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Accountants Move To Fixed Monthly Fees

Clients benefit from highly qualified accountants during IRS Audits

When accountants clients faces an IRS audit, the stakes of having qualified advice from their accountant are clearly higher than if the client needed help on a simple IRS inquiry letter or notice. The client is also likely more anxious about the audit than they would be over a simple notice. Chances are that the client would recognize the different risks as well as the varying levels of complexity involved in both potential engagements.

Many accountants, however, will calculate the fee for providing both services in the exact same way: An hourly rate multiplied by how long it takes to handle the engagement. “This hourly billing undervalues the accountant’s expertise and service and shortchanges the firm.

Accountants say that accounting firms should consider value-pricing alternatives by looking at each service provided and determining:

  • how valuable it might be to the client
  • how much complexity and risk is involved for the firm and
  • how to price out the service so that the profit or gross margin of the engagement is maximized.

The accountant sometimes is so concerned about winning an engagement that they really don’t look at what the work that they’re doing is really worth or what the client really wants.

Aside from hourly pricing, some of the models for pricing accounting and advisory services include:

Fixed-fee. Sometimes called the menu approach, fixed-fee pricing is often used for repetitive services, such as tax preparation. It allows the accounting firm to develop and explain up front the varying levels of services and fees. Fixed-fee pricing is based largely on the firm’s known costs for providing those services and for providing various upgraded services (i.e., more forms involved in the tax return).

Contingency fee. Consulting work that determines some sort of outcome is often billed using this method. For example, a firm trying to sell a client’s business can say up front that if it sells the business for $10 million, the firm’s fee will be one percent. If the firm achieves a higher sales price than that, however, it will receive a higher percentage on any amount over the $10 million targeted sales price. In other words, the fee can vary based on the outcome.

Blended hourly rate. Often used when a project involves a team of staff with varying degrees of experience and scarcity, this method bills each hour of work at a rate “blended” from the hourly rates of each team member. This is in contrast to billing for each team member at their respective hourly rates. Therefore, if the firm can manage the engagement efficiently so that the partner and manager, for example, spend less time on it, the effective margin can be higher for the service, according to Aquila.

Working conditions and customer relationships also influence which pricing method might be most appropriate. Does the engagement require three months of travel to Alaska or is the work near to the firm? Does it add a complex audit to an already-busy audit season, or does it involve working more closely with a client who is disorganized or is always late with their end of the paperwork?

Even if some of these aspects cannot be quantified in terms of what they contribute to the price of the service, it is still valuable to consider them.

About the Author

Gustavo VieraGustavo A Viera is the managing partner of Gustavo A Viera, PA. His experience spans more than 25 years. He started his career in public accounting at PriceWaterHouseCoopers where reached the level senior audit manager. His Fortune 500 experience includes positions as CFO - Latin America Region for both Hewlett Packard and Telefonica of Spain. Gustavo also writes a blog twice a week that addresses trending accounting and tax issues. He is an SBA Advisor and teaches workshops for aspiring entrepreneurs. His office is located at One Alhambra Plaza Floor PH Coral Gables FL 33134, and is admitted to practice in the State of Florida as a licensed Certified Public Accountant. Gus welcomes questions and he can be reached at 786-250-4450.View all posts by Gustavo Viera →