Pricing the work that we do for clients is never easy.  When I worked for larger firms many years ago fees were determined by reference to ‘costs on the clock’ – ie: the aggregate of staff and partner time costs as measured by timesheets.  Charge out rates were commonly set at about three times the related salary costs. The rough rule of thumb being one-third salary, one-third overhead and one-third ‘profit’.  A more modern formula perhaps being one-half, one quarter, one quarter respectively.

I don’t want to get into the whole ‘trashing the timesheet‘ and value pricing debate here. I would like though to share a point I recently contributed to an online forum.  It will be especially relevant if you are a sole practitioner and thinking about your pricing policy.

Sole practitioner A works from home and uses a pay as you go telephone answering service so has few costs to cover. Sole practitioner B works from offices and with secretarial support so has more costs to cover. They provide the same service. The client perceives no difference. Indeed sole practitioner B may previously have been working from home just like sole practitioner A.

Why shouldn’t A and B charge the same fees? If A charges less because he/she is based at home, what happens when the decision is made to move to an office? Cost base goes up. But clients perceive no difference in service so wouldn’t want to pay more.

Answer? Fees should be set by reference to the value provided to client as perceived by the client. Practitioners will aim to keep the costs of servicing clients to a minimum but those costs are rarely relevant to the fees charged.

I used to work in large firms with varying charge out rates for different grades of staff. If a job could be done by a junior member of staff but they were unavailable and a manager did it instead the client should not be asked to pay more – unless they perceive they have benefited – ie: received more value than they would have done if the junior person had done the work. This rarely happens in practice.

Does this make sense to you?  How do you determine your fees?

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