How to set accounting firm fees for your company & picking a pricing structure
You may have hired the best team possible with an incredible amount of expertise and experience. You may have developed the perfect website that contains all of the relevant information and is easy to navigate, and focused your marketing efforts in the direction of your target audience.
Despite all this, though, you’re simply not bringing in the levels of new business that you’d expect.
But how carefully have you considered your pricing?
Fail to price your fees correctly, and even the best accounting company in the world will struggle to attract business. So, what should you consider when setting your accounting firm fees?
Which services do you offer?
The accounting firm fees that you charge will depend to some extent on the types of services that you offer. If your pricing has been fairly ad hoc until now, this needs to change: you need a pricing structure that both you and your clients can easily understand, that gives you a good profit margin, and that keeps you competitive.
For this reason, an accounting company may choose to employ a menu or package-based pricing structure. This approach takes into account the fact that your clients will all have different needs and preferences and gives them the ability to tailor your offering to their exact requirements.
How to set up a fee structure
There are five common pricing strategies that accountancy firms tend to use, each with their own pros and cons. What works for one business may not work for another: an understanding of pricing psychology, as well as of how your competitors work, will help you to choose which one to use.
Flat fee-based pricing
As the name suggests, this pricing model involves you charging a flat fee that you have agreed with your client upfront. Regardless of whether the work requires extra time or resources after starting, this fee remains the same.
- Works well for simple or repetitive tasks, like simple tax returns
- Easy to implement: no complicated calculations required
- Simple for clients to understand
- Can leave you out of pocket if a project needs more work than initially expected
- No incentive to go the extra mile – or if you do, any extra effort you put in or additional value you add may go unnoticed
- Not suitable for more complex projects
To use cost-plus pricing, you first need to determine how much it will cost you as a business to offer a particular service. To this figure, you add a percentage that will give you the profit margin you want.
- Easy to work out and easy for clients to understand
- Allows you to change the final price of a project if more work is required or your expenses change in some other way
- Can allow for a good profit margin
- Focuses on internal factors rather than external factors – which means it may not take into account competitor pricing and consumer demand
- May not give a real indication of the value that you are providing to clients
Historically, this is how many firms have calculated their accounting fees. Here, you track every single hour that is spent on a client project. Once the project is complete, you bill the client for the total number of hours worked, at a standard hourly rate.
- Easy to use
- Allows an accounting company to see how much work has gone into each project, making it easier to establish how things could be done more efficiently going forward.
- Can be time-consuming to track every hour spent on a project
- Client may receive a higher-than-expected bill at the end of the project, which they may dispute if they don’t agree with your costs.
If the competition for the services you offer is strong, then competition-based pricing may work for you. Here, you establish what your competitors are charging and base your pricing model on this. The key here is differentiation: what can you do to make yourself stand out from the crowd?
You may want to provide a similar service but at a lower price than competitors. You may want to charge the same but offer a better level of service. You may want to offer a far superior service and charge more to reflect this.
Even if you don’t adopt a competition-based approach, it’s still useful to research your competitors’ pricing so you can gain a full understanding of the market, and where your accounting company sits.
- Can reduce the number of projects lost to competitors
- Can prove a useful marketing tool
- Choosing a reactive rather than proactive pricing model may not be sustainable
- May require regular updates if competitor pricing changes
- Prices may be set too low to meet your costs
- Could be hard to make your business stand out from the crowd
Value-based pricing requires a strong understanding of your target market: it’s based on what your clients are willing to pay, and the value they perceive your services to have. You’ll need to understand your competitors and what they are doing, research the market, and segment your client base to establish the lay of the land. Once you have this information you can work out what makes your accounting company stand out from the others and set your prices accordingly.
- Charging for value rather than time can improve efficacy
- Client bills will not fluctuate as you will give them a set price
- If used well, can improve client loyalty
- May encourage you and your team to learn new skills to improve perceived value
- Requires a great deal of customer, market and competitor research
- Less formulaic than other pricing models, so projects can take time to cost up
Value your service – and your clients
Implementing a model to determine the accounting fees you charge may seem like a challenge – but it’s one that’s certainly worth your while. Charging clients on an ad hoc basis has the potential to devalue the service you offer and can cause confusion for clients, which can have a knock-on effect on loyalty.
Once you’ve chosen a pricing model, stick with it. It may take some time to get used to but allow time to see if it’s working for you. You’ll be able to analyse your chosen strategy periodically down the line and change it if necessary.
Above all, the most important thing is to value the service that you provide, and to value your clients. This sense of value will determine how much your clients are willing to pay and therefore how much you can charge. Finding that sweet spot between profit and client satisfaction is where you need to be – and remember, you need not go it alone. As an ICPA member, you can access a wealth of benefits that can help you to get your practice to exactly where you want it to be.
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