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Using outsourcing to deliver effective fixed pricing

11th Mar 2024
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Initor Global UK provides premium outsourced services to UK accountants and businesses.

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Many accountants find the most challenging part of their profession is pricing services in a way clients can easily understand while securing desired profit margins. While sophisticated models are available, using a fixed price approach can make an accountant’s life easier and help avoid any difficult conversations with clients about fees.

Initor Global UK | outsource accounting | fixed pricing
Initor Global UK

 

In this blog we will look at how accountants are using outsourcing to underpin different models of fixed pricing to improve profit margins, add value to their business and improve client experience.

What is a fixed price model?

Fixed pricing usually involves using a flat rate based on the type of service provided. It is often linked to the complexity and turnover of a client, with more complex clients being charged a higher fixed fee. When developing their fixed fee scales, accountants will need to understand the cost of the resource to deliver the planned work, the margin needed to achieve the desired profit and the risk and complexity of the client.

The calculation of the human resources part of the fee is based on the type of professional involved in the assignment, from bookkeeper to qualified accountant and other experts such as payroll professionals. Indirect costs of employment tax, holidays and employee benefits will need to be considered, as will other ‘non-chargeable time’ needed for training and continuing professional development, business development and management time. Client overhead costs such as accounting software and cloud data storage are often overlooked and need to be included in the fixed fee calculation.

Positively, using a fixed price approach makes quoting for work straightforward and the fee is easily understood. There is scope to improve profit margins and efficiency through investment in technology and improved processes, reducing the amount of time taken to complete each task. Outsourcing work can provide significant reductions in overheads with the cost of an offshore resource typically 50% less than the UK equivalent, and indirect employment costs are avoided.

Less positively, using a fixed price approach means the risk of completing an assignment within the fixed fee lies with the accountant. If there are overruns in the time taken to complete the work, there may need to be an increase in the fixed fee. There is also some risk that the work performed throughout the course of an assignment is wider than the agreed scope and the needs of the client may change if they report significant growth. Tracking the progress of each assignment is therefore essential to raise awareness of any delays, additional work, cost overruns or change in the client risk profile at the earliest possible stage.

Subscription based fees

With the advances in cloud-based accounting, and the option for businesses to ‘self-serve’ their bookkeeping and accounting arrangements, many accountants are now implementing a subscription-based model to collect monthly fees from clients. The subscription model is suitable where clients are seeking a fixed service each month, such as monthly bookkeeping or payroll runs and access to accounting software. The cost of preparing annual accounts for a limited company and filing company tax information is spread over the contract period. The subscription model ensures accountants have a fixed amount of monthly income based on a clearly defined level of service.

Clients may choose to complete their own bookkeeping and monthly bank reconciliations. The fixed fee therefore covers only the cost of accounting software and preparing annual accounts and company tax returns. If additional services are required, these costs are added to the monthly subscription amount based on a fixed schedule of rates and paid over the contract period. Alternatively, a one-off fee may be required which is paid under separate terms of service.

Clients who are small business owners often prefer the subscription model and the certainty it provides about their accountancy fees, monthly outgoings, and the services they can expect. Accountants with large numbers of similar clients have successfully implemented the subscription-based model. Outsourcing tasks at peak periods such as end of tax year or when deadlines to file information with Companies House and HMRC are due can help manage workflows and deliver higher volumes of work.

Hourly or ad-hoc fees

Some accountants prefer to bill clients each month based on the number of hours they have spent working on an assignment. The services are commissioned by clients on an ‘ad-hoc’ basis and paid for based on a schedule of fixed rates. Clients are billed at the end of each month based on the number of hours taken to complete the work and the cost of the resources involved.

Hourly billing is one of the simplest pricing models to use though accountants will need to record the time taken to complete work for each client and have effective systems in place to bill clients and ensure income is received when due.

Unlike fixed fee and subscription-based pricing, the total fee for work billed hourly is calculated after the work is completed, so there is some risk a client disputes a bill or refuses to pay. Some clients may not perceive any value in the services provided as they simply pay as they go. The hourly or ad-hoc rate approach can be used for recurring tasks such as monthly bookkeeping or the preparation of quarterly VAT returns and annual accounts.

If you are an accountant looking to outsource services, increase margins and implement more efficient systems and processes, you can book a video call with one of Initor Global’s expert advisors using this link or send an email to [email protected]