Hi Timothy,

welcome to the forum.

You say that you have worked so far in employee rather than self employed roles.

It's quite diffferent on this side of the fence and there are costs that will be incurred such as MLR, PII, PLI, CPD, memberships, Software licences, advertising, etc. So immediately you have a fixed cost basis upon which to add the variable cost of your time.

The issue really is that whilst you may know how many hours you can devote to the business you don't know how many customers that you will have to fill that time.

The second issue is the local market. Some area's have excessive numbers of bookkeepers vying for the work of a small number of businesses which of course drives rates down just in order to pick up some clients. (the old supply and demand issue).

I think that the best approach is to think of the minimum number of clients that you expect to be able to pick up in your first year and then divide that by four. If you get more than that then it's a bonus.

Now take your costs including an hourly salary for the work required to service those clients. Maybe set your salary level at around £6 per hour. Easy enough to get to an annual figure from that then divide down by the expected client hours.

There you go, you've got a minimum hourly rate below which you should not consider taking clients (unless it's to pick up a skill that you feel would bring benefit elsewhere in your business).

Now set your rate somewhere beween your minimum and up to the local average and combined with the skills and experience you bring to the table you should be able to attract clients.

The more clients you get, the more profit you make. Just don't get suckered into the fools nightmare of gaining lots of clients for little or no real profit. You're not a charity (actually, even they try to make a profit!).

All the best with your new venture,

kind regards,

Shaun.

I'm glad you can see a benefit to fixed fees, I've been beating this drum for a long time now. Shaun is absolutely correct on the best way to come up with an hourly rate. But you can take that rate and at least double it if you choose fixed fees.

I'll give you a quick example. I have a tradesman who I charge a fixed fee of £90 per month. For that I deal with his monthly bookkeeping, I invoice his customers and provide a bit of chasing up of invoices, I submit a quarterly VAT return and a Self Assessment annually. How long does this all take? The bookkeeping about an hour, sending the invoices another hour, chasing up invoices about 20 mins a week, the VAT return a few minutes every quarter and the self assessment a few hours a year. If I add all the time I spend on his things, it would come to 3 and a half hours a month at the outside. Thats about £25 per hour. If I charged him hourly I could get £12 per hour, maybe.

Why is he happy to pay so much? Well, before I took it on, he was working all day, coming in at night and sending invoices and fiddling with papers. Now he picks up the phone and says to me "I've just done a job for Mrs Bell at XYZ street. I plastered her kitchen, it was £600 can you invoice her", then he can get on with his night. He sticks all his receipts in a folder and I pick them up once a month. Before he was doing his own bookkeeping, it was taking him hours because he didn't know what he was doing. He paid an accountant £150 per quarter for a VAT return, and £400 a year for a self assessment. And for a whole £50 a year more I do the lot. He was never getting paid on time, not because he had bad customers but because invariably he was sending invoices out weeks after he finished a job.

Of course there's a risk, there always is. One month 3 clients might have 2 customers each who don't pay and I spend ages on the phone chasing them up, but thats an extreme and it's never happened. I use a simple flowchart to work out a fixed price for clients, based on number of transactions, whether they are VAT registered, their legal status etc. I know how many transactions I can process an hour, so it's not too difficult to get a ballpark figure, and even if I under priced drastically, I don't think I'll ever price below the amount I would have got if I charged hourly.

In my experience people will ask you for a price. You'll say £10 per hour, and the very next thing they'll say is "Great! How long will it take?" Personally, I try never to hire anyone on an hourly rate as I have found that at times it can spiral out of control. I always want a fixed price, and therefore I believe there must be plenty of others like me out there.

I have a flow chart that I use which I could send you, it might help to get your head round how you can break a job down to get a price.

Good luck.

Kris

kjmcculloch83 wrote:

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I have a flow chart that I use which I could send you, it might help to get your head round how you can break a job down to get a price.

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 That would be great if you could.

kjmcculloch83 wrote:

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Great example, don't take it... I genuinely don't beleive you can do these shoebox jobs at fixed rates without getting seriously burned.

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Even if I charge an hourly rate, I need to let the client know approximately how long a job will take. 

Imagine you wanted me to rebuild your bathroom, and I was charging a higher hourly rate than the competition, I couldn't estimate how long the job would take, and I wouldn't offer a fixed price.  Would you hire me?

If I were rebuilding bathrooms, there's a world of information and a variety of software packages available for estimating how long it should take.  Yet I can't find any comparable information for bookkeeping or accounting.

It seems to be a case of "carpenters' wives have no cupboards, cobblers' children have no shoes."

EDIT:  Or would your advice be simply that charging by the hour is the best approach.  That certainly simplifies things, it just makes the sale pitch more difficult.

-- Edited by Timothy Monaghan on Thursday 27th of October 2011 07:01:24 PM

It's also important to bear in mind that not every hour you work is billable to clients, ideally you need to factor in the time spent on managing your practice.

The big thing for me with fixed fees, is that you either need to spell out exactly what the fixed fee covers or accept that some months your profitability will fluctuate. In my experience it can be easy for a fixed fee client to assume the price they pay covers everything.

edit: plus you need to look at the service itself, e.g payroll admin wont attract the same rate as the other aspects of bookkeeping

-- Edited by ADAS on Thursday 27th of October 2011 10:02:04 PM

Hi Kris,

You strike me as well organised, which is basically the point I was making to Tim.

Like you I use fixed fees wherever possible, but I have a client at the moment who's business has grown significantly over the last few months, which isn't a situation I considered at the beginning of the relationship.

 

 

I have to admit, as much as I love the idea of fixed prices, I think I may have to use an hourly rate until I have experience with freelance work. I have no idea how to estimate how long small jobs will take. It will be hard for me to sell my services when I'm charging twice the rate someone else is, especially if I don't want to speak poorly of other people.

I haven't entirely decided to go freelance yet, but if I do, I'll have to be like a small builder, carefully recording how long everything takes and building a database I can use for estimating future projects.