One of the first questions bookkeepers and accountants ask when getting started in their own bookkeeping business is, ‘How much should I charge for bookkeeping services?' But that question also lingers long after you've been running your practice for years!
Many bookkeepers still charge by the hour, while others use a flat fee, and still others use the method given the most lip service in recent years – value pricing. Alternative methods combine several of these, or use the number of transactions or revenue as the measure for arriving at a fee for services.
Until recently, charging by the hour was far and away the most popular bookkeeping pricing method. That's beginning to change. It must, given the ongoing disruption causing downward price pressure in our profession due to advancing automation and efficiencies.
When we can leverage technology to get the time-consuming tedious part of bookkeeping done more quickly, it's a losing proposition to charge by the hour. You will make less and need to spend the found time to take on more and more clients, just to make the same revenue as you did in years past with fewer clients. That's a losing battle.
While there are lots of theories on how to best charge for bookkeeping now, the truth is, technology or not, there is no one perfect way to do it. At least not yet.
How Much Do Others Charge for Bookkeeping?
Most of us try to take a cue from our colleagues who have (successfully) gone before us when it comes to pricing. Of course, bookkeeping clients and projects come in different sizes and levels of complexity. So we're still faced with the same brick wall.
There's no one best formula for charging for bookkeeping across the board.
That said, it does still help to know what others are doing as a starting point. That's why for years a helpful source of comparison has been the Intuit Rate Survey. It has been a go-to resource of at least trying to ‘ballpark' whether our fees are in line with what others say they get for their services.
In all honesty, however, I've personally found in the last few years the Intuit surveys to be less helpful than they used to be. (These surveys typically come out every couple years.) That's probably somewhat due to the changes in how we are charging for bookkeeping services these days. It's not simply an hourly fee anymore Additionally, I've noticed that what's being measured now doesn't fit as well to practically working with clients ‘in the trenches' as in prior years. Maybe it's just me.
But that's why I was happy to participate in a brand new benchmarking pricing study for bookkeepers that was conducted this past summer by Mark Wickersham, the well-known pricing thought leader. His new study, which digs into specific client situations, seems to be much more in line with what we need to know on a practical level. It provides an international sampling of over 2,500 bookkeepers and accountants – not just the US QuickBooks ProAdvisor community. So I'm happy to see the wider view of what's actually being done in our profession.
Interestingly enough, more accounting professionals participated from Canada than anywhere else. So that was a new twist as well. The full report is long (90+ pages!) and there are lots if interesting insights and even case studies about what is really happening with pricing in our profession. Some of those include:
- We're moving away from hourly pricing (for the reasons mentioned above)
- Flat fee pricing is becoming most popular, but many of us are still struggling with it
- Value pricing, while popular in theory, is still not typical
- The key factors involved in bookkeeping pricing challenges
- The effect qualifications have on pricing
- The effect specialization has on pricing
Clearly, pricing is not a simple matter, but it is vital to building a successful bookkeeping business. In fact, how we approach pricing, especially in these changing times, is something we need to give more attention to as a profession if we want to prosper. I firmly believe that. Otherwise we will be crushed by the increasing pressures that are pushing our perceived value down, and with it our prices.
A good place to start is digging into your own pricing. Take a look at the surveys. In particular, you can get a free regional version of the Wickersham study (or you can buy the full report, if you want to really geek out on the details)
How to Make Pricing Easier AND More Profitable
There seems to be one leverage point that can almost automatically make it easier for you to raise your prices, no matter which pricing method you choose… and the evidence of this was in the Wickersham report too!
It's specializing your practice. It's another topic most of us have heard much about, but few have taken action. Finding a niche feels like it means saying no to potentially profitable business growth. A risky idea. The reality though, is counterintuitive.
The Wickersham study revealed that specializing your practice puts you in a position to charge much higher fees than those who run a general practice. In fact, you can reasonably raise your rates by more than 35% percent for the same services, according to the study.
Specializing has many benefits for efficiency as well… which also goes straight to your bottom line. The catch is that it feels a bit scary. And if you do settle on a niche, what do you do with all your existing clients who are spread across various business types?
Those are the questions I've set out to answer in this month's TFB Premium class entitled, “The No-Risk Way to Find Your Bookkeeping Niche.”
If you're running a virtual bookkeeping business, building a niche practice will be your easiest way to raise your rates, become instantly more profitable, while exploring the best pricing methods for you!
Which pricing methods have you tried, and with what results? Have you considered specializing your practice, or are you a hard core generalist? Please contribute your comments below.