back office support calls for flat rates. here’s why.
by penny breslin
it’s not just the numbers
let’s get to the big questions that confound professional service providers of all types in today’s tech environment:
- how do i charge my client for these services?
- how do i continue to get paid?
- how do i charge hourly for processes that will be taking less and less time because of the application of technology?
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fixed pricing
flat-rate billing is the logical choice for back office support (bos) services. this fixed pricing is typically used for monthly recurring work. we can do this by knowing how long it takes to create any given transaction. there will be swings in time, but the idea is that the fixed monthly rate considers the busiest season or months for the business. that way, on less heavy months, you receive the same rate and it makes up for the times when the workload increases.
this also allows the client and you to clearly define the service level agreement (sla). clearly defining what you can do allows you to direct the routine tasks for your employees to them and frees you, the bos, to focus on the value-added work. each person arrives at their fixed price in their own way and this method below is just a suggestion on where you can start. adapt it as you will.
for now, we will use a few determinants for fixed pricing and then work on your own calculations. the key is to take this back to your office and look at the estimate vs. the actual. live review of tasks is the best method for finding actual time. relying on billable timesheets means you miss opportunities to tighten the process. the timesheets are best used to track productivity.
although we track time, we do not bill against the time. the time tracking is for internal purposes of
- load leveling the work,
- verifying that your team members are learning their functions and
- refining your estimations of the appropriate fee level.
utilizing this fixed-price method also means that employees who previously were compensated based on time may need a different compensation. i recommend that when you do consider different compensation, you keep time tracking active.
the goal is to make the work flow smoother and quicker. the timesheet moves from being the basis of billing to the basis of process improvement.
yes, you will get pushback. hold your ground. this is too important to let slide. you will find the good, bad and ugly in these timesheets. you will also find you will adjust your expected budgets. if you do not see how using a $20-a-month data automation app will return three hours of a person’s time as the value, please stop, and go back to hourly write-up and seasonal tax work.
we have the tasks broken down into exact work types. as an example, we separate out allocation time and reconciliation time. in fact, they are separate tasks in our task manager. for some clients, allocation is required every day because of sheer volume of transactions. for others, it is maybe two times a week.
we can then compare speed with the end product to see if we are getting faster but still doing the work properly. when the two do not match, we can consider extra training. occasionally, we find that it is the wrong person for the work type. getting faster and maintaining accuracy is the sweet spot, and timesheets help with that, if they are reviewed and acted upon.
keeping an eye on your costs is critical to making sure scope creep is not occurring. here, too, is where you begin to see the value of using the apps and the integration of accounting software. to come up with these numbers, old-fashioned management of paper and data entry is not feasible.
case study: growing your fees as your clients grow
we have a client that started with us a few years back. at that time, they were just a startup company with minimal work required of us. their monthly rate was a low $200 a month. over time, we noticed the work increased. using the timesheets, we were able to determine that the increased time was because of larger numbers of transactions as well as an increase in the number of documents we handled.
they began to add payroll and needed a receipt manager as well as a global payment system. by adding gusto, dext (formerly receipt bank) and veem, we increased their efficiency and ours, gave the client more confidence and upped our monthly flat rate. over a three-year period, we went from $200 a month to $800 and the client still saw this as a value to them and we still were able to make a profit. another startup with even more employees and transactions went from $250 a month to $1,500 in the same time period. generally speaking, an increase in transaction count correlates with an increase in revenue, which clients are typically happy to discuss. an increase in your fees is a good sign.
how to determine an appropriate monthly fee
to determine an appropriate flat fee, first find out what the client is currently paying for the function. this answer may surprise the business owner in you, but the accountant in you will not be surprised. they may say they pay the bookkeeper $15 an hour, but that is not the cost of the bookkeeping function for the client.
example 1
consider a non-profit college in los angeles. the bookkeeper made $25 an hour, worked on average 35 hours a week and had a pre-tax health insurance plan that the client co-paid 50 percent. the true cost of this position was $7,556 a month.
| monthly salary | 3,792 |
| health insurance | 300 |
| benefits | 190 |
| payroll taxes and workers’ comp | 569 |
| overhead | 455 |
| value of management’s time to supervise | 867 |
| hiring and training cost | 83 |
| acct fees to fix errors | 50 |
| office space (as percentage of the space rented) | 1,250 |
client’s total monthly cost of in-house bookkeeper $7,556
when we gave the proposal to the client for $5,000 a month, the client reacted negatively. then we showed him his real cost for bookkeeping from his own numbers. he signed the contract immediately. now our challenge was to provide the services at the lowest possible cost, yet still maintain high quality standards.
our team’s monthly costs were $829.95 for this proposal. we were happy to make a profit each month.
when this engagement began, the first bos topic in the one-on-one meeting with the business owner was “conversion of cost centers to revenue centers.” we used the swott analysis structure (strengths, weaknesses, opportunities, threats and trends) and identified revenue streams to be targeted using resources obtained from releasing the in-house bookkeeper. also, we were able to capitalize on the strengths and interests of his staff to shift the important duties to those with the talent and interest to do what the company now needed. it was a win-win for the client and his team members.
example 2
the owner of a restaurant wanted detailed daily reports on her costs. the current method the cpa was using was to get the bank and credit card statements when she could, enter them into creative solutions and create financial reports for the restaurant. typically, these reports were three to four months old. the restaurateur wanted more timely data. she was opening a second location and needed to be on top of her numbers. she requested that the cpa use qbo and create several detailed reports for the owner to review for each location. the point of sale (pos) system did not integrate with qbo and the amounts being expended daily were substantial. we checked with www.indeed.com to find the average salary of a full-time, full-charge bookkeeper in the area and came up with the following estimate of total cost:
| monthly salary | 3,488 |
| health insurance | 300 |
| benefits | 174 |
| payroll taxes and workers’ comp | 523 |
| overhead | 418 |
| value of management’s time to supervise | 867 |
| hiring and training cost | 83 |
| cpa fees to fix errors | 66 |
| office space | 250 |
| client’s total monthly cost of in-house bookkeeper | $6,169 |
there was some initial up-front cost outside of the scope of a monthly sla and pricing:
- the switch from cs to qbo
- setup of bill.com
- training the restaurant’s manager and bos’s internal team on their function was billed to the virtual bos
the bos established a setup fee for the client. for clients or prospects that will need considerable cleanup before you can produce reliable monthly managerial accounting, a separate setup fee is very important. everything that can go wrong probably will for the first few months. in some cases, there are third-party programs where your staff will need training. charge the client for this. in this case, the client happily paid a setup fee. once done with setup, we figured the monthly cost. we were not replacing a bookkeeper; we were allowing time for the office manager to manage both locations effectively and to create the excel spreadsheets and other reports the restaurateur needed.
the cost to take on this client was estimated to be $993 per month per location. the firm’s team did all the heavy lifting and the manager at the restaurant still entered the bills, but now the owner could approve and pay online. the firm had immediate access to the apps. the memorized daily z-out was created in qbo so that z-out entries would be consistent and fast. a z-out is the end-of-day report for all the money in and out of the cash register.
the qbo data file was integrated to bill.com. the firm now charges the restaurants $4,000 per month for the ongoing services. the restaurant owner can now log in and see her daily reports. these formats were memorized in the fp&a program and are kept current by the firm and restaurant manager. the scheduling of work for the firm is done in karbon so the bos knows that when she has his monthly meeting, all the work has, in fact, been done by checking the completed tasks in karbon. karbon is a web-based tasking tool to track and manage jobs and tasks in an accounting firm.