standard rates too often leave you short.
accountants face only two major restrictions in determining their fees – the restriction against contingency fees under certain circumstances and the taking of commissions or referral fees. we have also seen that for the most part, accountants bill their time based on a cost-plus method.
more: ethics question: commissions and contingencies | make the value curve work for you | how to leverage demand in your pricing | make the most of your marketing mix
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we don’t have to go far to find a source that suggests “that no business can survive and grow in the marketplace unless it is profit-oriented and motivated,” and “time charges at standard rates should only be the starting point for determining the amount to be billed. the real criteria is the value of the service to clients.” the source for these words of wisdom is none other than the aicpa management of an accounting practice handbook. the handbook goes on to say that “standard rates should not represent a maximum that can be billed for services; rather they should represent a minimum.”
our brethren in the legal field have been much better in determining the “reasonableness” of a fee. in determining their fees lawyers usually consider the following 13 factors:
- the time and labor required
- the novelty and difficulty of the questions involved
- the skill required to perform the service properly
- the fee customarily charged in the locality for similar legal services
- the monetary amount involved and the results obtained in the matter
- awards in similar cases
- the desirability or undesirability of the case
- the experience, reputation and ability of the lawyer performing the service
- the results obtained
- whether the fee is fixed or contingent
- nature and length of the professional relationship with the client
- time limitations imposed by the client or the circumstances
- preclusions of other employment due to acceptance of this case
according the aicpa’s map handbook, there are nine subjective factors that can affect an accountant’s fee. many of them are similar to the preceding 13 factors taken into consideration by attorneys. however, the unfortunate reality is that most accountants ignore these factors because they are so blinded by the billable hour paradigm. ask yourself whether or not you took any of the following nine elements into consideration when you were determining your fees for your last new client:
- skill and experience of the staff. for engagements over 40 hours, most firms will develop a budget showing the time required by each level of staff who have added experience or additional years of service – for example, a manager who has been with the firm for eight years, or perhaps a staff member with an advanced degree, such as an mst or mba – should demand a higher billing rate.
- responsibility assumed. special services, such as reports on the registration of securities with the sec, and certain types of tax, management consulting and specialist services merit larger fees.
- value of services to client. often, the time expended in providing a service does not accurately reflect the value of the service received by the client. perhaps the most obvious situations are conflict resolutions, savings in taxes, in accounting costs derived from installation of a new accounting system.
- difficulty of engagement. higher fees are justified when difficult and complex technical problems are handled by specialized partners and staff.
- special considerations to new clients. the firm’s existing clients have paid in part for the experience acquired or for research materials contained in the files. a new client, who has not contributed to this accumulation of research materials, should pay as much as the existing client paid for these services even though, because of the earlier work, a smaller amount of time and effort is involved.
- size and character of the community. higher fees might be appropriate in some engagements because living expenses and operating cost may be higher in some communities.
- working conditions. unsatisfactory client location or working conditions may warrant billing above-standard rates.
- ability to pay. the aicpa’s map handbook addresses only the situation when a client cannot pay for the services needed. in that case, the accountant might defer a portion of the fee, reduce the fee or terminate the relationship. note that deferring a portion of the fee has independence implications and you should refer to the aicpa code of professional conduct before taking this course of action.
- acceptability. there is little point in providing a service unless the accountant can reasonably expect to collect a fee.
in addition to the factors listed in the aicpa’s map handbook, the following are three additional factors that you may want to consider:
- impact on rest of the practice. during busy season consider setting a higher fee, and set a lower fee during slow periods.
- loss of access to other markets. some engagements may result in conflict with other more desirable engagements. if this condition exists, you should get a premium fee from the less desirable engagement.
- marketing awareness of pricing. note that if you allow a discount for one client, you will face a dilemma if other clients find out.
just think for a moment: what might your pricing for the next new client be if you took into consideration these 12 factors? in both the legal and accounting fields, the standard rate for services is coming under attack because the buyers of these services are more sophisticated as the supply continues to overwhelm demand. too many accountants are pursuing the same business. as a result, over the past several years many types of discounting or variations of fee structures have taken place.