Fee guideline for accountants
Creating the right pricing strategy is crucial for the success of an accounting practice. Having a clear method on pricing services can make a big difference. Below we look at setting prices that will work for you and your clients, covering everything from the types of services offered to different ways of calculating charges.
Services and How to Price Them
Accountants offer many services, and each one can have its price tag. Here's a look at how you might approach this. It all start with identifying the services you are offering, for example:
Bookkeeping: This includes keeping track of transactions, making sure accounts match up, and preparing financial statements. It's fundamental for small businesses.
Tax Services: Completing an income tax return for an individual or a business
Other Services: Assurance and other value adding services.
For example: if you charge ZAR 500 an hour for helping with taxes, and a session lasts 3 hours, the total fee would be ZAR 1,500. This shows a simple way to use hourly rates.
At the end of this article you will find a list of common services offered by accounting practices in South Africa you can compare to services you provide.
Factoring in Time Spent
It's important to know the difference between the time you can bill for and the time you can't.
Billable Time: Spending four hours on a client's financial statements is something you can charge for.
Non-Billable Time: An hour-long staff meeting isn't something you charge a client for.
Recognising this helps make sure you're pricing your services to cover both the work you do directly for clients and the other necessary tasks that keep your business running.
Setting Hourly Rates – The Three-Times Rule
One of the key parts of pricing is figuring out what to charge per hour. A common method is the three-times rule, a straightforward, yet effective principle used by many service-based businesses, including accounting firms. This rule suggests that the price charged to clients should be three times the cost of the service provider's labour. Here's why this makes sense:
First Part (One-Third): This covers the direct cost of the accountant's salary. If you pay an accountant ZAR 100 per hour, this portion goes directly to cover that wage.
Second Part (One-Third): This is allocated to overheads. Overheads include office rent, utilities, software subscriptions, professional insurance, and other costs of running the business that are not tied to a specific client. By including these in your hourly rate, you ensure that every hour of work contributes to covering these essential expenses.
Third Part (One-Third): The final piece of the puzzle is your profit margin. This is what’s left after you’ve covered the direct costs and overheads. It's the reward for your entrepreneurial risk and the investment back into the business for growth, development, and contingency planning.
Example: If paying an accountant costs you ZAR 100 an hour, then charging ZAR 300 an hour to the client covers the wage, and the costs of running your business (like rent and software), and leaves room for profit.
Step-by-step example on setting hourly rates
Step 1: Determine Monthly Salary and Hourly Rate
Assuming a gross monthly salary for the accounting clerk is ZAR 20,000. The clerk is required to work 40 hours a week.
First, you need to find the hourly rate based on a 160-hour month.
Hourly Rate = Monthly Salary / Total Monthly Hours = R20,000/160=ZAR125
Step 2: Calculate Productive Hours
Assuming that the clerk is only productively billing two-thirds of their time, the productive hours per month would be:
Productive Hours = Total Monthly Hours × 2/3 = 160 × 2/3 = 106.7 hours
Step 3: Adjusted Hourly Rate Based on Productive Time
Since only two-thirds of the clerk's time is billable, the hourly rate needs to be adjusted to reflect only the productive hours:
Adjusted Hourly Rate = Monthly Salary / Productive Hours = ZAR20,000 / 106.7 = ZAR187.50
ZAR187.50 is the hourly rate to be charged for the clerk which is inflated to consider the unproductive hours for each day.
Step 4: Apply the Three-Times Rule
The three-times rule is used to cover the direct labour cost (one-third), overheads (one-third), and profit (one-third). Thus, the charge-out rate would be:
Charge-Out Rate = Adjusted Hourly Rate × 3 = ZAR 187.50 × 3 = ZAR 562.50
Therefore, to cover the cost of the accounting clerk's salary, ensure profitability, and account for overheads, you would charge the accounting clerk's time at approximately ZAR 562.50 per hour to clients.
This calculation assumes that all productive hours are billable to clients, and it includes the cost of non-productive time in the charge-out rate. Adjustments may be necessary based on the specific circumstances of your firm, including the exact proportion of billable work and the actual overheads.
Other Pricing Methods
There are more ways to set prices than just by the hour. Here's a look at a few:
Value-Based Pricing Example
Allows you to charge fees based on the impact of your work. For example, a project leading to a 20% operational cost reduction for a client could warrant a fee of ZAR 30,000, significantly above what might be charged based on hours alone.
Best to use for:
Complex Projects: Ideal for projects where the outcomes significantly impact the client's profitability or operational efficiency, such as restructuring finances or implementing a new tax strategy.
Specialised Services: When you offer services that are highly specialised or unique (once off), value-based pricing can capture the unique value provided.
Learn from Ron Baker by watching the video below as he puts the concept of Value Pricing into context
Charging a Monthly Fee
Charging a fixed fee, say ZAR 5,000 per month, for ongoing advice, or setting a fixed ZAR 15,000 for conducting a review.
Benefits of using a fixed fee:
Predictable Income: Provides steady, predictable revenue for your firm, aiding in cash flow management and planning.
Client Retention: Encourages long-term relationships with clients, as they invest in ongoing access to your expertise.
Efficiency: Reduces the administrative burden of billing for individual tasks, streamlining operations.
Problems you may experiende using this method:
Monthly fee is not always easy to calculate moving from hourly rates. Using the example of the clerk’s charg out rate ZAR 562.50 per hour above, this clerk would be able to spend 10 hours a month on a client that is charged ZAR 5,625.00 per month. It is important the staff members understand their time allocations on each client and for each task they perform.
Vulnerability to scope creep where client will request you to perform additional tasks that were not not initially agreed. It is important to ensure that your client understands the scope the work you perform. It is crucial to have an agreement that outlines the services included the fixed fee and the fact that additional services will be charged separately.
Unforeseen complications could cost you, when extra time needs to be spent on the client.
Putting Your Pricing into Practice
When you start using your pricing strategy, being open with clients, flexible in your approach, and making the most of technology can all help.
Being Open: Clear invoices that explain what you're charging to build trust.
Being Flexible: Sometimes, adjusting your prices or payment terms can make a big difference to a client.
Using Technology: Tools for tracking time and managing invoices save you time and keep things accurate.
Communicate to build trust: Clear and consistent communication is necessary to create, creating a transparent environment where clients feel informed and valued. By openly sharing information, addressing concerns, and providing timely updates, you demonstrate reliability and integrity, which are crucial for fostering strong, trust-based relationships with your clients. This trust not only enhances client satisfaction but also strengthens loyalty, encouraging long-term partnerships and positive word-of-mouth referrals.
Keeping It Practical and Flexible
By mixing different pricing methods and understanding both your needs and those of your clients, you can set up a pricing strategy that supports your business's growth and keeps clients happy. This guide is all about finding a balance that works for everyone, and staying open to adjustments as you learn what works best in your market. With these tips and examples, you're well on your way to creating a pricing structure that's both fair and effective.
Examples on pricing of accounting services
Example 1.
Image taken from the website of Procompare (https://www.procompare.co.za/prices/accountants/accountants-prices)
Example 2.
Image taken from the website of The Beancounter (https://thebeancounter.co.za/accounting-services/?gad_source=1&gclid=CjwKCAjwh4-wBhB3EiwAeJsppE83tgwARNOkvGdm1YfNPGA3VpE6LfD9evqKCAyC2815WPBvNEFhFBoCGIoQAvD_BwE)
List of services offered by accounting practices in South Africa
Compare your service offerings and discover new potential services you can offer from the List of Services for Accounting Practices.
