By Jody Grunden, CPA Trendlines: When I attend CPA conferences across the United States, I often hear from CPAs: “I don’t want to bill for my time.”
So, how do you bill your clients?
Client billing can include hourly billing, but it can also include flat-fee, retainer-based and/or value-based billing. Most people use one of these four methods. Some use all of them or even a hybrid.
Let’s take a closer look at each of them:
The hourly billing method is just what it sounds like – billing the client a standard hourly rate based on the amount of time it takes to do the work or complete a project. With this method, the client has little control and assumes most of the risk. You could almost say it pits the accounting firm against the client.
Why? If the firm underestimates the time it will take them to complete a project, they just bill for the actual hours worked, even if they’re over by a little or a lot. Using this method, the firm is guaranteed to be paid for every hour they worked.
If the hours are way over the original estimate, the client is not going to be happy – and may even push back. This is not a good way to start a client relationship. The client will start scrutinizing every detail, and you’ll continually be under a microscope. On the other hand, if you’re really efficient and complete the project in less time than you originally estimated, you’ll get paid less than you expected. The problem with hourly billing is that the better and more efficient you get, the less you make, which doesn’t incentivize you to get better or more efficient. There’s no reward for being good at what you do.
Hourly billing is not an ideal way of doing business, as it can cause friction between you and the client. It is rarely a win for anyone involved. Read more on Accounting weekly.