Charge out rate strategy

Whether to increase charge out rates

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We usually increase charge out rates by 3.5 percent a year but we are not always able to increase fees charged by this amount due to client pressure. Chargeable time has generally been decreasing over the years so the logic follows that you should increase charge out rates to maintain the value of WIP. There seems to be an issue with seniors not being able to complete the job within budget and the conclusion is that this is probably due to ability rather than rates and budgets or poor management. Therefore , despite this it seems to be right to keep increasing charge out rates but would welcome any views on alternative strategies.

Replies (51)

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By David Ex
17th May 2021 17:57

Rogerg67 wrote:

Chargeable time has generally been decreasing over the years so the logic follows that you should increase charge out rates to maintain the value of WIP.

That sounds like a complete non sequitur to me!

Rogerg67 wrote:

There seems to be an issue with seniors not being able to complete the job within budget and the conclusion is that this is probably due to ability rather than rates and budgets or poor management.

Sounds very much like poor management if the seniors are not trained/supported/performance managed sufficiently to be able to carry out their work. Or maybe the budgets are unrealistic and unachievable.

Rogerg67 wrote:

Therefore , despite this it seems to be right to keep increasing charge out rates but would welcome any views on alternative strategies.

You can charge whatever you clients will pay but, unless I have misinterpreted, you seem to be suggesting increasing fees (at an inflation busting rate) for the same service to compensate for ongoing internal management failings. If I was a client, that's not something I would be prepared to fund.

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Replying to David Ex:
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By Rogerg67
17th May 2021 19:06

Appreciate your comments but this has been a long term strategy and we are very profitable so there is nervousness over doing anything different.

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Replying to Rogerg67:
Stepurhan
By stepurhan
18th May 2021 09:25

Rogerg67 wrote:

Appreciate your comments but this has been a long term strategy and we are very profitable so there is nervousness over doing anything different.

You are very profitable, yet you want to increase charge-out rates.

Perhaps you would be better taking a minor hit on those profits for now and try to work out what the real problem is. The fact that it "seems" to be because of your seniors who "probably" lack ability indicates you haven't gone very far into this yet. Your profits will look at lot worse if you lose all your senior staff because it turned out your failure to budget sensibly or provide them up-to-date tools and training was actually the issue.

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By Truthsayer
17th May 2021 18:26

'poor management'....That sounds like the problem, and I don't merely mean poor management of seniors' time.

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By the_drookit_dug
17th May 2021 18:30

Go easy on your seniors! While I appreciate that there may be an issue with them perhaps overanalysing and overthinking work - or maybe just being slow at times - I've seen plenty of firms where off-imesheet hours are thrown at jobs to come come in on budget, which only ends up being baked into budgets and ends up exploiting staff.

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Replying to the_drookit_dug:
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By Rogerg67
17th May 2021 19:03

I guess staff need to learn it’s not a 9 to 5 job.

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Replying to Rogerg67:
RLI
By lionofludesch
18th May 2021 06:42

Rogerg67 wrote:

I guess staff need to learn it’s not a 9 to 5 job.

What's that supposed to mean?

You expect your staff to work unpaid out of their contracted hours?

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Replying to lionofludesch:
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By Rogerg67
18th May 2021 08:17

The idea is that if they can’t do the job in the budgeted time they should do it in their own time. Is n’t that how most practices work?

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Replying to Rogerg67:
RLI
By lionofludesch
18th May 2021 08:29

Rogerg67 wrote:

The idea is that if they can’t do the job in the budgeted time they should do it in their own time. Is n’t that how most practices work?

No. They're not self employed. They don't decide the budget. You could easily set an impossible budget and have them working for nothing.

Maybe you need to consider carefully how you motivate your staff.

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Replying to lionofludesch:
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By Mr_awol
18th May 2021 09:14

To be fair, I'm assuming there's a bit of fishing going on in this thread, particularly with the later comments, and I suspect the OP doesn't actually treat their staff like [***] quite so much as they are suggesting.

Or maybe they do, and they are the problem, not the staff. Maybe they should do a job from scratch and see how long it takes them (something i will be doing next week as it happens).

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Replying to Mr_awol:
ALISK
By atleastisoundknowledgable...
27th May 2021 09:02

Mr_awol wrote:

Maybe they should do a job from scratch and see how long it takes them.

Good call

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Replying to Rogerg67:
Stepurhan
By stepurhan
18th May 2021 09:32

Rogerg67 wrote:

I guess staff need to learn it’s not a 9 to 5 job.


I guess you need to learn that, unless you are profit-sharing, it is literally a 9 to 5 job. No-one owes your their free time to make you profitable.

If you are giving people workloads that require work outside the normal hours on a regular basis, you are the problem. You will lose good staff by thinking otherwise. In fact, if your current senior staff are as low-skilled as you think, this attitude is almost certainly why. Skilled staff have gone on to jobs where they get the respect they deserve. You are left with those that will put up with anything because they can't risk not being able to get another job.

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Replying to stepurhan:
blue sheep
By NH
18th May 2021 09:42

I think we are being led up the garden path here....

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Replying to NH:
Stepurhan
By stepurhan
18th May 2021 11:04

NH wrote:

I think we are being led up the garden path here....


As long as it isn't this garden path. There are severe penalties for picking the flowers and the "water" feature is downright disturbing.

The Garden of Jane Delawney by Trees (1970)
https://www.youtube.com/watch?v=hF2GHHCLFTM

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Replying to stepurhan:
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By Jimess
25th May 2021 10:26

One of the best songs ever written in my opinion.......

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By Hugo Fair
17th May 2021 18:47

You mention or show no correlation between 'your' needs and the needs (or wants or expectations) of your clients.

It is reasonably common to have (the option for) an annual RPI increase to hourly rates - but it's more common where the services delivered are not particularly skill-based, and is often not applied (if competitive forces militate against it).

In a high-skill environment (such as professional services), pricing is usually more of a balance between added-value (from the client perspective) and maintaining margin cover (from your perspective).

So, if as you appear to indicate (although your post is rather vague and missing any direct question), you are concerned that certain jobs/staff are not generating the desired margin ... then there are three key issues to analyse:
a) Are these projects that you shouldn't take on? (because they're too infrequent to justify highly skilled staff, or because you have a more focused competitor operating in that area, or whatever);
b) Are you under-quoting for these projects? (because you think contrary to the evidence that they should take fewer hours than they do, or because you haven't invested in the tools to make the core processes more efficient, or whatever);
c) Are your resources poorly managed/directed? (because you haven't aligned skills properly with projects, or allow lack of clarity from inception of a project to result in project slippage, or whatever).

If you really think its viable to "be right to keep increasing charge out rates" for no reason other than your margins, then why not just double them and bank the excess margins until you have no clients left (a strategy I've seen used as an alternative to selling a practice - the "bite the hand that feeds you" philosophy).

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Replying to Hugo Fair:
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By Rogerg67
17th May 2021 19:02

Thanks, may be we need better IT and training but this will mean we need increase rates by more than 3.5%

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Replying to Rogerg67:
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By Hugo Fair
17th May 2021 21:14

Has the concept of investment not entered the strategic minds of your company?
It usually pays to maintain or even upgrade your resources (whether electronic or human), in order to at least prolong active use - and also to increase efficiency and output.
You can't just frontload all such costs into current year re-charges ... assuming that this isn't some wind-up based on a Dickensian story. Or if you actually can, then you've got such a compliant clientbase that you might as well just increase the charges without investing (or even caring about productivity).

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Danny Kent
By Viciuno
17th May 2021 19:54

Is this a case of scope creep?

Are your seniors doing work that isn't included in your initial quote/fee that is stretching the budget?

Are they getting a million emails/calls from other clients asking the odd question here or there that is getting lumped into another clients time?

You say that you have come to the conclusion that the budget overspends are due to the seniors ability - why not ask them directly? They are the ones that know why jobs are going over budget. Looking at it from a clients perspective - why would I pay more for someone that is less experienced?

Are they home working? Does time liaising with other members of the team take much longer? What would normally be a 5 mins conversation across a desk turns into a 1/2 hour teams call because they haven't seen one another for a few days? Are they messaging each other rather than calling (typing takes so much longer and some staff don't read things properly so you end up saying the same things over an over again).

Following on from home working angle- are the juniors (who the seniors supervise) taking much longer to do something because they don't feel they can call someone for help - inflating the time taken to do something. Or are they giving up and leaving it for the senior to fix at review?

TBH - bit of a guessing game here. You really need to speak to your staff. Either your expectations are too high or there is an issue that you need to sort.

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Replying to Viciuno:
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By Rogerg67
17th May 2021 19:56

We spoke to them and they felt the charge out rates were to high but we think they just need to speed up. Same problem before lock down but home working may have made it worse.

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Replying to Rogerg67:
the sea otter
By memyself-eye
17th May 2021 20:05

'seniors' 'juniors'.....really?
So 1960's - no actually 1940's!
My advice?
Charge less
worked for Ryanair, Amazon, Easyjet, ALDI, AO.com Poundland (and any other supermarket)

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Replying to memyself-eye:
Danny Kent
By Viciuno
17th May 2021 20:40

What is wrong with the title senior or junior - its just a title and intended to represent what the job entails/skill level. I personally can't stand titles like client servicing assistant or client manager or whatever some HR guru has decided is the next best thing.

Are there any relatively inexpensive improvements you can implement to improve efficiency? Do staff all have 2 screens? I would never work without 2 now! All using good, fast computers?

Do all staff know how to use things like freeze panes on excel, keyboard shortcuts for copy paste or how to use a pivot table - all minor things that help streamflow your workflows.

There are often multiple reports from software for the same thing, some of them useful and other that are not. For example Sage has payroll reports that don't have pension deductions as standard, so a 2nd report needs to be run to check these - there is actually a third report that already merges the two. You might know about this, but other staff members don't.

Do you have seniors doing things like bank/VAT recs or bookkeeping that could be done by a trainee? If they are getting pay rises but their workload isn't changing to more skilled (& therefore higher fee'd work) then they will never been able to keep up with their salaries. No point in giving low skilled work to a senior - clients shouldn't be paying top dollar for something that could be done much cheaper by someone else in the firm.

I somewhat agree with "memyself-eye" though, sounds like you could be focusing on improving your employees workflows rather than increasing charge out rates by huge amounts.

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Replying to Viciuno:
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By I'msorryIhaven'taclue
17th May 2021 21:27

Is the charge out rate that needs adjusting? Maybe it's time to introduce the weighted hour concept.

I empathise, because if your current model works it's always risky to tamper with it.

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Replying to memyself-eye:
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By paul.benny
18th May 2021 09:28

It's a bit of a tangent...Ryanair and Aldi are ruthless at eliminating cost - so in the case of Ryanair, flying from secondary airports, and eliminating almost every service - or converting it into a chargeable extra.

Perhaps more pertinently, although headline prices are low, if you want to fly tomorrow, you'll pay top price. If you need to change a booking, you pay a fee plus any price differential.

How many firms charge different amounts for annual accounts according to when the client provides data? Or charges extra when they have to chase them for missing stuff (or even just approve the tax return for filing)?

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blue sheep
By NH
18th May 2021 07:11

your main problem seems to be that your seniors are not working efficiently, or at least that is what you seem to think.

My first question is, how have you come to that conclusion, have you tested your process right the way through from budget to job completion with a number of different jobs and a number of different seniors.

If I could do a job in 4 hours and staff member takes 8 hours, I would have 3 options
1. either accept that fact if the job is still profitable
2. take a light look at the working methods and work produced to see if there was an easy way to improve
3. take a more heavy approach and look at the process of completing the job right the way through to see exactly what work has been done

We had a situation similar to this recently where we had budgeted 10 hours a month for a job and it had steadily increased to 20 hours. When we looked at it the main issue was the flow of information from the client, a number of smaller things in themselves that added up. When we spoke to the staff member and the client we brought it back down to 10 hours.

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Routemaster image
By tom123
18th May 2021 08:52

What you Measure is What You Get.

All this "working until the job is done" stuff kind of went out with the ark - plus is a tad expolitative at the lower levels (and also higher ones, of course).

If you only get the work done by using unpaid overtime, then you are of course fooling yourselves.

A previous factory I was at had about ten different internal charge rates for various grade of tradesperson.

Plus, needed a whole analyst job to keep track of all the spreadsheets.

Be realistic on the time required. If you have less time, then what bits of the work are you going to ignore?

If you are trying to charge everything at 3 x the salary, then that is probably where you are going wrong.

Don't believe the software salesmen that say everything is almost automatic.

The people on the ground will know how long stuff actually takes, regardless of what you may wish it to be,

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Replying to tom123:
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By Rogerg67
18th May 2021 13:25

Maybe I should do a couple of jobs myself and see how long it takes

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By ireallyshouldknowthisbut
18th May 2021 12:24

What's your staff turnover like?

What is your client turnover like, and why do they leave? (ie price, service?)

Those are the best two metrics on (a) if you are overworking your staff, (b) if you are overcharging if you are so distant from things that its not obvious.

I pay overtime to fully qualified staff if its required and don't expect them to work 8 hours solid 5 days a week. It never happens and is unrealistic.

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Replying to ireallyshouldknowthisbut:
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By Rogerg67
18th May 2021 13:23

We are a training office so there is the natural turnover when staff qualify and go into industry. Recruitment at qualified level is difficult and have had turnover due to lack of ability.

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Replying to Rogerg67:
By ireallyshouldknowthisbut
18th May 2021 13:47

Sounds like you expecting the world out of your staff if you think they are not good enough but at the same time cant recruit (which is normally a wont pay the wages issue, not a cant find the heads issue)

Really good staff would not want to work for you long term, they would start their own firm. Which presumably you did at some point.

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Replying to Rogerg67:
Stepurhan
By stepurhan
18th May 2021 14:26

Rogerg67 wrote:

We are a training office so there is the natural turnover when staff qualify and go into industry. Recruitment at qualified level is difficult and have had turnover due to lack of ability.

You're a training office? So you're not a real accountancy practice?

Or are you seeing staff move on and assuming that, since you were just "training" them that is the norm. I guess adopting that view makes it easy to avoid thinking that they leave because they cannot wait to get away from you and your exploitative mindset.

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Replying to stepurhan:
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By Mr_awol
18th May 2021 14:46

To be fair the office i trained at held the same mentality.

Take on half a dozen graduates/A levels, etc, criminally underpay them for as long as possible, dangling the carrot of 'future' progression if they took on more work, proved themselves, etc, and then when they finally realise they are never going to reach the promised land and could walk into a job earning almost twice as much, let them go and start again with a new batch of mugs/trainees.

I'm sure it's not an uncommon approach. I've seen it at a few places, and have to say that the staff you pick up from these places are generally great - grateful for a market rate salary, willing to go the extra mile (somewhat surprised that it isn't demanded) and the training they've received tends to be excellent (either that or those that were never going to make it fell by the wayside early on).

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By Cat's whiskers
18th May 2021 13:07

Gosh this question and the OP's replies makes me very glad I no longer work for someone else!

The idea that you can keep upping chargeout rates without upping fees and expect the same level of profit and service was a huge bone of contention when i was an employee in practice. It sounds like the OP has a very outdated attitude. Time to review your strategy.

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Replying to Cat's whiskers:
RLI
By lionofludesch
18th May 2021 13:28

Cat's whiskers wrote:

Gosh this question and the OP's replies makes me very glad I no longer work for someone else!

The idea that you can keep upping chargeout rates without upping fees and expect the same level of profit and service was a huge bone of contention when i was an employee in practice. It sounds like the OP has a very outdated attitude. Time to review your strategy.

Me too. My last employers upped my chargeout rate by 60% one year and were surprised when there was a loss on pretty much every job. They had no conception of reality and I was glad to leave.

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Replying to lionofludesch:
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By Mr_awol
18th May 2021 14:51

Ha - the 'good old' days of getting a £500 (or nothing at all) payrise and then being told our charge-out rates were going up by 20%!

Along with "congratulations on passing your exams, unfortunately we cant put your salary up because it's only a bit of paper and doesn't suddenly make you more valuable to us - it just increases your options elsewhere, but then you'd have to move to a lesser firm so your best bet is to stay here and progress to (insert unachievable goal here)"

Not that I'm bitter about it.

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By carnmores
18th May 2021 14:34

it's not a logic I get. I understand that because of covid Scrooge may have missed Xmas well he seems to have woken up.

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Replying to carnmores:
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By Hugo Fair
18th May 2021 15:19

I wondered whether April Fool's day was celebrated more than once p.a. nowadays?

OP needs Marty McFly operating in reverse (Back to the Past) - although I wouldn't have put up with those conditions even in the late '60s (when at least you had the more direct option of saying to a Neanderthal boss "You ... me ... car-park")!

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Replying to Hugo Fair:
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By Rogerg67
18th May 2021 16:48

I am surprised by your comments. I thought most firms operated in this way.

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Replying to Rogerg67:
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By Hugo Fair
18th May 2021 17:33

If you're intent on winding-up this many people, the least you could do is hand out free keys.

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By Rweaver
18th May 2021 15:10

Where in the country are you, “Roger”?

You sound EXACTLY like my former employer, to the point I think you might be. Note use of the word “former”.

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By andrew1211
19th May 2021 08:58

Why are people so hung up about "losses" on jobs when in reality you have already said your practice is profitable. The reality is you charge what you can get away with; some jobs make a "profit", some a "loss" but it is all just on paper at the end of the day. You have a pool of jobs/income and a pool of staff/costs doing the jobs. This is assuming you have spare capacity and that you cannot simply ditch poor recovery jobs and get better recovery ones...this is the nirvana everyone wants but can never achieve. So any new jobs you take on means the extra fee has no extra cost so pure profit. Of course, there are client losses too. The question is whether you can legitimately charge more for one off work and get 100% recovery on such work in which case increasing CORs is fair game....even if a very small % of the total work done pay at the higher rates you are making more money. Assessing staff on profits and losses on jobs is totally pointless, demoralising and demotivating.

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By Michael Davies
25th May 2021 10:04

If you use RPI increases there is not a lot the client can moan about is there ?Although one year my charge out rate increased by 25% overnight;for more or less the same body of work.

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By JD
25th May 2021 10:06

I have worked at a place like that, seemingly professional, but went through people until there was nobody left that would work for them.

What have YOU done to show your seniors how to be more efficient and maintain standards. What have YOU done to simply what is required of your seniors rather than load additional requirements into each and every Job. I bet in the same period that it has been more difficult to meet budgets, you have added in a serious of additional requirements.

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By Duggimon
25th May 2021 10:42

You are reducing the budgeted hours per job by 3.5% every year and complaining people aren't doing jobs in the time allotted. I am unconvinced the issue is with your staff.

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By tonyaustin
25th May 2021 15:06

I suspect chargeable time has gone down because charge out rates have gone up! Staff may be booking less time to jobs to keep wip equal to a fee the client will accept, so as not to show an under-recovery.

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By stan.turner
25th May 2021 15:26

There seems to be a profitable situation so what's the actual problem.

Many years ago was advised double my fees kick out half the clients and move from there. Would have the same profit for half the workload. Good idea but not sure it would work but 3.5% should not be a problem if you are giving a good service although there are always some which will complain. Look in the mirror.

Need to train staff and keep them in a happy environment and they will become more efficient

On reflection I should have kept my thoughts to myself - Wonder the %age who will ?

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Replying to stan.turner:
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By Rogerg67
27th May 2021 07:01

Do you budget for super profits? We do.....

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Replying to Rogerg67:
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By lionofludesch
27th May 2021 07:22

Rogerg67 wrote:

Do you budget for super profits? We do.....

Super profits? I take it that this represents the fees you receive from the staff's unpaid work.

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Pile of Stones
By Beach Accountancy
25th May 2021 20:41

I used to work in a IT-based service industry where, because of international competition, price rises were out of the question. As staff expected a pay rise every year, the business had to find ways of being more efficient to remain profitable. This sounds a very similar problem.

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ALISK
By atleastisoundknowledgable...
27th May 2021 09:13

At the 2 partner firm I trained at (I can see why you consider yourself a training firm Roger), as any good trainee got towards their ACCA finals, we were told “work hard and you could be the youngest partner we’ve ever had”. At least 3 of us were told that.

When I qualified and became manager of the business services dept (ie managing all the trainees), I had to bill the equivalent of 40hrs week on jobs that I had no input on the budget, as well as manage that team of 6 trainees and review all of their work. The senior partner was shocked when I handed my notice in.

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