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Hourly vs. Flat Fee Accounting/Bookkeeping Engagements

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Hourly vs. Flat Fee Accounting/Bookkeeping Engagements

As an Accounting/Bookkeeping firm, we all have the same goal—increased revenue.  In this field there are two ways of charging for the work, by the hour or based upon a flat fee, matched to the level of activity.  Below are the pros and cons of each.

 

Hourly

In this scenario, the accounting firm is literally getting paid for their time. They keep track of how many billable hours they work for a you each month and charge for those hours x their hourly rate.

Pro: For the client, if you can limit the number of billable hours per month.
Con: For the Accounting/Bookkeeping firm, over time, they are going to get paid less if they find ways to be more efficient. Unfortunately, there is not incentive for the Accounting/Bookkeeping firm to improve their efficiency.  In fact, the opposite is true, the Accounting/Bookkeeping firm gets paid more for decreasing their efficiency, or worse yet, padding their hours. 

Con: For the client, the total invoice each month is going to fluctuate so it's hard to budget for these amounts. You could get stuck without any revenue one month, or you could get a big surprise one month if there was extra work to complete.
Opinion: This method is usually best for the Accounting/Bookkeeping firm because it's impossible to know how much time a job will take them until they are into it. Once they spent some time in your books, they usually like to transition to the next method.  Hourly, is rarely to the benefit of the client for two reasons; 1) It provides no incentive to the Accounting/Bookkeeping firm to improve their efficiency, therefore, likely causing an increase in rate in the future 2) Do you really want to find one of your Trusted Advisors by lowest bid.

Flat rate

In this scenario, the Accounting/Bookkeeping firm establishes a flat rate, typically based upon activity levels. This can be a flat rate per job or a flat monthly fee or minimum retainer that gets charged every month, regardless of how much work actually gets done.

Pro: The big pro for both sides is consistency. The Accounting/Bookkeeping firm knows the minimum amount they will be making each month, and the client knows how much their services will cost, based upon that activity level. It also provides an incentive for the Accounting/Bookkeeping firm to improve efficiencies. If they can deliver the same quality of service in less time, this is a great way for them to increase revenue without charging the client more money.
Con: The big con here for the Accounting/Bookkeeping firm getting the numbers wrong. If they place the client in the wrong package, they will constantly be working for a reduced rate. Setting the client into too high a package, the client will feel they are not receiving the value expected. If the work fluctuates greatly month to month, this can create a constant renegotiation which is what the Accounting/Bookkeeping firm and client both want to avoid.

Opinion: This method is best for established clients who have very similar needs month to month. Once placed in the correct package, based upon activity levels, the client knows what to expect and the Accounting/Bookkeeping firm has a motivation to improve its procedures.

Conclusions

In our firm’s opinion it is in the best interest of most clients to negotiate a flat fee based upon an average activity level.  This method incentivizes the Accounting/Bookkeeping firm to maximize efficiency, therefore, increasing their profit.  For the client, it allows for consistent budgeting rather than month-to-month variations. 

This allow both to seek a mutually beneficial and long-term relationship.

 

 

 

 

 

 

 

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