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Accountants divided on fixed fees vs hourly rates

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As accountants wonder if they’re overcharging or undercharging their clients, a debate arises – are fixed fees or hourly rates the way to go?

8th Apr 2024
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A popular topic on Any Answers, fees are guaranteed to divide the community. Regular contributor WinterDragon posted to share some interesting price findings from other firms. 

“I thought I would do some sanity checks on whether we’re having a laugh with our prices so I went scouring Google to see if any firms have published price lists and I saw some wild things,” he said. 

Among a few of the surprising things found were fixed fees for helping a client set up a Government Gateway ID, charging £20 for self assessment tax returns and charging per HMRC phone call. 

This led to many of the community questioning their own fees and whether they are undercharging or overcharging. 

Another Any Answers post by JimLittle questioned the same thing: “Labour rates have increased substantially, especially since Covid, but I wondered as accountants do we undercharge ourselves?”

This sparked a division among the AccountingWEB community over whether it is better to charge a fixed fee or an hourly rate.

Hourly rate advocates 

Some argued for hourly rates, drawing parallels to the legal profession. They argued that if the legal profession does it, why can’t we?

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Replies (30)

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By FactChecker
08th Apr 2024 22:17

Chaplin said, “Say you increase the price for 12 customers and you lose one, you are doing 11/12s of the work for more money. What is the issue in that?”

I'd have thought the obvious answer to that is ... it depends:
- on how much revenue that lost customer represents
- on whether that was one of your more profitable customers
- on whether they were being built up as one of your faster growing customers
- on how much extra time you now have from not doing 1/12 of the work (if they all, unusually, involved identical effort)
- on whether you can neatly fill that extra time with a new customer paying at the higher rate
- and so on ...

In short, as should be obvious, there's no 'one size fits all' - unless you only provide a service for the 'one size' market (which is where automation is taking some practices).
On that note, I prefer 'client' to 'customer' ... the former is what professionals (of any persuasion) have, whereas the latter is suggestive of retail/commerce (not based on 'what do you need', but on 'what have I got in stock to sell you').

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Replying to FactChecker:
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By Paul Crowley
08th Apr 2024 23:29

Agree
My fees are all over the place. Most get a fee for wages twice year, VAT four times a year and an annual accounts fee. Occasional once off stuff. Based on time and skill, but usually last year plus a bit.
A bit difficult to change to monthly, as clients would need to pay double in the first year.

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Replying to Paul Crowley:
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By johnthegood
09th Apr 2024 06:27

Paul Crowley wrote:

A bit difficult to change to monthly, as clients would need to pay double in the first year.

FWIW, when we brought in monthly a few years ago we offered it as an option rather than insisted and probably around a third chose it right away. The way we did it was started the payments 6 months after they would usually have paid us.

Since then we prioritise monthly but again without insisting and pretty much all new clients choose monthly so that now we are up to about 70-75% on monthly.

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Replying to johnthegood:
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By Chandra kant
17th Apr 2024 02:43

Great to hear how you've tackled this - it's what I was thinking would be the best approach so it's really good to see that it worked for you!

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Replying to Paul Crowley:
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By Self-Employed and Happy
09th Apr 2024 11:02

Double???

No, you just start them on DD for the first month of their company year, they pay the last one off fee. It might feel like double if you / they are undisciplined and most of your accounts are filed 6+ months after the year end.

The moving to DD can start a conversation about getting the accounts done early (within 2 months of year end), at which time you can modify their behaviour so that becomes the norm, making you more efficient and profitable.

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By patrickcb
09th Apr 2024 09:43

When I was an articled clerk back in the 1970's we used to call our time sheets "crime sheets". I hated filling them in and swore then that if ever I had my own practice I would ban them.

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By JCresswellTax
09th Apr 2024 10:08

Wow, this is actually a decent, interesting article!

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Replying to JCresswellTax:
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By ArianBloodwood
09th Apr 2024 12:52

Yes super good! The first actual full discussion of the pros and cons of both approaches that I've seen here in 10 years.

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Replying to ArianBloodwood:
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By FactChecker
09th Apr 2024 18:29

The bit that surprises me is how everyone appears to be 100% for one or for the other approach. It's not a binary option and, personally, I always had a hybrid approach - dependent on services and on the specific client (all transparent from the get go).

So ... a fixed-price for standard regular work - such as, for instance, a monthly Payroll service.
[T&Cs would make it clear what was covered (for instance 'year-end' is just the 12th month) in case something unexpected happened out of the blue - but not always used to charge extra, the protection was what I needed].

A hybrid for any one-off/ad-hoc but not too complex cases ... I'd offer a 'fixed-price' based on my experience but make it clear that costs might increase as other things got uncovered (with a guarantee that extra costs would never be incurred without their prior agreement).
If client initially pushed harder for a 'capped' price, then I'd be quite open ... and explain that I could do that BUT it would mean (a) a higher price (just in case) and (b) a stricter definition of what was (and what wasn't) included within the cap.

A 'pure' hourly rate-card (like solicitors with different rates for different levels of experience and/or specialist skills) for cases that were not only one-off and complex, but likely to continue for many months (maybe more than a year) elapsed time.
Of course you can still apply my hybrid options here - just with greater care!
To my surprise, one client was so wedded to the need for a fixed price that I told him it would only be possible at 3x my (experienced) estimate ... and he accepted.

One final point, all and any of these pricing approaches are amenable to different payment plans.
Fairly obviously, the greater the amount + the greater the duration = the greater the risk of defaulting ... so get paid sensible amounts up front.
[What constitutes 'sensible' depends largely on your knowledge of the client but also to a degree on whether the end result may disappoint the client!]

For my favourite clients (and favourite big, complex jobs) I'd offer my own version of HMRC's TTP - but via a monthly POA 'subscription', with a monthly account statement and a quarterly 5-minute review as to whether the terms might need to be reviewed.

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By Ian McTernan CTA
09th Apr 2024 10:22

I'm in the 'fixed fee wherever possible' camp. Or at least a very solid estimate for one off works.

Sometimes somthing will turn out to be much more lengthy or complex than was first thought, and as soon as I realise I call the client and explain it will cost more and explain why. Never had a complaint (ok, an occasional grumble, quickly silenced by a quick run through of the complications!).

Almost all my business clients are on monthly fixed fees and some personal tax ones too, still have the TR only clients billed once a year. Additional works are flagged as such and billed seperately, again with a firm estimate or range provided.

I hated filling in timesheets way back in the distant past then having partners dump time on clients after I'd done the actual work very quickly...

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By CalumStewart
09th Apr 2024 10:46

Even if charging fixed fees (and I tend towards this side of the debate) surely you want to complete timesheets to assess and improve the accuracy of your fees in the future? I'd love to get rid of timesheets entirely but how do you accurately assess jobs/staff or allocate resources without them?

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Replying to CalumStewart:
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By patrickcb
09th Apr 2024 11:41

There's only me here, so it's not a problem.

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By Self-Employed and Happy
09th Apr 2024 10:58

People shouldn't be divided, its very simple.

Fixed Fees for the regular work (increase the fees every now and then inline with costs)

Hourly Rate for the ad-hoc stuff

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By Casterbridge Hardy LLP
09th Apr 2024 11:28

I vividly remember the day, in 1968, that the exam results came through at what was then Thornton Baker (now Grant Thornton) and one wag commented that our qualifications were a licence to print money. He was right and I have been printing money ever since following one basic premise viz. what is the best way to extract a realistic price for services rendered and, surprise surprise, billing needs to be executed on a one to one basis viz. offering fixed fees (with the proviso that fixed fees will always be higher than billing on an hourly rate) in the letter of engagement with the proviso that it there is any deviation from the work contracted then the costs will be billed at the current hourly rate (£450.00p). I have never starved and I have never underbilled.

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Replying to Casterbridge Hardy LLP:
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By patrickcb
09th Apr 2024 11:48

At that hourly rate I can see why you've never starved :) My current hourly rate is £60.00. Yes, as a CA of 50 years standing with vast experience I should charge more, but most of my clients are small sub-contractors paying £75 to £100 a month plus VAT, and your hourly rate is much more than I ever charge my personal tax clients in a whole year!

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Replying to patrickcb:
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By Self-Employed and Happy
09th Apr 2024 12:03

I think the issue may be that most of your clients are small businesses and people in the business a long time have a tendency to not increase fees regulalry therefore get left behind. , our sub-contractors (that are Ltd Co.) are all £100-140 a month plus VAT.

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Replying to patrickcb:
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By Postingcomments
09th Apr 2024 13:08

The 50 years isn't that relevant, if you have never really graduated from the kiddie table of the accounting world. Still, it's a good fee for basic work and that's fine for many.

Now, if you ever move up to doing man's work, then you can charge a man's rate........

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Replying to Postingcomments:
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By patrickcb
09th Apr 2024 13:22

I'm not sure whether I should be offended or not. Look me up on Linkedin (Patrick Cracroft-Brennan FCA) and you'll see that I've had a number of senior jobs running parallel with my accountancy practice.

The problem is really what can small clients in the building trade afford to pay. I like builders - my father, grandfather and great-grandfather were all builders, most of my friends are builders, and almost all of my drinking buddies are builders. There's not many sub-contractors who would be happy paying more than £100+VAT a month for accounts and tax. Contractors can afford to pay more, of course.

The accountancy gurus are always telling us we should have a niche market. I'm trying to make mine the building trade, but I'm not sure I'll ever make a fortune!

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Replying to patrickcb:
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By johnthegood
09th Apr 2024 16:52

patrickcb wrote:

There's not many sub-contractors who would be happy paying more than £100+VAT a month for accounts and tax. Contractors can afford to pay more, of course.

Wait. What? A subby paying £1200 a year for a tax return? You must be living in a very different world than I am!

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Replying to patrickcb:
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By Casterbridge Hardy LLP
09th Apr 2024 16:00

I am truly sorry to read your reply - as a Chartered Accountant you deserve to be paid much more than a bookkeeper's rate.

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Replying to Casterbridge Hardy LLP:
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By patrickcb
09th Apr 2024 16:18

Well I might deserve to be paid more, but the problem is finding new clients willing to pay more.

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By sherodwilliams
09th Apr 2024 15:44

I think that many accountants are now debating this issue & the article is really helpful in highlighting the pro's & con's. It is interesting to see that as accountants , we are sometimes still too precious about being seen as professionals and clinging on to a bowler hatted, brief case carrying tie wearing section of the working community. Drawing some sort of parallel with the legal fraternity is now very "old School" although it seems that those in conveyancing & Will writing amongst others are very adept at fixed rate fees. I have suspected for many years that accountants have kept time sheets to prove to themselves how valuable their service is even though in reality they are not sure what that means. Communication is key & we need to have the courage to speak openly when a client task for whatever reason goes into overtime resulting in a write off of WIP. The position I find most galling is that I deal with quite a number of corporate transactions which after the first few become easy to budget for & quote upon yet on a recent case a solicitor quoted my client £7k, created issues unnecessarily resulting in a final invoice of £15k which the client felt bound to accept and paid it. I billed £4k for my part of the work which included a review of documents prepared by the lawyer only for the client to query it. I pointed out that my fee was included within the Engagement Letter & explained separately to him but he still wanted to argue to get a discount. It shouldn't matter in business how you choose to bill for what you do but we do seem to have bred a culture of willingness to accept discounts & write offs.

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By mugelbbub
09th Apr 2024 17:58

I feel that 'charging' is more dynamic than simply Fixed fee or Hourly rate given the technology we now have to better understand and design a pricing strategy. Of course one must always recover what 'it it costs to deliver the outcome' and given, for the most part, is time spent then there is an hourly consideration within the pricing BUT how you present that charge is a marketing exercise more than it is a financial one.
-Fixed Fee for known parameters that can be measured against another
-Hourly where the brief is open ended-
-Value based where there is something to be gained by all for extra effort
-Part retainer integrated with in any of the aforementioned
-Subscription 'packages' of services that technology leverages.
-Loss lead for the consultancy work opportunist
Overcharging or Undercharging? Always job/client costing (for which their are limited reliable alternatives than time or activity recording) so as to be able to appreciate the success of one option over another and the drivers for that outcome to refine the approach whilst proving demonstrable value to the client and yourself alike.
Technology makes most of the above lessor the burden it was twenty years ago so for me its a dynamic solution.

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Replying to mugelbbub:
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By patrickcb
09th Apr 2024 18:19

Coming from the "GoProposal" school of charging, I always try to charge by known factors: accounts by number of transactions, payroll by number of staff, etc. I find clients can relate to this better than a number of hours

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By indomitable
09th Apr 2024 20:04

We use fixed monthly fees wherever possible but hourly rates for bookkeeping as I have found this is one area where you can get it wrong.

And alot of solicitors will fix their fees now, that is a misapprehension that they don't.

I think from the clients point of view they view fixed fees much more favourably than having an open ended hourly rate, so from a marketing point of view it is more attractive to the client.

Even barristers quote fixed fees nowadays

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By peter morgan
10th Apr 2024 01:33

I'd be going with Simon Chaplin and Ron Baker's advice every time. These two have seen thousands of Accounting Businesses and know what works. Clients hate being billed by the hour - we don't sell time, we sell solutions. Time taken to provide that solution is just a performance measure. And there's better performance measures than timesheets too - KPI's that align with clients interests. Job turnaround times being a good example.

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By ArianBloodwood
10th Apr 2024 12:47

I've been a strong hourly rate fan ever since I started my own practice 10 years ago. This was largely in reaction to hearing so many horror stories of flat-fee practitioners who give as appalling service as they can possibly get away with since they get the same fee as when they give great service.

Another reason for hourly rate is it gives clients a financial incentive to work with me to streamline our workflows - which has the benefit for me of vastly reducing stress by reducing the emotional labour in relating with clients as they become familiar and comfortable with what's required.

I much prefer hourly rate also because I can unhesitatingly follow the client as their needs change, both needing more service and less. I don't need to worry about whether the work is in scope or out of scope: the scope is set by the needs as they unfold.

The hourly rate also incentivises clients to skill up to do more themselves - a central theme in my practice as part of empowering my community around money and tax. So as they become more skilled they use my service less and it costs them less - which with the hourly rate approach is 100% fine.

Finally, I love the transparency that comes from how I bill: I raise invoices directly from my timesheets so that clients have the same info I have about what I'm doing for them and how long it takes (I bill in 3-min increments).

But I have definitely learned Winter Dragon's point: the hourly-rate basis means that me investing in skills and tech to increase my effectiveness costs me time and money while immediately benefiting my clients. My solution to this has been to gradually increase my hourly charge over the years. This is kind of OK but there's usually a bit of a lag, so it's not ideal. And the basis on which to calculate the increase isn't terrible clear either.

Pros and cons to both approaches - which is what this article and discussion highlights.

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Replying to ArianBloodwood:
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By johnthegood
10th Apr 2024 12:52

ArianBloodwood wrote:

I've been a strong hourly rate fan ever since I started my own practice 10 years ago. This was largely in reaction to hearing so many horror stories of flat-fee practitioners who give as appalling service as they can possibly get away with since they get the same fee as when they give great service.

But if you know you are not one of those then why does it matter?

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Replying to ArianBloodwood:
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By patrickcb
11th Apr 2024 12:33

If you're charging in 3-minute intervals that could potentially be an awful lot of transactions in the average 9 hour day!

Do you really have the time to spend all that on admin?

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By Simon Chaplin
11th Apr 2024 09:53

Thank you so much for allowing me to contribute to this article Molly.

I know it has been a contentious issue within the profession for years (At GreenStones we dumped time sheets back in 2003) but I am finding more and more of the successful accountants we work with at The Accountants's Mastermind are working without them.

As someone has already said in the comments. I don't think there is a "right answer" for everyone. I just know what the right answer is for me.

Thanks again.

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