There’s a lot of confusion among accountants and bookkeepers where to stick to hourly pricing, as before, or go for a fixed pricing model. Hourly pricing means charging clients per hour of work. Fixed pricing is a fixed price set for a one-time work right from the outset, or that set on a monthly basis.
Fixed pricing is also called as value-based pricing as it is based on the value placed by a client on your service, rather than on the hours of work performed by you.
Both fixed and hourly pricing have been around for a long time. But with cloud accounting, the fixed pricing model is considered more viable and even more profitable over the long run.
Let’s talk a bit more about which pricing model accountants should use – fixed or hourly.
#1: Hourly pricing offers the wrong incentive
Think about it, when you charge an hourly rate, you will be compensated for the time put in, not for the quality of the work. This is an anti-meritocratic system, as it creates an incentive to spend more time on a project although you are good enough or talented enough to complete it faster. Fixed pricing on the other hand, values talent and the quality of work over the time put in.
#2: What do you want – a focus on the value of your work or the cost of your time?
This is a question you have to ask yourself. There is actually a lot of pressure on accountants who charge an hourly pricing model. They are required to justify every minute spent on a project.
You cannot afford to get distracted by a relevant or an important issue if you charge an hourly pricing model as your clients expect full value for the money they spend each hour. This can throw your firm into a conflict with your clients.
Also, as discussed earlier, the hourly pricing model means less talented or less experienced accountants get to make as much as those who are faster, more experienced or more talented than them, despite charging a lower rate per hour. The less time you take on a project, less is the amount you will make from a project. So it really does not make sense.
#3: Fixed pricing model allows you to tell your client what the project would cost upfront
That’s the first thing your clients will want to know – how much does the project cost upfront. You can’t tell them this if you offer them an hourly model.
Your clients would always wonder what their bills are likely to be at the end of the month. This could lead to unnecessary conflicts later, as we have already mentioned. That’s why, to be safe, it’s better to stick to a fixed price model.