How to Price Your Bookkeeping Work For Maximum Profitability

Hi there, Linda Artesani from the Accountants Law Lab. Today we're gonna talk some more about pricing your bookkeeping work for maximum profitability. And it's a big topic. I probably could just go on and on about pricing because it's truly an art form. When you're first starting out, it can seem like a daunting task. You feel like, am I pricing it too low? I think that was probably been my biggest fear when I first started. Am I giving away the store? I read about it. I, you know, did the homework to learn the best way for pricing, but I always felt like the people that were telling me this were people who are more experienced, and that I was afraid that if I charged those prices, I'd get no clients. And it certainly didn't want that. And I'm sure that might be something that's crossing your mind as well, and you might be thinking the same thing. That I need to find— it's a fine line between charging too much and charging too little. I wanna make sure I get the right pricing for my client, especially if you're switching from an hourly billing type of a model where you, you gave your client a rate and they didn't really know how many hours it was gonna take. And then you might have those discussions when you do bill them that they say, that's not— I didn't— did it really take you that long? And This will eliminate all of those conversations. And I think the biggest lightbulb moment for me when I started to switch over to a fixed pricing or a value pricing type of a model with my clients was that the communication door opened, and I was able to have more intelligent communication with my client. They were more forthcoming. They were more open to reaching out to me because they weren't afraid of the clock. Ticking in the background every time they made a phone call to me. And I think that alone was worth my changing and having that ability to really communicate because you're really here to help your clients. And that sometimes was a barrier with the hourly billing. Our whole choice of working with a good bookkeeper and a, an accountant, or a bookkeeper with your, from your client's perspective, is that they need assistance in this area, and you're the expert. So I just wanna go through a few of the ways that you can start to price it. But if you're coming here and you're just starting to specialize in this industry where you wanna work with attorneys and you wanna be the best person ever that an attorney could hire, you need to identify that market. Who are you working with? Are you working specifically with the small solos that really need your help because they're busy wearing all hats and they want help with their bookkeeping? Or are you someone working like we do with the larger firms that have a lot of different people on staff, multiple people. You might be working with one designated person that's maybe doing the day-to-day bookkeeping, and then you're there to assist or enhance that process and get the whole picture to be accurate accounting. Are you that person that's in charge of really doing the more higher-level stuff? We've got somebody data entry, data and doing data entry in the law firm itself. So Identify and target the services that you're going to provide and make sure that you have a, a good concept of exactly what you're gonna be offering. Is it a small firm and you're just doing write-up work, which is basically using the bank rules? It's after-the-fact bookkeeping and you're not having a lot of interaction with the client. That can tend to be a lower level or that low-hanging fruit. It's a good entry point though if you're just starting out with doing this work. We had this conversation in the Law Lab this week with someone that's just starting out and wants to work with attorneys. And wants to know how to get them. Well, you can get that first client and partner with them and really work for peanuts, but they assist you in understanding the law firm work. You're kind of getting an education back from the client. That's a great way to start. It's the way I started with my law firm. My first law firm client, who's still a client today, is— they— he worked with me as we kind of navigated the waters together. You have to do a lot of research on the outside as well. Are you gonna be offering accounts receivable? It's a big job to take on the billing for a client, depending on the law software that they're using, the legal billing software. If they're using it, they're not using it. You want to ask those questions, understand the full responsibilities on your side of what you're doing for the accounting, taking care of their billing. Are you just making sure that the bills get out and you're following up with them?— or in the attorneys actually creating them, or are you working with them to create the drafts and going through the approval process and adjusting them on the fly? If they're writing downtime or doing anything that they need to do to tweak that, are you doing all those extra steps? Those, those cost more for the client because you're doing more of the work. You're more doing more of the heavy-duty work. So that's something that you want to consider when you start to take on accounts receivable with an attorney-client. You want to make sure you know the full scope of what you're doing, and you don't wanna go in with one price and then find out that the job is a lot bigger, and that you're really taking on a lot more responsibilities than you really understood it to be in the beginning. You want to define that in that paragraph when you give them the price. You wanna make sure that they understand that you're doing X, Y, Z, and not A, B, C. So you wanna make sure it's important that they understand that. Accounts payable, depending on the practice area. If you're working with a personal injury attorney, you're gonna find there might be a lot of client expenses flowing in, and you gotta keep track of them, and for multiple years. So you wanna make sure that you have a good accounting software that's gonna help you track all of that. Obviously, you can do that with QuickBooks, and you can upload receipts, but you might wanna add a Dextre or Hubdoc to the mix, so that will help you process that along. Then there's overhead expenses. You want to really delineate how many expenses you're looking at, how many of these expenses are work in process, and you're kind of holding them until it becomes time to bill. These are things that you want to look at with your client, understand what they're doing. Some law firms don't have a lot of expenses as they go through the month. Some of them are heavy on that side. So know the practice area, know what you're looking at when you're doing the pricing of the job. These are things that are gonna really, they make or break you when you're doing the pricing for sure. Payroll is a big one. Payroll can be complex. They may have benefits. They may have, may, may have a payroll service, but we'll hope they do. Most people do. If they don't, you will wanna encourage that. You wanna take that piece off of your plate. I did a whole thing on payroll last week in the blog post last week. I'll link back in the articles. You can see that. But it's something that can turn into a big job if you've got a lot of people working in the firm. There's a lot of hourly billing. There may be a lot of ins and outs and changes in PTO and all of that. You need to know how much of that is your responsibility to track and take care of. Are you in charge of handling the payment of the 401(k), 401(k), doing the calculation and then making the actual payment on an outside website? If you're not using like Mammoth that's built inside of QuickBooks as part of the service, if you've got some outside like Fidelity, you're gonna have to log in and do all that. That's extra, extra steps. So we need to know those steps. These are all the little things that you wanna make sure you have eyes on before you give the price to the client. Advanced client costs. Some firms are heavy in that. They might have a large amount of advanced client costs on their books. Are you tracking that? You have to reconcile that account so that your client removes those that are not ever collected. You have to stay on top of that. It's a time-consuming piece of the work that we do. So ask about that. Look at it in the records when you get your hands on the QuickBooks file. Look to see if they have it. If they have billable expenses and billable income, you might want to have a discussion about that as well, that that's not a great practice. It's not how the IRS actually looks at advanced client costs. So it's something you want to discuss and talk to them about, and you really want to reconcile it so you make sure that you get out any of the stuff that will never be collected because now it's a firm expense. You don't want it to sit up an advanced client cost in perpetuity. You wanna make sure that that's stayed on top of. Now if it's a bigger firm or even smaller firm, sometimes smaller and they just have a few attorneys working there, they may have some kind of a compensation package or program in place or a bonus system. Learn how that's done. Ask if they've got that outside spreadsheet, if that's where they're handling that, that data. A lot of times if you're using like LeanLaw, you can actually have those calculations just by the way it's set up and you use the originating attorney and the responsible attorney and those percentages are built in, that can all be handled in the software perfectly. So you want to do that if they're using software like that. If they're not and they're calculating it out in a spreadsheet, there's really good chance of having anything happen where it's not exactly, exactly accurate. And you're talking about what people get paid. So you want to make sure that you verify it back to the data inside of QuickBooks. So reconcile data. So that's something that takes time, especially if you're doing it in a spreadsheet. I've seen spreadsheets in my days of doing this with other clients that they tell me the spreadsheet's perfect, and then when I dial it back to the bookkeeping and the accounting, accounting itself, it doesn't equal, and then we have a problem. We have to fix it, or maybe there's even a mis— equation inside Excel spreadsheet or Google Sheets. So you really wanna make sure that that works, and it comes out perfectly. But again, time time-consuming. Are they class coding? So a lot of times the attorneys will class code to track how much revenue comes in per attorney and expenses per attorney. That's extra steps. Uh, are they location tracking? Do they have multiple locations? And we should really be tracking that. And we have that ability to do that in QuickBooks. But are you doing that? Because that's another extra step. So these are things that you want to think about. And then once you have all that figured out for your scope, You want to really look at your competition, that maybe what they're charging. Some websites, and there's quite a few of them, they actually have it on their website where you can put in how many transactions, and it will calculate what it's gonna cost to do the work. The current transaction count. Some people believe in doing a percentage of revenue as what the fee should be. You might wanna look at that. I think it's like 2%. You might wanna look at that. Is that what— that's what the accounting should cost. I mentioned in the article about pricing earlier, you can actually look at the price. Once you get accustomed to this, look at what an average one takes or costs. You look at a small firm, maybe it's $325 a month. Maybe you, you know, you're upwards of $900 or $1,000 a month for the smallest of firms, but you've got a lot of bells and whistles included in that. And then you want to look at that fee and figure out times 12. That might be the easiest simplest way to do that. I think I might have mentioned in an earlier study— story when I was talking about doing the pricing on cleanup that the client came to me and said, well, I'm not gonna do the monthly with you 'cause it's gonna cost me more than if I come back a year later and just do this cleanup again. Of course, they're not getting real-time data, and they're not really working on their firm. Not a client you really wanna have. But just remember that mindset of the client, how they're thinking about that kind of thing. You wanna calculate as you're looking at this and you're just starting your business, you might wanna look at how your firm, what do you need to make to your breakeven number? We like to look at our own breakeven number and kind of figure out what are my costs, what are my expenses, what are my overhead? Software is a big one. Wages are a big one if you have staff. And then look at what you wanna get paid and then kind of back out that number so you know where you're sitting and how many clients that you need at X amount of dollars. And you know, think about your perfect client and how many of those you would you need to get to where you have to be to pay your breakeven. And of course, anything after that would be your profit. So you want to really get to that point as well. But if you're just starting out, know that breakeven number. It's something we tell our clients. And sometimes you ask your client, do you know your breakeven? Some will rattle that number off and some will sit there like, I have no clue what you're talking about. So we need to know this about our own firm. We can't get lazy in our own firm's books. We will need to stay on top of it and do the things we tell our clients to do as we start to analyze for them. This is that higher level service that's not often found in a bench or one of those services where they just pop out the cash basis numbers for the client. And then think about what you want to charge that perfect client. Get that number in your head as well. Sometimes we get involved with— we're leading with our heart. We look at a client and say they can never afford that. But if you really want to help a client, you wanna know what that perfect client is as well as will it be good mix with your staff.— or a good mix, good mix with you? Is it gonna be the kind of client you wake up in the morning, you want to help? Or is it the kind of client you're like, oh my God, the phone rings, you don't wanna answer. So you wanna get more of those clients that you really want to work with and help. So that's kind of a high level of what you wanna look at. And obviously I went into a lot more detail inside the article, so you can read more details about that. You want to charge more if you're working at just this legal industry. I want you out there charging more because you've got a bigger, wider array of knowledge on all of the topics. You spend a lot of time making yourself better and learning all of this stuff. You should be able to charge more because they're buying your expertise. They're buying the time you've invested in yourself. Never forget that piece, because it's very, very important. And I think that that's why you invest in learning and growing, maybe getting a coach, or maybe joining the Accountants Law Lab, because we'll help you grow and learn from each other, and that's the point of it. So I hope this, this video is helpful. Obviously more details in the article that's attached. And until next week, we'll see you then. Bye now.