You work with numbers day in and day out, but setting your rate as an accountant or tax preparer might be new territory. Maybe you’ve been working as a full-time employee and are just starting your own virtual practice. Maybe you’re just starting out in the world of accounting and have no idea how to price or bundle your services.
Setting your rate is one of the most essential steps when you embark on this journey. You don’t want to overcharge and repel potential clients; it’s just as bad to charge too little and overwork yourself to make ends meet. Knowing how to negotiate a fair and mutually agreeable rate with your clients will help you find and retain clients who understand the value you bring to their organization and avoid clients who want to get your services as cheaply as possible.
Setting your rate and choosing your billing method as an accountant starts with knowing industry rate averages and what businesses large and small are already comfortable paying. Next, you’ll consider the different billing methods you can use to charge clients. Finally, think about the pricing strategy that will help connect with the clients you want and land you in the black each month.
Accounting Industry Rate Averages
You’re free to set any price you like, but keeping within the industry’s averages gives you the best chance at connecting with long-term clients that value your services. The average rate charged has increased slightly since 2015, so if you haven’t updated your rates in a while, 2020 is the time to do it.
Last year, Intuit found that accounting and bookkeeping professionals charged about $69/hour for their services while tax preparers charged an average of $123/hour. Intuit expects that the slightly lower rates in 2019 compared to 2017 are the result of an industry shift in billing methods.
Tax and professionals with different specialities vary their rates to reflect those specialties. On average, tax preparers and consultants can charge a higher hourly rate than payroll accountants or general bookkeepers. These rates are just averages, though. Some professionals will charge more and some will charge less.
SCORE, a small business nonprofit that compiles statistics on small businesses, did a survey asking business owners how much they spend on accounting services annually. The data is from 2015, but it can help give you a sense of what most small and microbusinesses are paying for accounting services each year.
23% of small businesses spend $1,000 or less/year
31% spend $1,000 to $5,000/year
18% spend $5,000 to $10,000/year
12% spend $10,000 to $20,000/year
16% spend $20,000+/year
Small businesses are spending anywhere from $1,000 to $20,000+ on accounting services each year because these services are essential for them to keep the business running. All you have to do to grab your slice of the pie is to set your rate to be competitive and reflect your value. That’s why the billing method you choose is so important.
Choosing Your Billing Method
As more accountants and tax preparers move away from hourly billing, what’s taking its place? The same Intuit survey we mentioned above with hourly rate averages found that fixed-fee pricing is very common, with value-based pricing and value billing trailing behind. But which one is right for you?
There are a few billing methods and pricing strategies you can choose from as you set your rate. Here are some of the most common, including bundle, flat fees, hourly, or competitor-based pricing.
Bundled or Package Pricing
With bundled or package pricing, you offer clients a number of options that allow them to choose how much they want to pay and which services they want. When you offer a special bundled price, you can include additional services that increase value for your clients but won’t significantly affect your bottom line.
Anytime you shop for accounting or tax software, you’re likely seeing tiered package pricing. The lowest pricing level includes a few features, the mid-level option includes more features and increased customer support, and the high-level options include the most features and support.
By offering tiered pricing that puts the client in charge, you ensure you’re not turning someone away by pricing them out or offering too little to clients who need a more robust offering. If you’re not entirely comfortable with negotiating rates with clients, offering tiered pricing in packages will be helpful. Clients who are on a strict budget can choose the lower pricing level and those with more accounting or tax needs can select the mid-tier or high-tier package with no negotiation required.
For added customization, you can always offer special pricing for individual service add-ons. Some accounting and tax professionals offer discounts on future work when clients pay up-front.
Flat Fee Pricing
With a flat fee billing method, you’ll label every service offering with a clear, flat price that you can offer to every client you work with. It saves time, but it can leave money on the table or end up reducing your overall rate.
For example, if you always charge $200 for tax preparation, you might only spend an hour preparing a return for a simple tax client but a more complex return could take 6 hours. The flat fee works wonderfully for simple, cut-and-dry scenarios, but not so much for more complicated services that can eat into your time. Consider the kinds of services you offer and how much they tend to vary in simplicity to determine whether flat-fee pricing is the best option for you.
The hourly approach has long been associated with the accounting industry because it takes into account what fixed-fee pricing doesn’t: Some projects take a little time and some take a lot. By using the hourly pricing method, you won’t end up sinking hours into a project you’re being paid comparatively little for.
However, it can be a hassle to track the time spent on each service. It also creates some uncertainty for clients who won’t know how much they owe you until the work is finished and the bill is sent. Consider your services and how much they vary in the time spent completing them to determine whether or not hourly pricing is a good fit for you.
If you’re in an accounting niche with a lot of competition, you might consider competitor-based pricing. Essentially, you arrange your rates and fees in line with your biggest competition. Competitor-based pricing ensures your prices aren’t high above or far below your closest competitors. It can also make you stand out from the competition and present you as a valuable option when a client decides to leave a competitor or price-shop between you. When you set your rates based on those of your competition, you can either aim to set your rates slightly lower, add additional services or packages to a service for the same price as your competitors charge for the basics, or charge more than your competitors by marketing your high level of experience and skill in a specific niche or sector.
Whatever option you choose in competitor-based pricing, be sure to highlight what makes your services or firm different from your competition. If it’s more affordable, say so! If it comes with more features, services, or benefits, mention it. And if it’s priced higher, present your firm as a high-end offering that promises quality and satisfaction.
Setting your rate as an accounting or tax professional is a big step to take. Make sure you choose the billing method that works best for you and your firm, whether it’s bundle, flat-fee, hourly, or competitor-based pricing.
Pay attention to the industry rate averages over time and use those as a jumping-off point, not a confining requirement. If your bottom line can handle lower pricing to set you apart from the competition, try it for a while and see if it’s a viable long-term solution. If you know that your skill and experience provide more value than your competitors, don’t be afraid to let your pricing reflect that. Remember: The rate you set will help you attract the right clients and avoid the ones that don’t see your value.