
Customer expectations are changing. Clients now want clear, upfront pricing. This shift is leading accountants to move away from hourly rates. However, this change can cause confusion about how to set fees for services.
This post will explore how to price bookkeeping and accounting services for fixed-price contracts. It will outline four simple steps to help establish fair prices. Let’s begin.
Why is pricing your accounting services difficult?
Pricing accounting services has long relied on the billable hour method. This approach is straightforward for many accountants. They can easily track their time and calculate their earnings based on the hours worked.
However, this method has its drawbacks. Many accounting firms are now reconsidering how they set their prices. The current trend favors providing small business clients with clear, upfront pricing before services are rendered. This shift presents challenges for accountants. Many firms have struggled with fixed pricing and value pricing strategies.
The difficulty lies in the fact that this new approach requires a different mindset. It demands more planning and understanding of pricing concepts. In accounting, not all hours are equal. When combining basic bookkeeping with CFO guidance, financial reports, tech implementation, tax preparation, and strategic advice, the range of services varies significantly. This complexity can complicate pricing strategies for firms.
Fixed vs. Value based pricing
There are two main strategies to think about when deciding how much an accountant charges upfront. These strategies are fixed pricing and value pricing. Each approach has its own way of setting fees, and the choice will affect how the accountant works with clients.
Fixed pricing
Fixed pricing involves creating a service menu with set prices for each service. For example, the fee for preparing year-end tax returns will be the same for all clients.
In contrast, value pricing means that fees can vary from client to client based on their specific needs. This means that the tax preparation fee for one client might be different from that of another, even if the service provided is the same.
The main advantage of fixed pricing is simplicity. Once a price is set, it can be used repeatedly whenever a small business client requests a service. This approach makes it faster to provide quotes and can help businesses grow more quickly and manage cash flow better, especially when there are many sales inquiries.
Value based pricing
Value pricing involves setting prices based on each client’s specific needs. This approach can take more time, as it requires understanding the unique aspects of each small business. However, it often allows for higher fees compared to fixed pricing models. When implemented correctly, value pricing can lead to better profit margins.
Firms may also consider a hybrid approach. For example, they could use menu pricing for common services like tax preparation or basic bookkeeping. At the same time, they could apply value pricing for more specialized advisory services, such as cash flow forecasting or financial statement reviews.
With this foundation in place, here are some straightforward steps for pricing accounting and bookkeeping services effectively, ensuring that prices are clear from the start.
4 steps for pricing accounting services
Step 1 – Talk to the client
After using effective marketing strategies, the next step is to talk to the potential client.
Before setting prices for accounting services, it is important to have a detailed conversation with the client. This helps to understand their financial and business needs. It is essential to see things from their perspective as small business owners and find solutions that fit their requirements.
Important note: Ask open-ended questions and avoid making assumptions. Every business owner has different challenges. Some may dislike managing accounts payable, while others might struggle with accounts receivable or reconciling bank statements. Identify their specific pain points to provide the best help. If a client dislikes accounts payable and this service is not offered, refer them to someone who does.
The price set for services should directly address the needs and issues discussed during the meeting. Offering services that do not match the client’s needs can lead to rejection of the proposal.
For instance, if advisory services are prioritised but the client’s financial records are disorganised, it is necessary to first focus on organising their accounts and cleaning up their accounting software before offering advanced services like cash flow analysis.
Creating effective discovery questions is crucial in this step. Take time to research these questions to accurately determine the client’s needs and outline any additional services they may require.
Step 2 – Define your scope
Once the client’s needs are clear, it’s important to outline the scope of work before setting prices.
With a billable hour model, the price is based on time spent. The clock runs as work is done, and an invoice is sent later. This method can lead to unexpected costs if the work goes beyond what was planned. In this case, additional time can be charged.
In contrast, upfront pricing requires careful planning. A fixed price means every task must be agreed upon in advance. If new tasks arise that were not discussed, it can lead to losses. Therefore, clearly defining the scope of work is essential.
Example of monthly bookkeeping services
This section compares two different scopes of monthly bookkeeping services.
Scope one: Basic monthly bookkeeping
The first option is basic monthly bookkeeping for a set fee. This service costs $300 each month. However, it does not specify the number of transactions or accounts included.
Scope two: Detailed monthly bookkeeping
The second option also costs $300 per month. This service includes monthly reconciliation of bank and credit card transactions, up to 100 each month. It operates on a cash basis and ensures a four-week month-end close.
In the first scope, clients may start with 100 transactions but could later find themselves managing many more. Without clear terms in the agreement, it becomes difficult to adjust pricing if the workload increases. This lack of clarity can strain client relationships, as basic bookkeeping can lead to various outcomes.
In contrast, the second scope provides clearer expectations. It allows for better communication about specific tasks, such as which schedules will be maintained and how accounts will be reconciled.
Importance of clarity
It is essential to define how many bank accounts and credit cards will be reconciled in the bookkeeping service. This prevents potential issues during onboarding. Taking time to understand the chart of accounts and the financial accounts involved is crucial.
The key to effective pricing in bookkeeping services lies in defining the service offering upfront. A clear definition of the work provided each month helps avoid misunderstandings and ensures smoother ongoing services.
Understanding the scope
When it comes to pricing for bookkeeping, tax services, or any other service, it is important to know how the work will be done. This requires spending time with small business clients to understand their needs. By doing this, one can clearly define the monthly scope of work. If the scope is not clear, it may indicate a lack of understanding of the client’s situation, which can lead to pricing issues.
Taking time to determine what needs to be done is better than rushing into an agreement that may lead to problems later. The pricing for bookkeeping should match what both parties expect from the service.
One major challenge for accountants moving to upfront pricing is not clearly defining their monthly scope of work. Setting clear limits is essential. This is easier for straightforward tasks like accounts payable or tax return preparation, but all additional services should also have clear boundaries.
Example of financial reports
Another important area when defining services is financial reports. It is crucial to ensure that both the accountant and the client have the same expectations.
Some business owners may only want a simple income statement and balance sheet. Others might expect detailed cash flow reports and explanations for their balance sheet. Additionally, the bookkeeping needs each month may require extra time before financial statements are ready.
The services agreement should specify which financial statements will be provided and how often they will be delivered. If only an income statement and balance sheet are included, it is important to inform clients about when they can expect these reports each month. This helps prepare them for income tax return preparation afterward.
Step 3 – Setting prices
When setting prices for accounting services, it is important to know your costs first. This is different from charging by the hour. Before giving a fixed price, you must understand how much it costs to provide the service.
To do this, start by understanding what the client needs. This is the first step.
Next, create a clear plan of work based on those needs. This plan will help estimate how long the service will take and what the monthly costs will be.
It’s important to see the difference here. One method involves predicting costs for fixed pricing. The other looks at costs after they have happened and bills clients later.
This section will show how to include these estimated costs in your pricing calculations using the two methods discussed earlier.
Price setting – Fixed pricing
This method relies less on each client’s unique needs and more on set prices. A price menu for all additional services must be created, with a price assigned to each one.
Many recurring services are similar. Estimating the time needed for these services helps establish monthly costs. From there, a desired profit margin can be added to set a fixed monthly price.
The price menu can include individual services or service bundles, such as financial statements, bill pay, accounts receivable, tax preparation, accounts payable, and accounting software.
It’s also important to define the volume of services. This could involve counting bank accounts, credit card accounts, or monthly transactions.
A clear scope is essential for this pricing method. Without it, unexpected changes can cut into profits.
This pricing method may not be ideal for every situation. It focuses on costs and profit margins without considering each client’s specific needs or willingness to pay.
However, it can work well for certain services. For example, if there are many year-end personal tax returns, which are standard services, using fixed pricing could be effective.
Price setting – Value based pricing
Value pricing is different from fixed pricing. It can be challenging to master, but it can lead to better profit margins if done well.
In value pricing, each price is unique. It considers the specific situation of each client. It also recognizes that people may pay different amounts for the same service.
The goal is to find out what a client is willing to pay.
To do this, the first step is crucial. In discussions with clients, asking the right questions helps uncover and establish value. Searching online for “value pricing questions” can provide useful interview prompts.
By the end of the conversation, it’s important to outline the scope of work and define the service offered, along with a suggested price.
The focus remains on what a small business client might pay. Many accountants dislike this method because it lacks a set formula.
The approach can feel uncomfortable at first. Some may choose a price based on intuition rather than calculations. With practice, it becomes easier.
There is no strict formula for determining what someone will pay each month. The more value established in the first step, the easier it becomes to set a higher monthly price.
This method encourages understanding the client’s perspective. It considers their unique needs before comparing the price to expected costs.
This contrasts with fixed pricing, which starts with costs and adds a margin to set the price. Fixed pricing may not always align with what small business clients can afford.
Value pricing flips this process. It begins with understanding the client’s needs, suggesting a price they might accept, and then checking if that aligns with costs.
It may take time to feel comfortable with this approach. Services like tax preparation are usually straightforward, while advisory services can be more complex.
Since finding the perfect price can be difficult, offering a range of services at different prices can be very helpful. Defining the scope of services each month is also very important.
Step 4 – Finalize an agreement
This step is important for pricing accounting services. It should not be skipped after setting a price.
Once the price for a service is decided, the next task is to create an agreement. This agreement should clearly state the scope of work and the monthly price.
While a Word document could be used, many modern accounting firms prefer not to. It can be messy, time-consuming, and may appear unprofessional.
A popular choice for quickly creating proposals and engagement letters is Outbooks proposal tool. This tool helps streamline the process and maintain a professional look.
Conclusion
Hopefully the above guide helps you in setting prices for accounting services and offering clear fixed price options. While these methods may require some practice, they can enhance the client experience. Also, they can help the firm steer clear of common issues linked to hourly billing.
Hinakshi, a Content Writer and Social Media Expert at Outbooks, brings her passion for writing to every project. Specializing in tax preparation, management accounts, cash flow, and VAT returns, she creates engaging, well-researched content that simplifies complex topics. Her work supports accountants in growing their practices and optimizing finances, making valuable information accessible to professionals and newcomers alike.