How to move to fixed-price – or be priced out.
What is a bookkeeper worth? This question is at the heart of an ongoing debate about the impact of cloud accounting software on the accounting profession itself.
While bookkeeping incorporates a range of services it is most commonly identified with routine data entry, an activity which has been substantially reduced through daily importing bank feeds and rule-based, automated reconciliation.
In clients’ minds, less time entering data should equal less time billed. Bookkeepers are slowly moving towards other ways of defining themselves to clients to ensure their income doesn’t fall with data entry.
Two key strategies in this process are articulating to the client a broader range of services beyond data entry and moving from hourly rates to fixed-price billing.
“Bookkeepers need to think creatively about what other services they are providing. If they don’t move to establishing their broader value beyond data entry they’re going to get priced out,” says Anita Gisch, managing director of the Northpoint Training Institute, a consultancy that works with bookkeepers and accounting firms.
A fixed-price package is a knowable quantity; a client can more easily understand what they’re getting for their money. And it removes bill anxiety. Bookkeepers operating on an hourly rate are invited to start charging without any parameters as to how much time the job may take.
“If you’re on hourly billing the client thinks of you as a cost to them per hour. The emphasis is on the cost rather than the value, it’s the same as seeing an accountant, doctor or lawyer. The client gets the bill afterwards and it’s an uncomfortable feeling,” Gisch says.
The advantage of selling a packaged service is that bookkeepers can highlight the services they are providing for that business. Once you move away from break-fix and data entry you can become more proactive, Gisch says.
In fact, fixed-price bookkeepers have a great incentive to be more proactive. If their clients’ accounts fall into disarray, fixing the problem comes out of the bookkeeper’s own pocket.
“If you’re not being proactive and you’ve switched to fixed price you’re exposing yourself to a whole lot more risk. You need to be able to predict what is happening in the business, so it’s an incentive to get involved early and give advice,” Gisch says.
The first step for bookkeepers moving from hourly rates to fixed-price billing is to articulate exactly what you do. Often this is harder than people realise.
“I find bookkeepers say, ‘I just do bookkeeping’ but there’s such a range of potential services; payroll, reconciliation, data entry, chasing debtors. I get them to break down all the services that they offer, and they say for this client I do this, and this client I do that,” Gisch says.
Once the bookkeeper understands their portfolio of services, the next step is to pick a couple of clients and start measuring how long each service takes to perform.
“Over the next two months, before you’re going to the job, guess how long it will take you to do the job, and compare afterwards how long it actually took,” Gisch says. The goal is to become better at estimating how long it will take through understanding all the steps involved in a service.
Gisch recommends bookkeepers factor in a base price plus 30 percent to allow for clients changing their minds or failing to provide all the required information for a job.
Conversely, highly-efficient clients could be offered a cheaper low-maintenance package because they do some of the work for the bookkeeper.
Coming to know the value of your services is crucial. “If you can’t give a really clear idea of how much time it cost to do something and you don’t know how many variables are involved then you shouldn’t be doing fixed price,” Gisch says.
Once a bookkeeper has figured out the cost and time required to carry out each service, these calculations become the pitch itself. Fixed-price shouldn’t be considered an opportunity to charge the client three or four times as much but as a way to make services more predictable and more valuable in the mind of the client.
A bookkeeper can say, “I’m not just a bookkeeper. Look at all the value I’m giving to these businesses,” Gisch says. “You can increase your own value in your own mind.”
Once a bookkeeper has established a range of products, from low-maintenance to full-service packages, he or she can try upselling clients. The bookkeeper’s bargaining position becomes much stronger because they have a clearer idea of what they’re offering.
“If you have a strong negotiating client then they can push you over backwards. But if you know what it is you’re giving them you can decide whether to take them on,” Gisch says.
The move to monthly billing for cloud accounting software has made it very convenient to bundle services. Xero and Saasu are encouraging this practice which works well from a cashflow perspective, Gisch says.
“If you want to stay on top of desktop accounting software you should be buying the new version each year for the tax tables. Whereas if you’re paying it off monthly and you stay up to date, you don’t have to worry about it.”