Who decides what hourly rate is ‘fair’?

Mar 28, 2010 | Accountants, Pricing

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?

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