Fixed fees or time sheets?

Fixed fees or time sheets?

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There are arguments for, and arguments against. Which do you think is the best basis for charging your time?

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Dan Martin
Business Editor
AccountingWEB

Replies (11)

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By listerramjet
09th Nov 2006 10:18

morning Clint
there are two tools to help you manage "client inefficiencies".

one is to charge "standard hours" for different tasks. This is the vehicle servicing analogy! You can break most compliance type jobs down into several "shopping basket items, and with not too much difficulty you can devise a simple measure to get "standard hours". There may be some variability due to specific client factors, but if you want complex you can add multipliers based on a tick box approach.

the second is to make sure your terms of engagement make clear where responsibilities lie - i.e. you are doing this work on the following terms (the small print!).

The your management task is to make sure that the terms are met, and where additional work is identified, then it is discussed and agreed before anything is done.

This is about clarity and simplicity - and to my mind client service!

So how would timesheets fit into this system? The capture is of elements on a specific job - sits on the job file, and is identified mostly up front before the job starts. Any additional billing opportunities are also recorded on the job file - and majority should be sold as value added, rather than (notional) cost to you.

In this way, the client problems become a management challenge and and you can deliver a solution, get paid, and get client satisfaction - so everyone is happy.

Of course the third tool is about managing the bad clients out of the door - and you have to face that one as well.

Of course this does not help you manage your staff as a resource, but timesheets actually don't deliver that anyway, because what you actually want is a planning tool rather than a (flawed) reporting tool.

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Richard Murphy
By Richard Murphy
08th Nov 2006 20:31

Both
Charge a fixed fee as long as the client delivers what they promised. If they do, you must do the same.

Collect time sheet data to manage your scarcest resource - your staff''s time.

This is not an either / or.


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By petersaxton
08th Nov 2006 21:08

OPs question
Although some people say that timesheets are not necessary if you charge fixed fees, the OP didn't suggest that. The OP was asking what is the best basis for charging.

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By User deleted
09th Nov 2006 08:32

Timesheets - not for me (now)
Luckily, I don't have to complete timesheets anymore. Marking off every 6 minutes of my day and then thinking 'I've only got 6.5 hours down where did the other hour go?'

Timesheets are a chore for most people but I can see that they have their uses. How do you know that your fixed fee is correct if you can't measure the work it takes to produce that service? You can't get any more money out of the client (unless you have some get out i.e. info delivered late) but it gives you the chance to change things when the work comes around again.

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By listerramjet
09th Nov 2006 09:07

the measurement fallacy
it did not take long for this one to emerge!

so what do timesheets actually measure? Based on my many years of experience in several different firms of all sizes I would suggest not much of value! The concept of recording a 7.5 hour day and "not on my job" mentality is stubbornly persistant, and I would contend that timesheets do not provide a reliable means of monitoring staff productivity, and nor do they provide a sensible means of charging for work performed.

Of course the real problem is that the objectives from timesheets are not stated - different roles have different (contradictory) expectations - and as a result they deliver nothing.

Even if you don't subscribe to the idea of value charging, then there are other much better ways of ensuring that you charge the "right" amount. And I have yet to hear a convincing argument in favour of timesheets to control staff.

The only logical time to record time is when there is a clear requirement to charge by the (real) hour - and I suspect that is not that often.

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By AnonymousUser
09th Nov 2006 09:59

Most systems based on time sheets ...
... have built-in opportunities and incentives to teem and lade, or otherwise fiddle the figures.

Staff are assessed on performance. At various stages there are conflicting forces on staff in recording their time. They are presented with a target of productive hours to achieve, contrasted with targets of time to be recorded on specific jobs. Of the productive hours there are targets limiting the amount to be written off as a loss at invoicing time, and targets of debt recovery post invoicing.

That is all very well provided that staff are scrupulously honest. But where targets do not match actual performance something has to "give", and it is often trusted to comparatively low grade staff to make a subjective decision on where that "give" is recorded.

It can become a particular problem when work flows through several members of staff (rather than completion by a single staff member) as might be the case where accounts and tax functions are compartmentalised. In such cases there is an incentive to leave work for the other party to complete, so as to artificially enhance your own apparent contribution to costs.

Accurate time recording can be valuable, and I have yet to see a better method for monitoring job costs. But too often I see its use as a club wielded by those on high for the apportionment of blame and unrealistically squeezing targets. In those circumstances the value of the exercise diminishes.

In a perfect market you might expect the hourly rate system to win. A fixed fee system will build into the fixed fee a margin to allow recovery on efficient jobs for the losses on inefficient jobs. An efficient client, presented with the choice of having their work undertaken on an hourly cost basis or the alternative of funding someone else's inefficiency, should normally opt for the hourly method. That should result ultimately in the fixed fee quoter having a portfolio of nothing but inefficient clients. That in turn will result in an uplift in the fixed fee quotes, until eventual melt-down.

As against that perfect market, most clients would prefer a degree of certainty in their affairs and may be prepared to pay a premium for that certainty. Also the administrative time spent in raising fees that are based on complex methods has a cost of its own, which overhead can be discounted when absorbed into a fixed fee system.

It is my observation that for most recurring compliance work, accountants are gravitating toward fixed fees (with caveats for client inefficiency, which almost invariably are invoked). There is perhaps a distinction to be drawn between "menu-pricing" (client-independent) and "fixed fee quotation" (client-specific). Client independent menu pricing seems a step too far, to me.

The interesting area to my mind is charging for planning work. We definitely tend to charge on an hourly basis for this work, but arguably the hourly charge-out rate should be at a premium, which is usually not invoked.

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By AnonymousUser
09th Nov 2006 10:22

Thanks Alastair
I was making some mainly cosmetic edits to my post as you were posting, but essentially I agree.

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By AnonymousUser
09th Nov 2006 16:31

That depends a bit, does it not, ...
... on how much your competitors are charging for the same service?

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By NeilW
09th Nov 2006 15:01

Neither
Shouldn't the fee be based on the value of the work to the client?

NeilW

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By User deleted
09th Nov 2006 17:03

But also...
I don't know if anyone of you have ever ended up in a fees dispute that goes to a regulator or a solicitor (I have) the first thing they always ask for is the time costs regardless of whether or not the client signed to a fixed fee deal.

We charge fixed fees for all work but keep timesheet in case we fall out with anyone in the future!

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By listerramjet
09th Nov 2006 17:14

Robert
I would guess they ask for time breakdowns because they think everyone still records them. I wonder if anyone from the relevant body is able to comment?

I am not aware of any regulations that require firms to maintain comprehensive time records, although if your terms of engagement indicate you charge by the hour then it would be unfortunate if you were not able to demonstrate the hours bit of the calculation!

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