EP129: Roger Knecht - The Importance Of Creating A Pricing Model

How much should you charge?

Our returning guest, Roger Knecht, who is the President of the Universal Accounting Center, is an expert in helping bookkeepers and accountants to be the best in the market.He has developed proven methods on how to understand your own pricing metrics and avoid the common mistakes.

You will become more confident to charge your clients and it will give them clarity as to what services you're offering.

During this interview, you'll discover...

  • The 4 methods in charging for bookkeepers

  • The importance of becoming a profit & growth expert

  • How to improve your workflow


Michael Palmer: 01:13 Welcome back to The Successful Bookkeeper podcast. I am your host, Michael Palmer, and today's show is going to be a good one. It is always great to have today's guest back and to return to the program. He is the president of Universal Accounting Center since 1979 universal accounting centers work to help accounting professionals excel in their careers. He's an expert in helping people launch and grow highly successful accounting and bookkeeping firms. Roger Knecht, welcome again to the podcast.

Roger Knecht: 01:47 This is amazing. It's a wonderful opportunity. I appreciate it. Thank you.

MP: 01:51 It's great to have you and we've covered lots of chopsticks and today's topic is going to be, I think one that's going to put a lot of value back into our listeners businesses. And when I say value, I'm talking about cash, right?

RK: 02:09 That's exactly right. I'm excited for this. I think so many people are just curious as to what really is going on in the profession to get paid for the services they're providing. So this is going to be a wonderful discussion.

MP: 02:20 Absolutely. So if you haven't guessed it, this podcast is all about pricing and pricing models. Now Roger, why is it important to have an established pricing model for your firm?

RK: 02:35 Well, one of the things that I think really impacts what an affirm is doing is having an intelligent way of pricing for the services that they're offering. And oftentimes when we go in and begin consulting people who either have an established practice, we're in the process of starting is really questioning why they charge what they charge. And what's interesting to me is kind of the stories or the evolutions as to how people came up with the amounts their charging, whether it be hourly or some of the other fee fees that they're charging. It's sometimes kind of an ad hoc. I didn't know any better, so I chose to do this and so what I like to do is give some purpose or intelligence to what it is that they're charging. And really, I think once when you consciously understand your own pricing metrics, I think you become a lot more empowered to ask for what you're asking simply because you know why you're doing what you're doing.

RK: 03:26 It's not just a number anymore. It's not just something that you're pulling off because maybe this is what you shopped and found your competitors are doing or that's what you've maybe charged your last few clients in has seemed to work because you got them as clients and you're going to keep charging it. No, you're, you're able to have some intelligence behind the numbers you're using. And I think with that comes a great deal of confidence and there I think just I think increases your likelihood of getting more clients paying you what you're worth. So that's the essence of what we're talking about, I believe.

MP: 03:55 Yes, I agree. And you know, it's interesting. Many don't have this figured out. Why do you think that is?

RK: 04:03 Because I think for a lot of people they're hesitant to know what to charge or how to charge. It's amazing how many people I know start into offering accounting services simply because they had some friends that asked for their, their help and assistance. They had a family member that said, could you help me? Somebody knew that they were an accounting professional and they said, hey, on the side, could you do this? And so if you look back at the origins of someone's practice there, there tends to be these historical experiences that lend to what the pricing is today. And I shared this with even a firms that are very well established and have their pricing models established for years. Uh, you get into the core of why they're charging with the art. And so often they just don't have a concrete answer as to why it is the amount they're charging. So, uh, what we want to do is just get to kind of a, a, there's a method to the math madness approach. There's a reason for the numbers and if you can do that again, I'll come back to the idea that you become a lot more confident in asking for the survey, the fee for your services.

MP: 05:05 Yeah, it's a, it's, it's interesting there is so many that I've spoken to as well when I've asked, you know, how did you come up with that price? One of the popular ones as well. I surveyed all the other bookkeeping firms in my market area and that's how I came up with the price. Well, I can tell you there's a better way to do it exactly. Because everybody's not pricing correctly, which we know it's the worst place to go and look is to the market. The market is actually not going to tell you what you need to know in terms of pricing.

RK: 05:41 Well that's one good reason why not to do it. I think there is some logic to being competitive. You want to know what your competitors are doing and maybe have their pricing, but I think that's just for familiarity less than here's then how I'm going to price my services. So, um, it makes you more competitive if you know what's going on in your markets. I definitely don't want to disregard that. But at the same time, you need to price according to your needs, your fixed costs. You need a price based on the services you're providing and the value you're, you're ultimately delivering. So that's what we're going to be discussing today.

MP: 06:13 Yeah, love it. Love it. And I, and I agree it, it's, it's great to do the research, but the danger in it is that looking at it and saying, well that's what, that's what it is. That's what people are willing to pay. And then going back and saying, why can't I charge more? Because nobody else is charging more. So hopefully you're going to give our listeners some excellent ways that they can attack this and and have it be different for themselves. Now before we get into that, what, what are some of the mistakes that our listeners could be making with their pricing?

RK: 06:53 I think one of the first mistakes that I see is when charging for your services, you have beliefs you should have when you're first engaging with a new client and onboarding them a set up fee and then your traditional fee. And we'll get into the fees themselves here in a little bit. But I see a lot of people, a lot of times people haggling or discounting their rates for the services that they're offering rev, rather than using this set of fee as the place to offer that savings. And what I mean by that is you can have people who maybe they had a previous accountant charging for services and you're coming in behind them and you're now asking for their business and you're going to charge a certain fee for your, for the services and they're trying to haggle with you and get, get a break or a discount.

RK: 07:38 They want to save some money. Well, the first thing you want to do is just understand that really your rate isn't meant to be handled or discounted. What really should be part of that discussion is offering them maybe some savings from the set of fee that you're charging for that first month of onboarding them. That's where I feel you can give your friends and family discount, your networking group discount. You can charge them something adjusted there in the setup fee and then, and then it doesn't impact what you're billing. Maybe six months, 12 months, 18 months down the road. You didn't concede something so early on that you let her regret it.

MP: 08:16 Hmm. I think that's a valuable lesson and there's something likely that happens psychologically when you hold your price.

RK: 08:26 Well, let me, let me give you some, a good example. This is something we can definitely get into more detail on later on, but when you're charging for your services, I think there's two approaches that really make a big difference. The first is when you're charging for your services, are you clear on, is the client clear what your purpose in doing the work is for? And sometimes what it is is they're asking you to do the work and you're intending to do all of it and that's wonderful, but sometimes if you're haggling your services and discounting what it is you're going to be charging, maybe what it needs to be is not a changing of your fee for the same work. It's now. Okay, well then what are you willing to have done onsite basically by someone that you employ that could take away some of the workflow that I have that we could use to then justify a discount on the fees that I'm charging.

RK: 09:15 In other words, you're still being paid the same for your fees or for your services, but you're not discounting it because of the fact that you're still doing it and not getting paid. You're having somebody at the, at the end that the client now knew the work. So that's kind of a tangent that we can get into, but it's essentially just saying you're going to hold true to what it is you're charging for your services. And, and that's what you want to really get into is having confidence in what you're charging because you know what you're charging is very fair.

MP: 09:43 Love it, love it. And sometimes we find gold along those tangents. Uh, but let's get, let's get into some of the specifics around ranges you see in terms of the pricing in the bookkeeping industry.

RK: 09:58 Yeah, so basically what it boils down to is there are four common methods to charging for accounting, bookkeeping, or tax services that I'm going to just kind of keep this focus for the simplicity of it all in bookkeeping, just so that we can have a common theme through the rest of the discussion. And from a bookkeeping point of view, you've got hourly, flat rate, revenue-based and valued priced services and in the flat rateL , l, Irma, you have basically an a and B type option. It's a transaction flat rate or a package flat rate, and so if somebody is taking notes here, it has a pen and paper handy a. What I would encourage you to do is write down those four and we're going to talk, talk about them in great detail. The hourly I think is somewhat obvious. A lot of people are familiar with that within the accounting profession, so we'll delve in there quite a bit.

RK: 10:46 The flat rate, I think that's something that's kind of a buzzword right now. Sometimes people want to charge or refer to this as value pricing, so we'll have a discussion about that. There's revenue based, which is for those that are working with larger clients. Typically when you're getting closer to and beyond the million-dollar revenue mark with your clients, and then the value pricing, what truly value pricing is, and a I, I think that'll be kind of an insight or an Aha for a lot of people simply because I invest something that a lot of people are wanting to move towards and don't exactly know-how, and I'm hoping to address that today.

MP: 11:21 Excellent. I'm excited.

RK: 11:30 So would you mind if I start with the early and just start walking through this? Let's do it. Perfect. So the hourly, one of the things that I would encourage you to do as you're taking notes is recognize that everybody has a range that they typically work with. And so let's just start with the ranges and then we'll just start whittling down from there. Generally speaking, from a bookkeeping point of view, the average range is generally 40 to 80 an hour. You

RK: 11:54 can, if you choose to network or excuse me, niche market your services as specialize in particular industries justify more than the $80 an hour. Generally for accounting services, accountants will charge 80 to 125 an hour. If you are specializing, again in certain niches you can increase that, especially if you're getting into a little bit more like part time CFO type relationships. Most CPAs will be charging about 125 to $250 an hour. That ranges based on industry, whether or not they're doing audits and also the level of tax type work they're doing both tax planning and preparation. So let's go back to the bookkeeping being that 40 to $80 an hour range for your services. I do want to give you a formula to kind of help you base where it is you should be in that range because this is an average and it is the average here in the United States and Canada primarily.

RK: 12:49 And one of the things that I think you just need to recognize is that there are certain metropolitans whether it be Toronto or San Francisco or New York, there admittedly going to be far more as an average than you would find in a more rural area. So definitely if you find yourself at the lower end of the spectrum and you're in a rural area, there's reason for that. If you find that you're in the higher range or maybe even outside of the $80 average, you're able to justify it, especially if you're one of those more, uh, expensive markets. Now the, here's the rule of thumb that a lot of people aren't familiar with, that is easily explained. That basically helps you come up with an hourly rate. The way to do it is if you're familiar with what a w two or an employee would be paid to do the work on site for that client.

RK: 13:38 If you were to actually be employed by that person, if you were to take the hourly rate that you'd be paid for the same work on site and multiply that by two and a half times, you'll easily come up with what your bookkeeping fee should be for your hourly services. So in other words, if you took 2.5 and times to buy $20 you'd come up with a rate that's obviously within that 40 to $80 range. So that 2.5 times your hourly rate for your services if you were to be employed is really the rule of thumb that a lot of people can really comfortably get their teeth into and understand. So most people just as a point is I'll take their hourly rate that they're charging and sometimes for some absurd reason, they're charging like $30 an hour. And so I'll ask them, so would you do this job for $10 an hour if you were were were employed?

RK: 14:31 And obviously the answer is no, they wouldn't do the work if they're employed for that amount. And the reason for that is because the employer, when you're working there, their job is to provide you the desk, the chair, the office, the supplies to do the work. When you're working by yourself, that's what the client's paying you to provide for yourself is your own computer and your own chair and your own materials. So you do need to justify charging the rate that you are there. Also when you're employed, admittedly providing benefits packages and uh, vacations, health insurance, well these are things you're needing to budget and pay for it so you can justifiably, uh, see why 40 to 80 for bookkeeping services is very, very realistic and appropriate. And so if you're outside of that norm, especially on the lower end, I give you a great pause for concern. And a, I can definitely say that when I work with our clients and we have this discussion and do it one on one, there's a number of Epiphanes and Ahas, especially when it comes down to their skill sets and the services they're providing for that rate. So any questions or comments that you'd have regarding the hourly?

MP: 15:37 Well, no, I, I love the thinking around it and I, I'm sure many listeners are hearing this and going, okay, very interesting. I really want to stress that this, if, if anyone is thinking about having staff, this is a must-have conversation because if you don't have the right pricing in place, there's the, there's really no future for the business when you're not charging enough, as, as Roger was saying, all the things that you need to provide for, for yourself, for your staff, uh, to make the business run, to hire great people, to do the work, to replace you and do the work. This is, this has to get sorted out. And I think Roger, where people fall into a trap here is that they go from being the person who's being paid and not necessarily needing to think about all of those things. And then when you hear these bigger numbers, it's like, oh boy, how could I charge that? And really I'll put it to you. How can you not charge that for the sake of your business?

RK: 16:36 You're setting yourself up for failure. If you don't, if you do this, you're not going to want to do the work for the client because you're not incentivized by the pay that you're receiving. So there's a lot of traps you're going to get into if you're not charging fairly for your services. So let me, let me take your example that you just shared with that. When you have employees, knowing the 2.5 formula really helps you charge correctly for your, your services. Because if you have on staff, someone that is an employee doing bookkeeping work and you're paying them $20 an hour, you know you have to build to the client two and a half times that in order for you to come out ahead and that is the minimum you go. Anything below that two and a half times ratio, you're running yourself into a problem, not just as the employer employing that bookkeeper, but now how are you going to update their software or give them a new computer or cover their vacation pay or often than benefits?

RK: 17:29 That two and a half times multiple really does help you simplify this process of either justifying the pay you're charging hourly or what you're charging for your clients. Now, I do want to pause here of the four services or rates that you're charging for your services, hourly flat rate, revenue-based and value priced. The hourly honestly should be the least used to charge for your services. But until I have this conversation with our clients and they can comfortably get around saying to somebody, I charge $75 an hour for my services. I think the rest of the conversations are move because if you can't ask for $75 an hour, how are you going to ask for $750 a month for your services? If you're choking on $75 how do you feel comfortable asking for $750 huh?

MP: 18:24 Love it. Roger is something this, this really ties back to as individuals who are pricing out their business, this whole human condition around maybe not valuing themselves, not valuing what they're doing. This is a conversation that has to happen first before you can move on to more advanced ways of pricing. So one of the things that I think is important, and I was stressing this a moment ago, is that the hourly isn't the way you really want to be charging for your services, but you do need to understand and have as a benchmark what your hourly rate is. Because as we move into the discussion related to flat rate, revenue-based and value pricing, we always want to be testing the relationships we have with our clients to confirm that we are at least getting what our hourly rate is or if not better. So that's always where we want to start.

RK: 19:14 But that leads us into flat rate. So if I May, let me just go ahead and point out that with flat rate, those of you who are taking notes, you want to write down that there's really two traditional ways of determining a flat rate fee for services. And it's a transaction or a package slash menu approach. So the transactions that, the easiest way to define this is you're ultimately being paid for the recording of the transactions that are happening in the business. Then. So, um, if this was a lengthier discussion, I would provide a form that we use with our clients, our graduates, where we actually have broken out as a way of doing an interview, if you will, with a potential client. Here's how many transactions are happening within their business. You know, how many times are you doing deposits? How many sales do you have?

RK: 19:59 How many z tapes, how many bank recs are we doing? How many bank accounts do we have? So the, these questions are, I think very straight forward and common. And essentially what it is for the bookkeeper is what am I ultimately going to have to record and track so that I can create the financials and knowing what those transactions are, help us come up with then a monthly fee based on the client's size. And with that, what we do is we want to charge essentially between 50 to a dollar 25 per transaction. Uh, most people just because of what they're doing are charging about 75 cents to a dollar per transaction. And most bookkeeping companies, a, excuse me, a multiple keeping clients, they have on average around three to 500 transactions that are being recorded or a than done based on, you know, payroll and inventory and so forth.

RK: 20:52 So if you look at that, what you're going to do is you're going to end up with an average range per month for your services of around 500 $800 for an average bookkeeping client, the average client will take on average about eight hours of work a month to take care of. And so when you're charging for your services based on a transaction-based, obviously you're customizing for each client. So one client is going to be charged 500 the other clients can be charged 800 and other clients can be charged $1,000 for the transactions that they each have and the work that you're doing to record and create the financials for them. But the thing that I want to emphasize regarding transactions is it's really just a simple way for your smaller clients, for you to figure out, well, how many checks do you write a month?

RK: 21:37 How many credit card accounts do you have? How many bank accounts do you have? All these different transactions. I'm going to then be able to charge you $450 every month as a flat rate for my services. This will include me meeting with you either monthly or quarterly for at least an hour to go over any of the highlights related to the financials and answer any questions and again, because it's that eight hours of average work done for the clients, if you notice you're looking at 500 to $800 for your monthly fee, you're working about eight hours per month for that client. You can see that the range then is going to fit within that 40 to $80 an hour for your bookkeeping services. So the flat rate based on transactions is very easy to calculate. The other one happens to be more what I think a lot of people are familiar with just because of what the buzz is today and it's this more menu approach or package approach.

RK: 22:33 It's these three options, ABC, gold, silver, platinum. And if you're taking notes, what I would encourage you to realize is that it's the middle package that you're ideally driving your potential clients towards. And as a package, you're just basically saying of all the services that you're currently providing to your current client base, these are the things that you do for everyone. This is your package a, B, if you will. The common thing that you do for each of your clients package a, the more expensive one would be maybe on-call services, your available to answer questions 24, seven if you will. Uh, it's, uh, you'll drive by and pick up the work. You'll work on-site one day a month. It's, it's these extras that you don't do for your traditional clients. The C option is the lesser expensive. It's kind of your takeaway option that if they can't justify or afford option B, which is most of your clients, it's option c where you're essentially saying, well, I can do your books on a quarterly basis.

RK: 23:36 You're not a traditional client for me because normally I like to meet with my clients monthly. The C option is kind of the, I'll take you on, but I'm not going to do everything I normally would for you. And the goal here with all of these is to move all of your C's to B's and hopefully you can take your B's to A's. The biggest thing that you want to realize here is most of these packages when you re run the range, you're looking at your c packages being just under 500 your [inaudible] packages are normally 500 to a thousand and you're a packages are usually over a thousand. Now when I say ranges here, you have to come up with a specific amount for your package. I'm just giving you what the what the ranges that I traditionally see people charging for their packages. Uh, some will say C is for 50 B is a 750 and a is 1250 a month and these are basically packages.

RK: 24:30 So there's really no discussion or haggling over what the packages consist of. There's really no haggling or discussion about the adjustment of the price. It is what it is and it's the same for every client and one of the luxuries that comes from it is just consistency. A, you charge this for all of your clients to have that package. It makes your working engagements with your clients a lot easier to create because for package a, here are the bullet points of the services we provide for package B, here are the bullet points of the services that we provide. And in essence, you create your worklist that is every month you're going to go down. This will work list of here's what we need to do for this client. And if you've got 10 clients that are all package B, you do the same thing for all 10 clients.

RK: 25:12 And it makes it really simple. And, uh, a lot of people refer to this as value-based pricing in the menu options simply because a lot of what you do to give value from C to B and B to a is really less in the specific services you're providing. But more in the value you're giving to your client. With option C, you meet with them once a quarter with option B, you meet, meet with them once a month for an hour for option a, you're on call, you'll answer calls whenever they call. For whatever reason. Some clients just like that accessibility to you where option B, Save your questions until we meet on the, in the monthly meeting. Right? So it's the value that you're bringing into the clients. In each case, you're still putting in producing the financials, you're still delivering the P and l on the balance sheet and the cashflow statements. You're still getting the work done in a timely manner and that's what you're looking at. So that's the difference between transaction and package. That's your relationship of packages a, B, and C. Anything I'm missing, Michael, or anything I should elaborate on?

MP: 26:19 Well, you know, I'm, I'm curious, you know, it, I think it really is one of the more popular ones that are being utilized and the way that many believe this is value pricing. Why do you think so many are attracted to this way of pricing?

RK: 26:37 I think two reasons. I think so many are sucked into the vacuum of the hourly and they want to simplify how choosing to charge for their services and rather than going to a client and saying hourly or guesstimating how much time it's going to take to do the clients work and coming up with this dollar amount for a flat rate, they just want to prepackage these. And uh, I think there's a sexiness to the fact that I can just have this pre-packaged menu service item that is consistent through all my client base. And I want to take my 30 clients that honestly, if you asked me today how much I charge for each of them, I couldn't tell you and move them all to an a, B or c plan. There's a lot of, I think ease and stress relief that can happen for the bookkeeper when they're able to simplify their relationships with their clients to this ABC approach.

RK: 27:32 So, um, and again, because there's so much that's used as value to determine the amount, I think it's a little sexier for the bookkeeper to feel I'm making a difference and I'm doing more than just the transactional. We'll keeping work to create financials. I'm, I'm building relationships now with my clients and these packages kind of push you that direction to be more conscious of that. So I, that's one of the big things and maybe this is related to it as well. A lot of times when we work with individuals and they're moving their clients from hourly and they're trying to get them into a package deal, they wonder, well, what's the likelihood I'm going to lose these clients? And as I transition them from hourly to this, why would they want to, I know why I want to. Why would they make the change?

RK: 28:18 And let me just share with you a few quick reasons. Um, anyone that you're still charging hourly for, I want you to imagine that you've got two piles of bills that sit in their office that they're going to be paying on a monthly basis. They've got piles of bills that are owed that they don't know before they open up the envelope how much is owed. They don't know how much they're going to be charged for that product or service that they just took advantage of and they don't know if they've got the money to pay those bills. And over on the other pile, they actually have recurring bills. It's like their rent or lease, it's the same amount every single month. It's like the utilities that's the same amount every single month type of a thing. And they're also recurring there every month. And so they know they have to pay those first and then if they have money left over, they're gonna pay the ones that are surprises or they don't know what the amounts are every month.

RK: 29:04 What pile do you want to be in as an accountant or bookkeeper? You want to be in the one that's recurring billing. You want to be where you're paid before you do the work. That's the pilot you want to end up in. And I fear that a lot of bookkeepers feel that they're actually not in that pile and moving into this package or menu-based pricing model, it does put you in that pile because before the month begins, the client knows they owe you $500 for your bookkeeping services. And if you've done it right, you've set it up recurring so that it actually charges automatically and you get paid at the beginning of the month before the, before you even do the work. So there's a lot of sexiness to that because it really simplifies your work and your relationship with the client. And so to move from our lead to flat rate is just the right thing to do.

RK: 29:48 Honestly speaking, the only time I really find hourly rates justifiable my world is when you're doing back work, when there's kind of this unknown and you don't know what it's going to take to take care of somebody's mess, just to catch them up. And that's usually where I see hourly being. The only places used other than that you really shouldn't be using hourly to charge for your client services. Uh, your, your fees should be flat rate, revenue-based or value-priced. Um, the only reason why I think you, again, you have the hourly is for the backward and also for just the smell test of are you getting paid fairly for your flat rates. When you do the work for your client and you see the last month you spent 10 hours and you charge them $500, okay. Means the smell check, I'm getting $50 an hour.

RK: 30:34 I mean that 40 to $80 an hour range, I'm good. And you just move on. Uh, the next month you're still gonna charge them 500, but your goal is to do it in nine hours, not 10 hours. That's the challenge. And that's where I think a lot of these apps come in where you're starting to use some of the popular ones like hub dog, receipt, bank t sheets, all these ones that really systematize and automate a lot of the workflow and free up your time. And now you've got a client that you're charging $800 a month to do. You were working 10 hours a month on, you still charge the $800 a month to do the work, but now you've figured out how to use some of these tools that you're only spending five hours of your time each month doing the work. You're still charging 800 and you're working five hours.

RK: 31:18 This is starting to really get sexy and fun. That's, that's the challenge. Not to decrease the rates for the client. They pay $800 for your services. You want to get paid fairly. Your challenge isn't how to do it faster and charge less. If you're charging hourly and you went from working 10 hours to eight hours, how do you argue billing them for 10 you build them for eight and you just got to take that as a professional figuring out how to do their job faster and better and more efficiently. You just take a pay cut, a stupid, you want to be in a position where you're able to actually say, I charge $800 to do your work. And I figured out how to do it from 10 to eight hours. I get to savings. I just increased my earnings per hour. That's the idea behind all the flat rate billings.

MP: 32:09 Beautiful. And you know, I think your tackled something that I think is a, is a challenge for our listener, which is that whole concept of, well, I'm not working as hard so I should be panelized and in business it's not, it rarely does it ever a business owner goes, how can I penalize myself for improving how I do my business? You know, I increase the satisfaction and quality of my customers. It takes me less time to do it. I should pay paid less. But yet in this industry, for some reason that does exist.

RK 32:42 Oh okay. So now you've got me on my soap box. If I had already, I wasn't on one. You know Michael, that with our clients, we actually break down the business and into marketing, accounting and production. We refer to it as mapping the business. There's a lot to be said and what we're discussing today about pricing, because that's marketing. That's how you're going to engage the client, offer your services and get them to say yes and then you're onboarding them and providing the services you chose to and that moves us over to the production side. Let me be 100% clear. Once you've acquired the client and after the first three months of learning the business, onboarding them, setting up their chart of accounts, we're reviewing their books and getting more proficient with what their business model is. After the third month, your goal is to not charge them less for your services.

RK: 33:30 Your job is to keep charging them the same, but now find out, find more efficient ways of doing the work. That's why standard operating procedures and workflow becomes so essential to those, the success of the business. Because the challenge is how do you as a professional figure out how to do the work more efficiently so that you can be more profitable. The profitability comes from you're charging the same and doing it in more efficient time. That's the secret here. So once we've had this whole discussion about marketing and rates and charging fairly for your services, whether you're choosing to do hourly, flat rate, revenue-based or value pricing, the challenge then once you have the client and your worth working with them, month three, month six, month nine, month 18 is how do you become more efficient with the workflow so that you get, you charged the same but yet you take less time to do it. There's your, that's the golden egg right there.

MP: 34:26 Lovely. Absolutely love this conversation. So now going from flat rate, your next one is revenue base. Tell us what that's all about.

RK: 34:36 So revenue based is essentially this. When you get a client that is much larger, transaction-based billing becomes a little era. It becomes kind of foolish. I mean you could sit down with a president of a company that is doing say 1,000,003 million in revenue and you're saying so how many checks do you write a how many bank accounts do you have? How many? And you're trying to figure out the transactions to know how much you're going to be recording in the business. It becomes a little daunting and it almost becomes as if you're micromanaging or kind of nitpicking to come up with a fee for your services. And so we don't want to do that with a client that's much larger. So when you get clients that are say five hundred thousand seven hundred fifty thousand a million in revenue, somewhere in there is the bottom edge. And you start using revenue base to essentially say, based on the revenue of your company where you're making say 1.5 million in revenue, we're going to, we charge this much for our services.

RK: 35:31 And it's basically a flat rate. It's just you're coming up with a different way of determining what your rate will be for client. And usually at this point we're, we're also going to be spending hopefully more time with the client more with meetings, definitely once a month, but maybe the meeting is not an hour. It might be two hours. As you're getting into it, probably a little bit more details of the numbers, maybe going over more, more uh, trends and analysis ratios. But the point being here is revenue base. Generally speaking, you're finding that you're getting about 1,015 hundred, 2000 sometimes all the way up to $5,000 per month for your relationship with the clients. So in other words, you're becoming more of that controller, part-time CFO and you're getting a little bit more involved with the client than just providing merely the financials. And so we want to be paid accordingly.

RK: 36:24 And the revenue base for that is sometimes once a week you'll offer to come into the office and actually work on-site for a few hours. It's those types of things that start feeding into a revenue-based relationship that you'll find yourself in simply because of the size of the company as warranty net. And a I usually for revenue-based client wouldn't suggest taking on any one for less than around a thousand dollars a month. However, I do see some that are the larger type clients being done for less. But usually, right around the thousand dollars a month is kind of the low end and then you kind of go up and say 250 or $500 increments. So for example, if you are $1 million company, I do it 4,000 a month or if you are a million and a half company, I do it for 1500 a month. Those are some of the easy quicken, easy ways of coming up with rates.

RK: 37:18 Definitely what you want to do is a right into your letter of engagement that you actually will review every three or six months, the relationship and whether or not the services are appropriate and whether or not you being paid fairly for that time and effort. But a revenue-based is definitely the preferable way when you start working with larger clients and it will necessitate you offering some services beyond just the bookkeeping. Got It. And, and so what might be those types of services? So this is where you're going to be getting into more, I think the analytics. You're going to be starting to do maybe some benchmarking reports. You're going to be doing some trend analysis. You might be preparing budgets and forecasts. You might actually be sitting down with the clients and showing ratios. Great ones, for example, it'd be average revenue per client or customer average revenue per sale. You're going to start showing what your more profitable products are. You're getting more beyond just the preparing of the financials, but you're starting to interpret the data. And definitely this is moving more into the accounting realm simply because you're now trying to interpret for this lay person the numbers. This is something that's kind of a tangent, but realize when you're talking to a business, their,

RK: 38:36 their vocabulary in accounting may be lacking. And so your role is becoming literally that of a translator. You're taking what the business speaks, the language of business being accounting, and you're now preparing the financial reports which tell a story and your job is to now interpret those things, that information in a way that the business owner can now use and make more intelligent business decisions. You're the translator and so it's beyond just producing the financial reports. It's now interpreting them and drawing correlations and noticing trends and saying, this is how first quarter of this year compared to first quarter of last year. Here's how first quarter of this year compared to fourth quarter of last year. This is what's happening with regards to sales. This is what's happening with regards to expenses, this is our average expense per sale and so forth. So you're getting a lot more into the analytics and the interpretation of the reports. Be Clear. You're not moving into any decision making. The owner still makes all the decisions, you're just trying to give them the information in a way that's useful.

MP: 39:45 You know, I ran into a friend on the street yesterday and she owns a f f a company. I won't go into the details of what she does, but she had to close down one of her businesses. And so she was on her way to let go of six staff and I started to add, you know, obviously that's not a fun day for her. She's a wonderful person to last thing she wants to do. And so just in having a conversation she said, you know, I just would have been so business busy with the other side of the business. I haven't had a time to look at what was really going on financially. And when I went back and looked warden, we're losing money hand over fist. And so I said, gee, you know, you, you may want to look at your bookkeeper and you know, I know people that could probably help you out with something like that because not knowing that was a big problem for the business obviously.

MP: 40:39 And, and yet she says she has a great bookkeeper, but our bookkeeper just doesn't offer, they're just giving them the data. They're not helping her. Nobody was helping her understand what was really going on in the business. If she would have had that information a year ago, she may have been able to a turn around that business and saved six jobs in our economy. Or she would have been able to say, look, this business is not meant to be an existence and closed it down without a year full of losses. And I think that's where a listener needs to be thinking about is how am I helping, how am I being the steward for my customers? And if you don't have the bandwidth or time to do it, you know, that's a problem when there's lots of ways and we talk about it all the time on the podcast and how to do that, you know, improving your workflow, hiring better staff, training your staff better, but getting yourself, you know, 80% off of the books and, and into a position where you can do a value work with your clients. So I think Roger, with this conversation, it's like it just even that, just to be able to have a conversation with clients to say where things are at, what you're seeing and what might be happening or where things might be going is incredibly valuable to business owners.

RK: 41:52 Well, I'm going to add to that basically two things. The first being shame on the bookkeeper for not seizing the opportunity because I would argue that the bookkeeper knew this about the business well in advance of the business owner. I think the business owner was consumed by the day to day operations had stresses, but I'm sure the bookkeeper knew while this company is struggling where they're not going to make it their, their cashflow is not doing good. Payroll is going to be a challenge. They knew this. They just weren't opening their mouth or if they were opening their mouth, they weren't doing it in a way that the business owner was able to listen and understand. So one of the things that I really stress with our clients is helping them realize that they should become what we call profit and growth experts. One of the bookkeepers simply because so much of the time is obviously spent creating the financials.

RK: 42:37 See, I think things that they would like to share, but they just don't know how to bring it up or how to communicate it to the client. They also don't want to cross that line with a client of, of uh, being the bearer of bad news. Or is it my place to say something? And what we try to do is really through this process of helping them become profit and growth experts is realize that you do have a voice and really you should be speaking up and you, if anything, you're the voice for the business. The business owner has, or excuse me, the business and the business has something to say, but the business owner isn't listening. And so what we want to do is speak up for the company and help the business owner hear what the company's trying to say. So the second thing is, and this is kind of an interesting topic, but a lot of the bookkeepers that I speak to, they, they know a lot about the business.

RK: 43:26 They have clients that they've worked with for years and they have so many insights, they just don't know how to transition the relationship from that of a bookkeeper to be more of an advisor or consultant. And so I think that's why a lot of them appeal to this idea of becoming a profit and growth expert because it's almost as if the bookkeeper gets a voice and they feel empowered and strengthened. And the beauty of it is, and here's where the rubber meets the road, is they can charge for this additional service and have this different relationship with the client being paid well, not for the bookkeeping that they're doing, but for the advisory role that they're now taking on with the client. And after working with a client for a period of time, you have to understand your, your client appreciate your insights. They value your input. There's things you know about the business that no one else knows. Their spouses and other employees don't know what their friends don't know. You're probably the only one they're confiding in. And if you can have that relationship, but not just being a bookkeeper but being their profit and growth expert, you're now that strategic trusted advisor that can help them kind of brainstorm and bounce around ideas, come up with strategies

RK: 44:32 to really turn the business around. There's the beauty. And so what we're talking about here is really moving beyond just traditional bookkeeping services and providing financials to really getting into more consultative work. And so for those interested, obviously becoming a profit and growth expert is a huge opportunity to really give yourself the tools, the means, and more importantly, the confidence and competence to speak with a voice that really helps the business owner take their business to that next level and do so intelligently. So there, there's a lot to be said there.

MP: 45:04 Beautiful. And now we are, we are, I'm looking at the clock and obviously it's not a surprise. We've gone way over time for this particular topic and we still haven't covered value pricing. Where should we, how should, how do we have time, Roger, to do that?

RK: 45:19 I do. You know, I'm, I'm gonna end on a very short thing regarding value pricing. Value Pricing is something that I think a lot of people misunderstand and highly don't leverage. So many clients have a need for valued services and until the bookkeeper, the accountant really understands how to charge for it, I don't think they're going to get those opportunities. So real quickly, just to kind of maybe plant the seed for another discussion, there are three common ways to charge when you're doing value pricing, value pricing. When you meet with the client and you look at a project and determine whether or not you're going to be able to either save the company a certain amount of money or help them make a certain amount of money, implementing some very specific strategies with that, what happens is you would either be paid hourly for your time, which I don't encourage, but it is possible.

RK: 46:09 You're simply doubling what your hourly rate is. So if you're charging 50 you're going to charge $100 an hour for this project. The other is you charge a flat rate. The flat rate is we'll, for this project, my time and us doing this, it's going to take three months, I'm going to charge 2000 a month. So this is a $6,000 project. And then the last is a value-priced service and the value-priced services really, really where you're looking at the end. If the end result was say 10,000 in savings, 50 thousands in savings, 100,000 in savings, then you're getting a percent of that. And so it's upon completion. You're going into the work, you're vested, they're going to see you putting in a whole bunch of time and energy to earn this. And the 20 to 25% range is the percentage of that savings or earnings that you'd get for the work done when doing value pricing services. And so value pricing is a one of those three methods. Uh, there's this very specific way of having that discussion with the client about that project, but a, that's obviously going to be for another discussion.

MP: 47:14 That sounds beautiful. Well, you know what? I think already this episode has been tremendous and opening up more understanding for our listener in terms of understanding the pricing models and I think value pricing we can be talking about again and as well touching upon some of these other challenges and helping people make the move to some of these models that will be better for their business. Roger, what's the best way for people to take the next step with you or learning more about you, uh, to, to do more of this work in their business?

RK: 47:44 Excellent question. We have a special offer that we're going to be doing here and it's basically giving you the chance to get a book that's called in the black with the book in the black, you're able to actually map your client's businesses and help them understand where these opportunities lie. But then there's also another book that we're going to be making available here with this podcast that's called red to black and it's really helping you become that profiting growth expert. It's the really the step by step process that you would have with your clients to help them work through the turn key model that we use with our clients to actually follow six steps to offer valued priced services and the book red to black. We'll be making it available here. I would encourage everyone to take advantage of it. It's going to be a wonderful offer, so uh, with that in mind, I think that's the best way to really take an apply and learn more about these principles that we've discussed today.

MP: 48:39 That's excellent and thanks so much for, for offering that to our community. I know it will be super valuable for all of our listeners to get in and start consuming that information and taking those actions. Roger, thanks again for being on the podcast yet again today.

RK: 48:54 My pleasure. It's been a wonderful opportunity. Thanks, Michael.

MP: 48:58 And with that, we wrap another episode of The Successful Bookkeeper podcast. To learn more about today's guest and to get access to all sorts of valuable free business-building resources. You can go to Thesuccessfulbookkeeper.com until next time,

MP: 49:11 goodbye.