Some thoughts on Fixed Fee Billing – first published in the ABN Bookies Bulletin.
In our previous article Bookkeepers Thriving in a Changing Environment (published in the ABN’s Bookies Bulletin 4), we spoke about some of the changes and trends that we are seeing within the bookkeeping industry, and how Fixed Fee Billing is one of the trends.
It’s all very well to say: “I am going to go to a fixed fee model”. But where do you start and what do you include?
Think Outside The Square
Having previously worked in an accounting firm, I had often thought about different ways of being able to price services, as opposed to the traditional ‘hourly rate’. I considered completely different models of pricing. With my agricultural background, I thought maybe ‘x’ amount of dollars per hectare may work for my farmer clients? For a small business, maybe a percentage based on annual turnover may work? In either model, if the business expands or contracts, so do your fees, which means that you ride the highs and lows with your client. From the client’s perspective, I think it would encourage them to form a closer relationship and would be seen as a real partnership between you and them. For the practitioner, it would be a brave new world, and would not come without risk. But I think it can be truly rewarding.
Charging by the hour, seemed like an archaic way of doing business. Whilst it has served the industry well for many years, with the advent of improved technologies, this time billing model seemed restrictive and did not take into account the additional skills and technologies that were now being used to produce a result. The main problem with this model is the limit to the numbers of hours that you can work. As they don’t make any more hours in a day, in reality, the only way to increase your turnover and profit is to work 80 hours a week, rather than 40 hours a week. The alternative to that is increasing the hourly rate, which can only ever be done in small increments. I chose to work smarter, rather than harder. Hence I needed to adopt new technologies and methodologies.
The Challenge of Learning
The challenge then becomes about investing in the time to learn and understand these new technologies to truly gain the necessary efficiencies. To do this, you need to take some time out of your traditional ‘time billing’ environment, which means not earning any income for that period of time where you are learning. In many cases, this then becomes a vicious cycle, as it’s easy to revert back to the tried and true methods that we have used and understood for years. The key is to focus on learning new methodologies that will enable to do the same amount of work in half the time.
What’s Your Base Line?
There would appear to be no right or wrong answer as far as what approach to take. But, in the first instance, it could be as simple as working out how many dollars you want to earn per year, and devise a pricing structure around that. For example, you may decide that you need to turnover $100K, you know you have $30K of overheads to cover, which will leave you with a $70K profit. The next step may be working out how to achieve that $100K of turnover. It may be as simple as 20 clients with annual fees of $5k per year. The final step is then to decide what value can you bring to your client for $5K per year? This is where it becomes fun, and you can start to really prove your worth to your client.
What Are You Good At?
What are the things that you can take away from the client, which will just let them focus on what they are good at, rather than them having to worry about all of that ‘business stuff’? Like BAS and bank reconciliations, and software, and payroll, the list goes on and on….. Apart from accountants and bookkeepers, not many people go into business because they are good at that ‘business stuff’. They go into business because they want to get rid of the boss, or they are great at making cakes, or repairing cars, or washing dogs. They really just want to do a good day’s work and come home at night and relax with the family.
So as a professional bookkeeper what skills do you bring to the table for the client? I would suggest the following would be a common, but not exhaustive list:
- Understand and love working with numbers
- IT & technology skills
- Administrative skills
- Human resource management
- Attention to detail
- An understanding of accounting and banking ‘lingo’
- Forecasting and analytical skills
Package It Up
There may be many more skills that you could offer to the business. So when you combine this skillset with some of the technologies that are available, imagine what an invaluable asset a bookkeeper could become, if they looked at bundling up a whole heap of solutions, such as:
- Provision of accounting software subscriptions
- Provision of add-on solutions
- BAS & compliance requirements taken care of
- Payroll administration and management
- Act as the ‘go between’ for accountants and bankers
- Assistance with loan applications and bank finance
- Provision of management reports, budgets, forecasts, scenarios
- Business planning
- Administration services, systems, filing, document scanning
Add-on solutions such as Calxa, Shoeboxed, ReceiptBank,Tanda,Timely, ServiceM8 (to name just a few) as well as associations with organisations such as Workforce Guardian and obviously ABN, are all invaluable tools and resources that can be drawn upon to provide a comprehensive service to your client. Imagine how much your client would have to pay, to employ someone with that skillset and with that many tools in the toolbox? Suddenly, $5K per year looks like a bargain!
The best part about all of that? Your client can just concentrate on doing what they do best, and all the worry of doing the ‘business stuff’ is no longer theirs. Because they have you in their back pocket, looking out for them and taking care of business. As for you, well, if you can become skilled in all of the technologies and tools, you can deliver the same level of service in half the time. This gives you the opportunity to scale your business and take the next step, or spend half of your week on the golf course, whichever you prefer.
If you are and accounting professional and would like to learn more about Calxa, please join us for our next Info Session for Accountants and Bookkeepers webinar.
This article was published in the ABN Bookies Bulletin 5 in November 2015.