A brilliant overview of the key issues when considering your approach.
Pricing is an area where accountants often freeze as they are unsure what way they should approach charging for their work. There is not a standard formula to use or a standard process to always follow for pricing either so this makes it inherently difficult.
You are providing your clients with your services and this, in turn, brings them benefits. What benefits these are will depend on the specific situation but the overriding common feature is that there is value in what you are providing and therefore this will come at a price.
Before we get into the detail of pricing strategies, there are three questions accountants need to ask themselves:
should we work for free?
should we offer discounts?
should we charge for cloud subscriptions?
Should we do work for free?
The answer to this is yes and no – it depends on the situation and the work itself. For example, in the current Covid-19 crisis, some accountants did offer clients some free services to help them through this difficult time. The pandemic, hopefully, is something that we will not see again in the future and it has hit the economy hard and many businesses are suffering. At the time, many firms had clients who were scared and worried and these firms believed that was the right move for them not to charge for their work. They believed that this free work would create a loyalty and a stronger bond with their clients which would be beneficial in the longer term. There was also a morale element where some firms felt uncomfortable in charging for their work as clients experienced such difficult times.
It is also common practice for accountants to offer free initial meetings with prospects. At this meeting it is usual to focus on the services and benefits you would offer if they were to choose you as their accountant rather than to give them specific advice. It is only once the engagement letter and onboarding tasks have been completed that advice is given and they then charge for this work.
Free services are also sometimes offered to allow a client to try out a service before committing to it for the longer term. This could be, for example, the provision of management reports and KPI summaries at a month end or to trial a new project management app before deciding to use it in the business.
Should we offer discounts?
Again, this is up to you. However, you should consider, if you offer a discount, what this will mean in the longer term. When you decided on the price of the work for your client, you based this on the value of the work that you will provide to them – therefore, will offering a discount mean that this devalues your work?
If you do agree to offer the client a discount, will they then ask for further discounts on the services you offer in the future? You also need to consider, if you offer this client a discount, why would you not offer this to your other clients who have similar requirements? How would it be fair to reduce the fees only for those who ask for it?
One potential approach if a client requests a discount is to explain to them that, in order to meet their budget, it will be necessary to reduce the services provided. This then maintains the value and standard of the work that you do provide. This could be agreed for a specific number of months and then the situation is reviewed or this could be on an ongoing basis.
Should we charge for cloud subscriptions?
The cost of the subscriptions such as Xero, Receipt Bank and Futrli are all costs to the accountancy firm and therefore should be passed on to the client. There are a number of ways that this can be undertaken:
invoice monthly as a separate line on the invoice
invoice for a year in advance
include the costs of the software within the costs of the service provided or
transfer the licence to the client and they manage the payments directly with the software provider.
If the accountancy firm receives the licence discounted, they may want to pass on this discount on to the client. It is worth remembering that, should the licence cost increase in the future, it can then be harder to pass this on to the client if the reduced subscription has always been invoiced.
Also, take care before purchasing licences in bulk in order to get them at a reduced cost. While this can look like a fantastic deal, if the licences remain unused then these costs - which could be substantial - will need to be borne by the accountancy firm.
When it comes to pricing for our services, consider the value that your work is giving to the client. What value does your work provide?
Examples of the value provided to the client includes:
they are able to make better decisions as they have access to more insightful data
they can improve their supply chain and make efficiencies which, in turn, save them money
they can save time as tasks are more streamlined and efficient
they can improve their cash flow through improved credit terms with their customers.
Through looking at the value you are providing, it is often then easier to price the work you are doing as you can see the benefits for the client.
It is necessary to have a process when it comes to pricing and this process will depend on the firm itself. Some approach this based upon the number of hours the work will take and others have a menu of prices they select from depending on factors such as the number of transactions, quality of data and frequency of the work. Again, there is no right or wrong way to do it but aim to be consistent.
In all cases, it is best to keep the process as simple as possible and ensure that you review the fees regularly and include this review in your engagement letter. State that you will undertake a quarterly, half yearly or annual fee review and also consider including terms so, if the volume of transactions increases, your fee can increase accordingly. If not, you will spend longer on the work and so reduce your recovery overall.
Pricing for bookkeeping and compliance
As well as considering the value of the work undertaken, for bookkeeping and compliance jobs it is also necessary to consider a number of other factors including:
the volume of transactions
if an initial ‘tidy up’ is required
the quality of the data
the level of support needed.
When you are pricing the services, consider the client’s specific situation and adjust accordingly. For example, if the client needed a high level of support, you would increase your fee to reflect this work as you are adding additional value.
There are some services which provide additional value to the client and these can usually be charged at a premium compared to the less specialist work. Examples frequently include research and development tax claims, corporate finance services and specialist tax advice.
Again here we need to consider the value of the work we are providing for the client. With tax, this is simpler where you have generated a tax saving or a tax reclaim. In these cases, many firms opt to bill the client a percentage of the savings which they agree up front before they do the work. This is not a totally risk free approach though. What if the claim turns out to be very low and you spent a lot of time on the work? In this case, it would be better to ensure that you agree a minimum fee before you commence work.
It is also necessary to consider other factors such as when the client is invoiced for the work. For example, if you have prepared forecasts for fundraising or prepared an research and development tax claim, do you invoice before you know the outcome or do you invoice when you have completed the work? One option is that you agree to charge a certain amount when the work is completed and then the balance later once the outcome has been finalised.
Also, for research and development tax claims, HMRC does randomly select claims for a more detailed review so you need to agree if this work would be extra to the work you undertook on the claim.
Pricing for cloud projects
Cloud projects can range from moving a client from Sage to Xero using the app Movemybooks through to larger scale migration, app implementation and training. So how you price this work will vary depending on what it entails.
If you look at a simple migration, first you should charge for this work as you are providing a valuable service to the client. Also, regardless of whether you use an app for the migration or do it via conversion balances, you will need some time to check the data post conversion so this should be factored into the price.
It can be tricky to price for larger cloud projects but if you break it down into components then it is more manageable and also, generally, easier for the client to see exactly what you are undertaking for them. Also agree milestones throughout the project where you bill for the work completed. The projects can last weeks, if not months, so regular billing points help to ensure that the payment is not all in one go at the end.
Also, projects can often deviate from the original scope. This could be because requirements change or because of complications. Therefore ensure you build some contingency into your pricing or consider quoting a range rather than a fixed fee to give you some flexibility.
Should we use a cloud app for pricing?
There are some apps available to assist you with proposals and this includes an element for pricing. These allow users to prepare high quality proposals quickly and also ensures the firm really considers their invoicing methodology and process. In addition, it standardises the pricing across the firm.
Another advantage of using an app is speed. Proposals can be issued quickly along with your engagement letter all ready for e-signing. This then creates a good impression with the prospective client and maintains the momentum. Compare this to a more traditional approach where you work out the costing from the bottom up and then type the proposal – it can take a number of days before it is issued to the prospective client.
Frequency of invoicing
Traditionally, accountants invoiced on completion of the work – for example when the year-end accounts are filed with Companies House. This results in irregular cash flow and also a large invoice for the client which can both be undesirable.
Therefore, it is becoming more common to agree a fixed fee on a monthly basis with clients to spread the cost of your services over a year. This ensures you have regular income each month and also helps with the client’s cash flow as it spreads the cost. In addition, if you set up a direct debit with your clients, the payment is made automatically.
There are many aspects of pricing and many factors to consider. Aim to consider the value of the work you are providing, develop a consistent approach across the firm and review your prices regularly. Overall, keep it simple!