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What’s the best way to charge for your advisory services?

Capitalise Jul 18, 2022

Is yours one of the forward-thinking firms already offering advisory services to your clients? Or are you one of the 68% of accountants planning to expand your service offering this year? Either way, you might be looking for the best pricing structure to get the most out of your advisory revenue stream. 
 

In our recent Firms of the Future report, we asked 500 UK accountants how they’re charging their clients and how confident they feel in the structures they’ve chosen. Read on for what we found out and some of our top tips for pricing advisory services in your firm.

What advisory services are firms prioritising?

While tax and compliance work remain the most common request from small business clients, business planning is following closely behind. In our research, we found that the majority of accountants already offering advisory services are prioritising credit improvement and funding.

This makes perfect sense when you consider that many small businesses have renewed their focus on growth and long-term goals this year, with pandemic disruptions finally over. Socio-political factors and rising costs have also stirred up new uncertainties, making these services all the more important.

How are firms charging for their advisory services?

With advisory services now embedded in many firms, 73% of accountants say they feel confident in their knowledge of how to charge for them. When asked more generally how firms are pricing their services, more than half say they charge for their time as opposed to pricing on value or a fixed price per service.

Providing services which clearly demonstrate value for clients is essential for those firms using a time-based fee structure. Accountants are rising to the challenge and making the most of every minute spent with or in support of their clients. They’re deepening relationships, connecting more regularly and working with clients towards shared objectives with clear outcomes. 

What’s the best way to charge for your advisory services?

Every firm is different and there’s no one-size-fits-all answer to this question. But we can offer some tips on how to go about choosing the right pricing model for your firm.

 

Some of the more common pricing structures include:

  • Absolute/non-contingent fee structure: charging for a service, no matter the outcome
  • Contingent fee structure: charging for the outcome of a service
  • Hybrid fee structure: a bit of both

There are no hard and fast rules about which of these is best. However, we wouldn’t recommend using a contingent fee or hybrid structure for audit clients. Here’s a closer look at some of the ways these pricing structures play out.

 

Absolute/non-contingent fee structure


This is essentially a fixed fee for the service that isn’t conditional on the outcome. For example, you charge a fee for working with your client to choose and apply for funding. Your client will pay the fee, even if their application is rejected by the lender. You might choose to stage these fees; a percentage on engagement and completion for example.

Another option within this structure is to charge an hourly rate for your advisory services. You could charge on engagement based on an agreed amount of hours. You could charge on completion, based on the total amount of hours over a given time period. Or, you might choose to stage these fees.

 

Contingent fee structure


This is where you only charge a commission if the service you’ve provided has achieved the agreed outcome. Say, for example, that you’re working with a client to improve their business credit score through a credit improvement agency. You might only charge a commission if their credit score is improved to an agreed level.

 

Hybrid fee structure


This structure offers a balance between contingent and non-contingent fees. An option here would be to charge a fixed fee on engagement as well as a commission based on the outcome. For example, a fixed fee to help a client choose and apply for a business loan as well as a commission if their application is successful. Another variation of a hybrid structure would be to offer a service initially as part of a wider advisory package and charge a fee for a successful outcome.

Whichever pricing structure you choose, make sure you’re communicating it effectively to your clients. Explain your advisory services, what they offer and the level of advice you’ll be providing. Take time to go through the benefits, the value the service will deliver and how you’ll help them achieve a specific outcome.

Importantly, be transparent about the fees involved and your pricing structure. Before offering any service or advice, tell your client what you’ll charge and when. Make sure everyone’s on the same page from day one.


Want more of the latest insights in accounting?

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