Do you want a ‘fair’ hourly rate or a decent return for your expertise and advice?

Oct 24, 2023 | Accountants, Business Strategy

Whether or not you use timesheets or bill clients by reference to the hours that you (and your team, if any) spend on clients’ affairs, you probably have an hourly rate in mind. Don’t you?

Conversations with the accountants who are or have been my clients reveal a wide range of such rates. And some even have different rates in mind dependent on the type of work they are doing for clients. A higher rate typically being charged for specialist tax advisory services for example.

We have all heard the arguments, I am sure, for charging ‘value based’ fees or ‘fixed’ fees – and I am a big supporter of such approaches – in the right circumstances. BUT these approaches will invariably start with some idea as to the reward you want for the time and effort you put into the work you do.

It is clear to me, by the way, that different accountants will have very different ideas as to what a reasonable hourly rate might be. This doesn’t surprise me even though some seem to assume there is a ‘going rate’ and that they can’t charge more than this. My experience and that of my accountant clients would disagree on both counts.

A while back I created a template spreadsheet for an accountant I was mentoring so he could review how much he actually earned for the work involved for each of his main clients types (sole trader, partnership, limited company, VAT registered company and so on).

This also helped reveal his capacity limits and which type of clients he really wanted to win to fill the gaps. I now share this with other accountancy clients who would benefit from such an analysis.

An analogy
Way back in 2010 we were hearing about MPs for hire and their differing daily rates. For example, the media reported that Stephen Byers charged upto £5,000 a day (about £625 per hour). Patricia Hewitt and Geoff Hoon charged less, ‘Upto £3,000’ a day (about £375 ph) and Andy Ingram and Richard Caborn charged upto £2,500 a day (about £312 ph).

If you wanted to engage an MP – how would you choose who to use? Are they all the same? Why not just go for the cheapest?

Actually the question should be “Are they all the same as regards their ability to help me achieve my business objectives?” And the answer is clearly ‘no’. They each have different contacts, different levels of influence with other MPs, ministers and civil servants. And this is why there is no standard daily/hourly rate for which they can be engaged. Rightly or wrongly some charge double the amounts that others charge.

Back to accountants
Dare I suggest that, in this context alone, accountants are just the same as MPs? Who decides what is a fair fee for an accountant’s services? If someone thinks that an accountant’s quoted hourly rate is too high, of course they can look to find another who charges less.

In real life, including that populated by ex MPs lobbying for their paymasters, what matters most are the results that are achieved. And, of course, the relative cost of securing that outcome, advice or solution.

Accountants who allow themselves to be challenged over their preferred hourly rate need to feel comfortable that it is reasonable. There is no ‘right’ or ‘wrong’ hourly rate.

Differing rates in one firm
Whenever I worked in a large firm of accountants, each level of staff had a different hourly rate. Managers had a higher rate than juniors and Partners had a higher rate than managers.

One of the reasons for such differences was the level of seniority of course. But that was just shorthand for the speed with which more senior people might be expected to solve problems, source answers and provide advice. That came with experience.

I remember hearing of a client who was very concerned when told that a senior tax partner would be joining a planning meeting and that his rate was more than double the rate for the client relationship partner who was hosting the meeting.

Afterwards the client is reported to have said his frustration grew as the senior tax partner said nothing for most of the meeting. Then towards the end he started to contribute and the client realised why the tax expert had been invited and why his expertise was so ‘expensive’. “Absolutely worth it”.

Experience
Even with sole practitioners it would be reasonable to expect that more experienced accountants would charge more than those who are younger and less experienced.

This doesn’t always happen. I have, on occasion, come across VERY experienced accountants who undervalued their expertise and wisdom when setting their hourly rates (whether these were publicised or were just what they hoped to earn). As a result they were charging less than much younger and less experienced accountants.

This isn’t something you can change overnight. The problem dates back to when they started their practice and felt they were competing on price (whether or not they publicised their hourly rates).

Work output vs service
As I have said many times, it is only the output of your work that might be directly comparable from one accountant to another.

The style, approach, timing and personal service ALWAYS varies. And is related to your training, clients, choices and preferences, as well as the challenges you have faced and your ambitions for the practice.

You can either operate on the principle that none of these are relevant, in which case you accept that clients will go for the lowest cost provider, or you can look to distinguish yourself from other accountants.

If a client is only comparing straightforward compliance services, the winners will be those accountants with the most efficient systems and who are able to provide a good service for a competitive fee.

Publicised hourly rates are less and less relevant in these days of clients wanting to know what it will cost to get their tax return done or their accounts prepared.

When it comes to hourly rates for advisory or special work however, it is the prospective outcome that should matter most.

One accountant could charge half the hourly rate of another (as with the MPs quoted above). But if he takes 2 or 3 times as long to get to the same result, the client hasn’t saved anything.

Conclusion
The challenge for accountants, as for ex-MPs, is how to ensure that prospective clients value the service that you will be providing.

Rates can vary and if you allow the prospect to think that the quoted rate is all that matters you will find yours forced down and down regardless of your knowledge, experience, ability, service style and approach.

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