Straight Talk About Bookkeeping Fees

bookkeeping fees dilemmaWhich is the “BEST” way to structure your bookkeeping fees…

  • Hourly Rate?
  • Flat Rate?
  • Standard Packages?
  • “Value-Based Pricing”?

Most choose hourly.

The simple reason why most of us choose an hourly rate is because it's just easier. We feel like we're getting paid for the work we do, and clients follow our lead. Of course, this is often also how employees are paid, and that mindset has its own traps for both you and your clients.

Most of us have heard that we *should* offer packages or learn how to stop “trading hours for dollars” in order to be more profitable. But HOW to do that successfully has been vague and/or complicated. The lines between packaged services, flat-rate billing and so-called “Value-Based Pricing” are rather blurred.

How can you know which method will work best for YOUR freelance bookkeeping business?

Here's a quick rundown of the various ways bookkeepers have come up with setting their fees, and a quick-reference chart for matching those method and the services that work best with them, if you're looking to try an alternative to hourly billing…

Packaged Fees

This is where you put together a specific set of services (a package) that clients choose from for a menu-type offering. Most often I've seen it done with three main choices (such as Bronze, Silver and Gold), each with their own base price. Some allow add-on customization. Pricing levels may also be based on number of transactions and bank / credit card accounts. This method gives the perception of buying bookkeeping services in the same way that physical products or online software services are sold. The client chooses the “size” that fits best for what they think they need, and puts in their order.

The way to come up with these packaged rates is often by categorizing typical services and volume levels based on experience or specialty. This type of fee structure is usually applied to regular month-to-month bookkeeping services.

While it's a very popular fee model, not all freelance bookkeepers agree that packages work well for our types of services. (See QuickBooks Online advocate Stacy Kildal's take on this issue)

Flat Rate Fees

Using flat rate fees is often a more flexible option for setting your rates with clients, and therefore, can be applied to most services a freelance bookkeeper might offer. It's basically where you provide a flat dollar quote (or estimated range) for services, either on a monthly, quarterly, annual or project basis. There should also be a written engagement letter that spells out the specific expectations and terms involved. Most often these rates are set based on a calculation of estimated hours with some wiggle room for unforeseen elements or a percentage of scope creep or other anticipated costs.

I personally find this to be the most effective method to use for fixed price fees because it is easily customizable to the client's specific situation. Clients who initially must be offered an hourly fee (such as shoebox clients or those needing data file cleanup with no initial access to records) can later easily (and confidently) be transitioned to this type of fee model once more information and/or experience with that client has been established.

“Value-Based Pricing” 

This pricing method is newer than the previous two in the bookkeeping services sphere, and in concept, is popular. However, in practical usage, the jury is still out as to whether it is practical for freelance bookkeepers. The idea is to price services based on the value that results for the client's business, not based on hours or effort expended by the bookkeeper. This pricing method has been used within the legal profession and high-end business consultants. I'm not so sure it translates well for bookkeepers.

Clients value the services we provide in varying degrees and this may be a method for upgrading the quality of the clients you serve, assuming you are specializing in a high-end industry or possibly mid-market clients. But the method for coming up with a fee is rather subjective and can be quite time-consuming, since the client needs to buy into the idea of fees being based on promised results (which can be tricky for a bookkeeper). This type of structure may be suitable for clean-up projects done for a specific purpose (such as a tax audit), goal-based consulting or possibly training services, but I honestly don't see it working well for regular month-to-month bookkeeping.

Flat Fee Pricing Models to Services Matrix

Typical services and the type of pricing models as an alternative to hourly billing:

Packaged Services

Flat-Rate Fee

“Value-Based Pricing”

Monthly Bookkeeping

Monthly Bookkeeping

Bookkeeping Cleanup / Catch-up

AP / AR Services

AP / AR Services

Virtual CFO

Payroll Services

Payroll Services

Periodic Check-Up Services

Tax Prep Services

Tax Prep Services

Business Consulting

Software Training

Software Training (Custom)

 
 

Bookkeeping Cleanup / Catch-up

 
 

Periodic Check-Up Services

 
 

Business Consulting

 

So which types of pricing models have you been using? Do you charge only by the hour for your services? Or are you using some type of a flat-fee pricing model? I personally use both the packaged and the flat-fee structures, and occasionally, still hourly fees as well.

There is no “right” method, since it's your business. You get to decide how you want to charge for your services. But if you'd like to explore a deeper dive into HOW to packaging your services and set your rates profitably, you may want to join us in the totally updated (and affordable) TFB Premium training lesson entitled, The Freelance Bookkeeper Packaging & Pricing class

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Freelance bookkeeper, trainer and consultant who works with internet savvy business owners and bookkeeping professionals to maximize cash flow and build true win-win relationships.

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6 Responses to “Straight Talk About Bookkeeping Fees”

  • Elaine Parker on May 6, 2014

    Billing methods.. Great discussion.
    Suggestion, take a Look at the Black Swan Project, Ron, is training bookkeeper on how to Transition to the value based billing. Look on the canadian website.. http://www.IPBC.ca

    Just an idea.. we use the package plans.
    For example the bronze small biz monthly bookkeeping plan. The price of 150.00 a month.. only problem the deal is clear that it includes 80 Transactions per month.
    Then if the client is going to go over There is a top up option – Essentially buying a bulk… 100.00 for another 100 transactions. So if they only used 25, its still 100 ect.
    This addresses the problem when a client signs up shows an envelope of reciepts , gets the price then later, brings a banker box of reciepts for the month. Humm what is the value now..
    We have an option to quote a single fee for the box, of
    sell add on top ups.
    Flat fees, are less flexible, and good once you know the client and trust the client.

    The Chart is very valid in practical terms.
    Yet , often it’s the client who can decide which method best suites thier need , as long as we present the various options to them.
    In our case the bundled package is most often the best value, and best way to stay on budget and make determined margins on work.

    Every bookkeepers files are unique, as their clients are unique, I would suggest the skill of how to adapt, and how to sell or persuade the client into the structure that best suits your individual (billing and organizational and financial profit) needs.

    • Gabrielle on May 6, 2014

      Thanks for sharing your experiences, Elaine! I definitely agree that everyone has to find the way that works best for them, for all the reasons you mention.

  • Lee on May 6, 2014

    Great article but I see much more admin work that may be needed to do this and clients needs change all the time.

    I find a lot of my business can be consulting and answering questions for clients all the time which is fine. I normally do not charge for this unless it gets timely and requires research on my part. For that hourly is needed.

    I don’t think a static package works unless you are in a super routine with a client with no curve balls.

    • Gabrielle on May 6, 2014

      Yep, agree with you, Lee. It’s funny on the admin side. Hourly can be a HUGE headache too. I have a client who provides design services and charges an hourly rate for ALL the different services he provides… but because he provides details of every minute he logs, it’s a huge admin headache for him. (Of course, that’s why he came to me for help!) So, I think sometimes bookkeepers, even for very routine services that could work well for packaging, choose hourly because they think it’s easier, but that might not be true either.

      Great insights. Thanks! 🙂

  • Don Jay on September 23, 2014

    Very informative. Sofar I charge hourly. One of my clients recently offered me to take care of all the financial and some admin work of his charity as Treasurer. Now I’m in a dilemma which method to be used and how much to be charged for my service.

    • Gabrielle on September 24, 2014

      Whenever I face a situation where I have no idea what to charge, I just quote an hourly fee and then let them know that after several months experience, once the volume of work / time involved is known, we can switch to a flat monthly fee, and re-evaluate each year to renew the contract. That might work in this situation.

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