Bookkeeping fees are a hot topic. And why not? The #1 reason (usually) for running a freelance bookkeeping business is to make money. A big benefit of being in business for yourself is, unlike an employer-employee situation, we get to decide how much we should get paid… in theory, anyway.
But with that decision comes a stumbling block. Many of us have no idea how much we can, or even SHOULD, charge for our services. Often the only reference we have is what we were getting paid as an employee. But that's not a good comparison for the value we provide our clients as independent professionals.
A better starting point is to see what other professionals — those who've been in business for years — are charging, and getting, for their services. Very helpful in this regard is the IntuitÂ® Rate Survey that comes out every few years. From it you can get at least a “ball park” range of what professional fees typically look like.
Next comes the question of whether you should simply charge by the hour, or use fixed fees. The survey shows that others in our profession use both. What about you?
There's no “right” answer to that question. As a business owner, you signed up to be the boss and make those kinds of decisions for yourself. But here's a quick rundown of 5 of the most popular methods for coming up with your fees…
1. By the hour – by far, this is the most common way to charge for bookkeeping services
Pros: Simplest way to quote, and possibly what most clients expect to hear.
Cons: Can have you and your clients falling into the employer-employee mindset, and turn your services into a commodity. Hourly rates give the impression that one hour of your time is of equal value to one hour of any other bookkeeper's time, which can turn on the “shopping” response for the client. The client doesn't know how many hours are needed to get the results they're after. Additionally, working hourly, the more efficient you get, the less you make, since you're selling time, rather than results.
2. Prepaid time blocks – an hourly / flat rate hybrid
Pros: The simplicity of hourly, with the benefit of working off of a retainer, which also allows clients to budget your fees more easily. You also have no A/R issues with this method.
Cons: Can be hard to estimate how many hours are needed to get the results a client wants, and you may need to refund some of the amounts paid if you get the work done more quickly. It's still the problem of selling time rather than results.
3. Value Pricing – setting your rates based on how the client values the result you provide
Pros: Can be much more profitable than other forms of pricing. It can also help you screen for high quality clients.
Cons: Can be difficult to acquire the mindset needed to use it effectively. It slows down the sales cycle drastically, since you need to quantify the value of services from your client's standpoint in order to arrive at a price offering.
4. Customized flat fees – coming up with a flat fee that fits your client's specific needs
Pros: Simpler to use than Value Pricing, since YOU set the value of your services required to meet the client's needs; can be more profitable than charging by the hour.
Cons: Easy to underestimate how much work is involved to get the desired result, and effectively lose money due to misquoting.
5. Packaged Pricing – productizing of services so they're sold in bundled packages at a fixed fee
Pros: Generally more profitable than hourly and easy to adjust. Easy for clients to accept and budget. Clients choose a level of services based on parameters you set and know exactly what they are buying; focuses on results rather than hours. Helps you forecast your own revenue more easily.
Cons: After engagement, clients may ask for additional services not included in the chosen package, and the tendency is to provide those services at no additional cost – known as scope creep – which erodes your profits.
We have many choices when it comes to setting fees, each with their own advantages and disadvantages. How you set your fees should beÂ well thought out, instead of just choosing the default, hourly method.
Because pricing is one of the biggest reasons the majority of freelance bookkeepers struggle and work far harder than necessary. Don't be one of them. Choose how you will set your fees. Watch how it affects your cash flow and profit margin. Then make adjustments until you find your pricing sweet spot.
If you'd like a deeper dive into how to go about switching to flat fees or packaging your services, join me for the new training program I've just released, The Freelance Bookkeeper Packaging & Pricing program. We cover the mindset, action steps and tools needed to set your fees using my signature win-win methods.
How about you? Have you experimented with different fee setting methods? What are the advantages… or pitfalls… you've discovered?