Back in 2010 we were hearing about MP’s for hire and their differing daily rates. This brought to mind the question that many accountants are asked by prospective clients: “What’s your hourly rate?” and a related question only usually hinted at: Who decides what hourly rate is ‘fair’?
At the time the media had 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). Later reports suggested that Andy Ingram and Richard Caborn charged upto £2,500 a day (about £312 ph).
It’s interesting to speculate as to whether the journalists, who uncovered the MPs’ willingness to take money for lobbying after they stand down, had inside information. Did they know who to target? Did they just get lucky? Or were these 5 MP’s just unlucky to get chosen and therefore revealed? No doubt there are many more MPs who operate as ‘cabs for hire’ and who would make themselves available for a daily or hourly rate. But that’s not relevant to this blog.
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.
Dare I suggest that, in this context, 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 go 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.
When I worked in large firms 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 speed with which more senior people could solve problems, source answers and provide advice. That came with experience. Amongst sole practitioners it is quite likely that more experienced accountants charge more than those who are younger and less experienced.
In so far as the client is 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. 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. The challenge for accountants, as for MPs, is how to ensure that prospective clients value the service that will be provided. 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 and ability.
Can you relate to this? What’s your take on the issue?
Mark
This is a great article and as you so rightly state, the outcome and the speed with which it is achieved is most important. My husband is an accountant and his clients value his personal input and the way that he is readily availble to sort out their problems. They put a high regard on the perceived value that he adds. This is I think the issue.
I also agree that the more senior accountants have a wider grasp of subject matter and can respond more quickly without having to go elsewhere for a solution, or if they do, they know exactly where to go quickly.
Shelley Fishel
Mark,
Isn’t it the same for all the “services” industries?
I am thinking web design and search engine optimisation (because that’s where my expertise lies) but you can also see huge variations in the rate people charge for these.
The difference is sometimes as great as 5 times, but then again, nobody charges £300 ph. Well, I guess I am in the wrong business :)
Mark, you make an excellent comparison in terms of the hourly rate. And I agree that people are looking at many service industries in terms of “project” pricing, rather than hourly rates these days.
What was interesting about the Steven Byers “cab for hire” comment is that this is not the first time MPs have used this. The same phrase was used by some of the sleazier MPs in the John Major days….! So it appears that MPs have a deep-seated perception of themselves as low quality advisers, who are happy to just do anything for anyone as long as the price is right.
In my experience of accountants – albeit limited – most of them don’t perceive themselves in this manner. The ones I know appear to want to do the best for their clients, both in terms of helping them make more profits, save taxes and stay within the law. Few accountants, I imagine, will do any old service for any money.
So, the hourly rate for an accountant – no matter whether they are inexperienced juniors or highly regarded partners – is inevitably excellent value when compared to the “cab for hire” mentality of MPs.
Customers are usually prepared to pay a high price for high returns. The current political fees scandal will actually only serve to push down the prices MPs can charge. Their comments only prove – as if we needed any more evidence – that MPs are of low value.
An interesting comparison and, given the regard in which we all hold most politicians, it would be interesting to be a fly on the wall during any ‘value conversations’ that took place!
It just seems obvious to me that were I to engage the services of either an ex-Minister or an Accountant, I would be wanting to pay for the result achieved and not for the effort put in. Either of these would have to help me understand what I would be getting as a result of their help, then I could see what ‘return on investment’ I would be getting.
Their ability to deliver what they said they could (or not) would have to have been established beyond doubt far earlier in the relationship, before things ever got this far.
Surely this is all about perception. Price is fixed but value is in the eye of the beholder. There are people for whom money is not an issue and who see that paying a high price somehow enhances their status (luxury goods wouldn’t exist otherwise.) This is no different. The value to the buyer is not in what is delivered but in the way it makes them feel to be able to afford it. It’s pure ego.
There are professionals in every field who command huge fees, not because they are significantly better than their more lowly paid counterparts but because there is a demand for perceived quality.
As David Winch is often heard to remark, practice saying your fee in front of the mirror until YOU believe you’re worth it and then see what happens!
Great point Mark, Too many clients aren’t comparing like with like and end up getting paying for bad advice instead of paying a little bit more for great advice.
Ralph