Your pricing must enable you to meet fixed costs, because they are obligations that aren’t going anywhere.

And while considering the minimum you need to keep the lights on, you should also bear in mind what your ideal profit margins are, because if you’re not getting there, you might need to make a change to your firm’s pricing.

Cash flow

Cash flows both ways and the timing of the tide matters.

It may be good that you have clients on long-term engagements, but if payments don’t come for months, it can be difficult to stay solvent, especially if you’re just starting out.

Value-based and fixed-fee billing are good for maintaining a consistent cash flow, because you can quote and even bill upfront. But if you’re still committed to hourly pricing, placing time frames on the payment of invoices is the bare minimum.

Location

Where you’re operating makes a big impact on how much you can charge for your services.

In some US states, accountants earn significantly more than others. For example, the average salary for an accountant in Massachusetts is around $25,000 USD higher than an accountant in New Mexico.

But unless you’re going to move to Boston (and spend all your profit on winter coats), you need to be aware of the standard practice in your area, so you don’t under or overcharge.

The best way is with on-the-ground research. Talk with other local firms to understand the averages in your area.

Target market

Finding a niche will enable you to become an expert in a specific industry so that you can attract specific businesses and charge more for your expertise.

And if you don’t have a specific industry to cater to, you can still group your clients by size or complexity. This is where value-based pricing has the edge over fixed-fee.

Different clients have different expectations, and that means different workloads. More complex or larger businesses are going to take more of your time compared to small businesses or startups and if you’re charging a set fee for a particular task (e.g. tax preparation), larger businesses should pay a fee that is proportionate to the time spent working on their account.

That can be overcome by making options on your fixed-fee ‘menu’ scalable. For example, for monthly bookkeeping, 0-100 transactions might incur one particular fee, 100-300 might be another, and so on.

This is a good way to stay transparent while accurately charging larger clients.

Experience and certifications

Your experience and qualifications have a huge impact. For example, if you have 20 years of CPA certification, you can justifiably charge a much higher rate than someone who has just recently become a certified public accountant.

Experience lets you work faster and deal with more complex problems because your fundamental understanding of the industry is deeper. Clients pay for peace of mind, and as an experienced accounting professional, that’s exactly what you can give, so don’t be afraid to charge for it.

Staffing

You need to price your services to allow you to pay your staff correctly. Or, if you can’t support the staff you currently have, then you need to consider one or several of the following:

• Increasing your client base

• Raising your pricing

• Downsizing or selling your practice

3 pricing strategies for accounting and bookkeeping services (plus a bonus)

There are three main pricing models for your accounting services: hourly-rate, fixed-rate, and value-based pricing.

They all have pros and cons, though there is an emerging favorite (spoiler alert: it’s value-based).

1. Hourly rate pricing

Hourly rate pricing has long been the standard form of billing. It’s a set rate per hour built by considering fixed costs and an ideal profit margin. It’s simple and easy to implement, though it has significant drawbacks in modern accounting.

Technology is killing the hourly rate and timesheets. A lot of compliance work is being expedited and in some cases completely automated. If you’re saving a lot of time and it doesn’t translate into more profit, then something needs to change.

Pros of hourly rate pricing:

• The structure is uncomplicated

• If jobs become more complicated and take longer, you won’t lose money

Cons of hourly rate pricing:

• Caps your potential profit

• Doesn’t reward efficiency

• Unscalable

• Often need to justify hours spent on a task

• A lot of effort spent on time tracking and billing

2. Fixed-rate pricing

A cut above hourly, fixed-rate starts rewarding efficiency.

With fixed-fee you have a set price for each of your services. For example, you’d have one for tax returns, one for financial reports, one for payroll. Then, like ordering off a menu at a restaurant, clients select what services they’d like to engage you for and you bill accordingly.

Tim Jipping, CPA, CGMA from Journey Advisors & CPAs is a staunch advocate of fixed-fee pricing:

“Hourly arrangements can create a tense and antagonistic, ‘us vs. them’ relationship. Why would anyone want that with any vendor, let alone your accountant? The reason we do fixed pricing is because we don't want our clients to be penalized for our incompetence and inefficiency, but we do want to be rewarded for our competence and efficiency."

With fixed-fee pricing, the more work you can do in a day directly correlates to an increased profit. Unfortunately, you are vulnerable to scope-creep. This leaves it a step below the ideal pricing model.

Pros of fixed-rate pricing:

• Rewards efficiency

• Allows you to bill upfront

• Clients have clarity over costs

Cons of fixed-rate pricing:

• Can be difficult to calculate moving from hourly rates

• Vulnerable to scope creep

• Unforeseen complications could cost you

3. Value-based pricing

A value-based model allows you to price your accounting services to maximize profitability, eliminate scope creep (for the most part), and build business relationships.

It’s similar to a fixed-fee model, in the sense that you have different prices for different services. But instead of a one-size-fits-all approach, you bill based on the perceived value to each of your clients.

Usually, that will involve a discovery meeting to determine what a potential client is looking for, how often, and exactly what your scope will be. Those meetings are multi-purpose. You discover what areas they need your help with, learn the possible difficulties with their accounts, and build relationships through more meaningful dialogue.

For a more in-depth exploration of value-based pricing, check out this article.

Pros of value-based pricing:

• Maximize profitability

• Flexibility to adjust pricing on an individual basis

• Builds relationships and promotes discussion with clients

Cons of value-based pricing:

• Can be more time-consuming to set up

• Can be difficult to transition from an hourly-based system

Bonus: Subscription pricing model

The subscription pricing model is a relatively new pricing concept. Championed by pricing expert, Ron Baker CPA, this model has the potential to upend and revolutionize value pricing.

It’s not a subscription in the traditional sense, where you take your value pricing, divide it by 12 months of the year and engage clients on monthly retainers.

Instead, the subscription model for accounting lets you support your clients in any way they need. There is no scope of work—it’s full-service. Basically, anything you can help your client with, you do. And when you can’t, rather than referring them to another firm or specialized service provider, you actually help facilitate that relationship.

This model is based on a premium level of service, allowing you to charge at a significant premium too. It prices your relationship with your client, rather than inputs or outputs.

For example, you may charge a client $7,500 per month, which includes all the services you offer.

Pros of subscription pricing:

• No need to scope work

• High client retention due to the high value placed on client relationships

• Encourages you to improve customer service

• Save costs on client churn

Cons of subscription pricing:

• Requires a change in thinking and approach to pricing, which can take time to implement

• Will require you to reduce client count to ensure you have bandwidth for true and deep client relationships, which can take time to do

• If you don’t have experience in value or fixed-fee pricing, it can be difficult to decide what your subscription price should be

How to implement a value-based pricing model

Value-based pricing can be implemented in different ways. A common (and effective) method of getting started with value-based pricing is by using a 3-tiered pricing method.

The psychology of 3-tiered pricing

3-tiered pricing is a subscription-based, upfront pricing model.

This model is built by grouping your services into three tiers or packages—basic, standard and premium—all at different monthly price points (a more traditional sense of the term ‘subscription’).

The reason for this is rooted in pricing psychology. Studies show that if given three options, consumers are 66% more likely to choose the middle tier.

Most people don’t want the most expensive option, but they also feel dissatisfied with the base option because it lacks certain features. So they’ll select the middle tier.

But more importantly, there’s a concept called price anchoring.

Price anchoring is a strategy that plays on a buyer’s tendency to inherently compare information. So, when people see your pricing options, one of the things they’ll first notice is that your top-tier option is higher than your mid- and low-tier plans, and they’ll use that as an anchor.

Straight away, the mid- and low-tier plans will appear the more palatable pricing options.

Download The Pricing Playbook for practical steps for doubling your pricing without increasing your workload.

How to set up a 3-tiered pricing model

Using this knowledge, you can package your services into three tiers.

Basic tier

Includes basic services such as:

• Accounts payable/accounts receivable

• Financial reporting/financial statements

• Payroll

• Monthly bookkeeping needs, like reconciliation and credit card management

Standard tier

Includes everything in the basic package, but with additional services like:

• Compliance reviews

• Budgeting and forecasting

• Tax preparation/tax services/tax planning

• Financial analysis

Premium tier

Includes everything from the first two tiers, plus:

• Best business practice consultation

• Bespoke advisory services

• Tech stack assistance

• Financial auditing

Automate common tasks with accounting software (and grow your business)

The true benefit of value-based pricing lies in being rewarded for efficient work. The more time you have, the more money you can make. And the fastest way to save time in accounting is by taking advantage of rapidly evolving technology.

Accounting practice management tools like Karbon can save you time through automation, workflow templates, and automatic client reminders. In fact, firms that use Karbon save an average of 18.5 hours per week, per employee.

Book a demo or start a free trial with Karbon to learn more.

Automation and Client Requests

Automated workflows keep your firm moving. Team members no longer need to spend time on repetitive, manual tasks like status updates and manual work assignments. As a result, their efficiency skyrockets. And when they’re more efficient and you’re using value-based pricing, you’re making money.

Plus, with Karbon’s automated Client Requests and client portal, firms are saving 3.2 hours per week, per employee by not chasing clients for information.

So all the time you used to spend chasing clients for information, or finding out where an account is up to, can be reallocated more productively.

Templates

Templates standardize quality across your team. By taking advantage of the vast library of templates available in the Karbon Template Library, and customizing them to suit your firm, you’re guaranteeing structure and consistency.

This Monthly Accounting template is Karbon's best practice process for monthly accounting, including the monthly bookkeeping essentials and month-end close processes. It uses Karbon's Automators and Client Requests to prepare, reconcile, review and follow up with clients regarding their monthly accounting information. While you're there, it may also be worth looking at Karbon's monthly payroll template.

Karbon's Monthly Accounting template streamlines your monthly bookkeeping and month-end close processes

Download the Monthly Accounting template.

Knowing the price is right

By bringing together all of the different factors, you can calculate a price for your services that works well for everyone. The right price will be fair, competitive, and reward the years you’ve spent perfecting your craft.

Setting rates will always be a delicate process. But there is nothing worse than setting a price too low and beginning to resent your work or your clients.

Instead, when the price is right and all parties are happy, you can forget about the fees and concentrate on doing what you do best: delivering outstanding accounting services to keep clients and your firm growing into the future.

• Pricing your accounting services can be difficult to get right—but it’s critical.
• Factors like your firm’s location and target market affect how you set your pricing.
• Hourly billing is straightforward, but it caps your profit.
• Fixed fee pricing rewards efficiency but makes you vulnerable to scope creep.
• Value-based pricing might be time-consuming to set up, but it will maximize your profit.
• Subscription pricing is a value-based concept that includes all-inclusive pricing.
• 3-tiered pricing will help you charge a higher rate more effectively.