There is a continuing trend towards the setting of fixed fees for work done. This trend seems to offer win-win outcomes for clients and for practitioners as fees are agreed in advance removing the need for log-winded explanations of why fees are higher than expected.
There are issues. For example, how do you factor in changes in the implied fixed price agreements: what if the client’s records are not completed to the standard required for you to deliver the work on these records, and at the agreed price?
Most firms deal with these issues by renegotiating with the client before work is commenced. In the above example, this would involve offering the client an opportunity to bring their records up-to-date, or pay a higher fee for you to do the extra work.
However, there are many firms who still bill for work done based on chargeable hours committed at fixed charge out rates. Readers may be interested to learn, that according to recent survey of over 100 firms, the average write-off of chargeable hours before billing totalled an average of £187,000 per firm per year. This represented an 18% write-down of billable hours.
There is another problem with billing on a chargeable hour’s basis; it concerns improvements in efficiency. Cloud accounting, time saving apps and other innovations in data processing, mean that work can be competed faster: less time, fewer billable hours, lower fees to clients. Most practitioners would compensate for this by writing back any gain as extra profit, but this requires vigilance.
It will be interesting to see if the fixed fee strategy replaces the time-ledger. The challenge then of course, is to set fixed fees at a rate that produces a return to partners to compensate for their time commitment and investment in their practice.