which includes project management. However, I would warn firms not to ditch timesheets until they have other systems in place.

I made this mistake and estimate it cost the firm £50k. I spoke to a firm who estimate he lost £100k so it is important you get it right.

The CD should be with you soon.

Bob Harper

Marketing for Accountants

Other systems in place

Julie Payne | | Permalink

Bob, what are some examples of other systems in place that an organisation should have before trashing the timesheet?

Bob Harper's picture

Value pricing systems

Bob Harper | | Permalink

@Julie – good question. Systems can be hard (written agreements), soft (spoken) and information and they include:

  • Sales skills
  • Packaged services
  • Pre/post and mid project reviews
  • Service standards and guarantees
  • Service agreements
  • Change orders

Bob Harper

Marketing for Accountants

petersaxton's picture

I agree with Sparkey

petersaxton | | Permalink

Bob is correct to say that value pricing is best but it's difficult to be good at value pricing without a lot of experience of actually doing it.

I am of the view that time sheets are essential because a business should always monitor their costs against their income.

bookmarklee's picture

Direct answer to the Q

bookmarklee | | Permalink

£75 for 2 hours research and tax advice seems very CHEAP to me. So entirely reasonable - although frankly I don't have anything like enough info on which to base that reply.  For example:

I don't know how £75 compares with the annual fee you charge the client - if that's £250 then I can see why they would consider that £75 for a specific piece of advice was disappointingly expensive. 

I don't know whether you indicated that your fee for annual work would incldue a degree of advice work. (I guess not)

I don't know if the query was something relatively straightforward but it just happended to be something you hadn't encountered recently. Some accountants might feel guilty that it took 2 hours rather than 10 minutes.

For the record, if you post questions on here you have to accept that some people will offer more advice than you might be seeking. Whilst it may not be of value to you, it will help others who have similar issues.  After all, it's unlikely you're the only person to have fallen into the trap you described. With that in mind I was pleased to read Bob's comments and applaud his resilience. I thought his advice was constructive and right on the money.

Mark

 

 

Bob Harper's picture

Measure what matters

Bob Harper | | Permalink

@PeterSaxton – from an accountants point of view I can see the argument/logic to timesheets and to be honest I thought the same for many years.

I thought time records were necessary to measure performance, even people! However, a while ago the penny dropped for me and if there is any value in time sheets, it is far outweighed by the costs.

The first cost is the time it takes to record and report time. But, much bigger costs are a) looking in the wrong direction and b) not measuring/thinking about what it important.

The CD I mentioned above talks about an airline. They measure KPIs but they are not Key “Performance” Indicators, they are Key “Predictive” Indicators which drive the financial performance of the airline. They are all external/client impacting. They are on-time performance, lost luggage and the customer satisfaction.

These drive the business and the question is what drives your practice performance? It is not the number of hours because we are not machines on a production line, we are knowledge workers.

@Mark - thanks

@Peter - £75 is too cheap by half.

Bob Harper

Marketing for Accountants

Charge-out rates

peter4lc | | Permalink

I thank those who have replied. I do not intend to comment further except to say that I am disappointed that only one person appears to agree that the initial reply was inflammatory. There was no need to make me look foolish by saying "Tip...pick up the phone." I asked a genuine, though maybe naive question and was quite taken aback to receive what I see as an attempt to humiliate me. I had already admitted that I got things wrong in my initial approach.

Please try to exercise a measure of sensitivity in future. I might have been more receptive to your advice had you done so.

 

To be fair to Bob...

chatman | | Permalink

 ...I don't think it was an intentional attempt to humiliate. I think it just came across badly.

Bob Harper's picture

A tip is just a tip

Bob Harper | | Permalink

@Peter – the trouble with forums is that the tone cannot be conveyed in the message so people put their own in. That is normal because it is missing and email is the same which is why I suggested you picked up the phone.

I am not trying to make you look foolish or humiliate, my tip was meant as a tip; 90% of the answer is talking with clients about fees. At the end of the day, some people just do not want to pay and so you can identify quickly and move away from them. However, most have no problem paying, especially when you talk value.

Bob Harper

Marketing for Accountants

sparkey999's picture

Drawing a line......

sparkey999 | | Permalink

@ peter4lc

I hope you can take the positives out of this one. I think everyone knows you recognise you now now to agree price at outset. But take on board all other comments and advice on this one - I know I have! This has been a very useful forum. Get ahead of the rest when it comes to pricing!

@Bob

I can see why Peter felt this way initially and maybe just expand your tips a bit so they sound less condesending. I know you certainly didn't intend it that way but it just goes to show how a few extra words typed can make a sentence come across completely differently! I remember reading a book called "Write to Sell" a while back - really good stuff if applied by professionals too.

 

 

Other factors

noradh | | Permalink

First, I consider the fee much too low based on the info provided. There is another factor to consider. Presumably, you went through the money laundering procedure plus drafting the engagement letter. In my experience, this could easily add another 2 hours to the time spent. This should be taken into account. If you don't charge the client for that kind of 'admin' work, then who WILL pay for it? Your other loyal clients, presumably? Seems unfair on them! You may not like this advice, but I intend it constructively.

 

Paul Scholes's picture

For what it's worth

Paul Scholes | | Permalink

Hi Peter, I've come late to this one but hope I can still make a contribution. 

If you search Aweb for previous opinions on charges, you'll find that your question has become a casualty of the charge-out rate v value pricing debate. I suppose you could have added "only those who use charge out rates need respond" but that's a bit like restricting responses on a Man U performance to just Man U supporters.

Even amongst charge out rate users you'll get various opinions, ie £75 for 2 hours is too much, too little or just about right.  For example, if I was asked to spend 2 hours on a BIK query I might start with a base fee of £250, but then I know someone who probably knows more about BIKs than I'll ever know, who charges me £22 per hour and who might actually know the answer off the top of her head, with 10 mins just to double check.  Similarly, I spend £1.5K pa for CCH facilities, including excellent tax helplines, and so might get the same advice in a 5 minute call costing (on a time apportioned basis), less than £1.  So, looking at the cost I'd make a mint charging £50.

Time and time again when getting into "discussions" with clients and staff over charge out rates/WIP the same dilemma arises and I've even got into discussions about why on earth did it take you 2 hours, did you have a hangover?

At the end of the day there are 2 constants which tend to be ignored by charging time (or even recharging cost at a markup) and are the reason why you will never get a definate answer to your question.

The first is the advice itself, ie whether it takes you 1 or 5 hours to find out, the answer to the client's question is the same.  The second, as you have found out, is the client, ie no matter how long you take, or even what hourly rate you use, the client will either think you are god's gift for knowing the answer or will think you are "having a laugh".

That's why more and more accountants are starting to look at value to clients of the work they do and the value to the firm of the client.  So if your average valued client would have been only too happy with £75 for the advice you gave, then this client is out of touch with your firm's reality and, unless there is another reason to keep him/her, you should not feel bad about taking the money and saying goodbye.

That's about as definate as I can be.

 

Value of this discussion to everyone else

SSmithCA | | Permalink

Can I just say how immensely valuable I have found this discussion. I know it was probably not the OP's intention that it should be so, but I hope that he will find some comfort that you may well have helped others of us not to have to face the same issues in the future. There but for the grace of God go I, after all. This is exactly what accountingweb should be all about in my view; thanks to all the contributors.

 

 

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