Subscribe
Share
Share
Embed
Technical. Reliable. Fun.
BK Pod brings you the latest bookkeeping news, industry updates and conversations with industry leaders, Kelvin Deer, Peter Thorp, Kellie Powell and Darren Hagarty. From technical content to current events, BK Pod is an easy to listen to audio experience, packed with essential updates and insights for our bookkeeping community.
Kellie (00:09)
Hello, I'm Kellie Powell, and welcome to this episode of the BK Pod. This podcast, specifically for bookkeepers, will keep you up to date and informed. From the latest news, legislative changes, and industry updates, there is always plenty for us to have a chat about. Before we jump into today's episode, I want to brief you on just a couple of things. First of all, the bookkeeper event. It's coming. It's next month on the Sunshine Coast from the 8th to the 10th of October. So we're literally four weeks away.
If you haven't grabbed your ticket yet, this really, really is your last chance. It's two and a half days packed with a fantastic lineup of speakers. I'm so excited about the speakers we have. They're industry experts. They're sharing practical, relevant, and thought-provoking content designed specifically for the bookkeeping community. There's also a huge expo area and plenty of time to explore. We have over our 30 of our wonderful industry partners who are showcasing their latest.
Products and services. And don't forget we have a couple of great social events as well. Everyone deserves a break after two and a half days of solid content. So that finishes with our after party, which is being held on the beach. Yes, you heard that right. It's a beach party and I can't wait. So if you want to join more than four hundred others from across the bookkeeping community for a few days of learning, connecting, and a little bit of fun along the way, now's the time. Head to
the website bkevent.com.au for all the details. We would love to see you there. Also, if you haven't caught our latest let's get technical session yet, it's definitely worth a listen. You will find that in your members' centre in recordings. This one tackles what to do when an employee dies. A very confronting topic of course it's one of those situations where getting the order of things right.
Is really, really important. We stepped through what bookkeepers and BASS agents need to think about before processing anything, including payroll, STP, pay as you go withholding, super. And who is actually authorized to receive the final payment? which can be a tricky ac exercise as well. So it's practical, important, and hopefully one of those sessions you may not need often, but you'll be glad.
You've watched it and have access to that recording if you do ever need it. So on with today's episode. First up, you will hear from Kelvin Deere and myself on the topic that's really relevant to everyone, something we get lots of questions on pricing your services. So we will be chatting also about a new resource we have available to help you assess how you may price for your practice and your clients. Next up we have Darren Hagarty.
Darren is going to take you through our latest getting technical publication, which was on the topic of super guarantee opt out for high income earners that might be juggling multiple employers. So some really interesting points are raised in that publication as well. So let's get into it. We hope you enjoy the episode.
Kellie (03:27)
Well, K D, we often get questions here at ABN about pricing and charge rates, with bookkeepers wanting to know what price they should be charging for the work they actually do. So let me start with a dangerous question. A dangerous question. Well, that one never ends well, does it, hey? I know. It may not. But I have a feeling it will on this occasion. The question is, how do you know whether you're charging enough? look, Kel, you're right. it is a dangerous question. But look, I know
what the answer to that might be because I suspect a fair p few people are gonna say, Well, look, I know what other bookkeepers are charging, so I just do that. Yeah, true. We certainly hear a lot of that, don't we? the common response we hear is, I've been charging eighty five dollars an hour for years and no one's complained. Which may actually be the problem because look the reality is if nobody's complained about your prices for eight to ten years, then perhaps that's where we need to have a bit of a conversation.
True, true.
And that is really why ABN has created the Bookkeepers Pricing Health Check. It isn't a document that's going to tell everyone you should charge X per hour. It's a workbook that actually makes you think about your practice and your needs and what you need to recover to be profitable in your business.
And I really like that distinction because the starting point shouldn't be what the bookkeeper down the road is charging. It's your business. So you need to be looking at your own backyard when it comes to your pricing. That's exactly right, Carl. And the workbook looks at your costs, your realistic capacity, what your client make up is, the market and your pricing model, and then whether your scope and pricing processes actually protect that fee that you're charging.
Makes sense. So look, let's start with something that sounds obvious, but what does it cost to run a bookkeeping practice? Well, as obvious as that may sound, it's it's where this cost issue starts to get really interesting because people will usually tell you their costs are their software, their insurance, wages if they've got, say, contractors or overseas or internal people, and perhaps maybe something like rent.
Yeah, true. We hear about things like the cost of subscriptions and PI insurance, phone, all of the above. Yeah, that's correct. But then on top of that, you also have to ask, what have you allowed for yourself? So you the person who's actually owns and runs the business. and there it is. Not glaring in the face, but very vital, isn't it? Because of course as a as a business owner, you want to make sure you're being paid well.
Yeah, that's right. And look, the owner's labor is one of those things that can disappear from that equation really quickly. So particularly if you're a sole practitioner in business, and that's really where essentially that figure that's left over, which is your profit, that's essentially their remuneration. Hmm. And do you think that's because the sole trader looks at the bank balance and says, Well, whatever's left is mine? I I guess the answer to that is yes, but simply looking at the bank balance and saying, Well, that's mine.
doesn't really tell you whether the bookkeeping practice itself is profitable. But what our pricing pricing health check asks you to do is to put a fair market allowance or value for the owner's technical and management contribution to their own business. So it's not what's left over, but it's what you would actually like that amount to be realistically. Hmm. And that's really, really important. great point, KD. I guess
You want to look at if you took yourself out of the business tomorrow, had to employ someone to do your job, what would you pay them? Yeah, that's exactly right. And then I guess there's another category that I think people when it comes to pricing that they may forget about and that's reinvestment and don't forget risk. Yeah, spot on. When you think about your own business, you're always dealing with system improvements, you're dealing with bad debts, some unexpected costs that might might turn up in the business.
but you've also got to consider things like growth and your capacity. And a healthy business needs some margin beyond just simply paying the bills today. They need to be looking at what investment do I need to make in new software, new hardware, skilling myself up for other tasks or projects or or some other things in the future. And what risk am I taking to deliver those services? Absolutely. So lesson number one from today's session is don't build your pricing on costs alone.
Think about your own time, think about your reinvestment, and certainly think about risk as well when it comes to pricing your services. Yeah, absolutely. Great points. Now, this was probably my favorite bit of the workbook. something you referred to as realistic billable hours. Explain that to our listeners. Well, a l a lot of people simply say, look, I've got two thousand hours available in the year, and that's gonna be my chargeable time, don't they? Yeah, actually, of course.
it's like it's forty hours a week, fifty weeks a year, two thousand billable hours, easy peasy, we're done. Yeah, except apparently nobody ever answers emails, they don't send out invoicing or do other admin work. what about your CPE? Do you have to attend meetings? you have to market your business, fixes for your software, or what even if you get sick? So there's a whole heap of things. Yeah, or what if you spend forty five minutes looking for something that you saved, you know, in that really safe place but you just can't put your hands on it? Yep, that too, you've got to factor that in.
Yeah, so all really, really important points. Your available hours are not just your billable capacity is what you're saying. Yeah, spot on again. What the health check makes you deduct is things like your leave, your administration processes and time, practice management issues, CPE, technical research, marketing and even just downtimes or other contingencies. And really what you're left over after deducting all of those things is your realistic delivery capacity.
Right. And then we finally get to the number people tend to start with, the hourly recovery rate. Yeah, that's correct. But look now, that hourly recovery rate actually means something, not you know just a a random number. can you give us an example of that one? All right. Well, in the workbook, I take an exil illustrative example of let's say I've got an annual cost base of $110,000. So that's all the costs, my raw costs, but it also includes a fair market value for my time as the owner. On top of that,
I also want to make a bit of profit, not just, you know, necessarily what I what I think is a fair market value, but also make a profit on top of that. So in the example I use, I've taken a figure of twenty thousand dollars desired profit on top of that. Now if I divide that by say twelve hundred and fifty realistic billable hours based on the way I operate my practice and account for all of those other time constraints we just spoke about. interesting. I can't wait to hear what this revealed. All right. Well, for that particular business.
The owner would need to be recovering around about a hundred and five dollars an hour to achieve that outcome. Uh-huh. So if you're charging eighty dollars an hour because someone on Facebook said that's the going rate. Well, in that instance, you probably just designed a business that's not going to be profitable and not generating the returns that you want or probably need to be a sustainable business. Trouble. Trouble. All right. Well, let's get a bit controversial. Who's your worst client?
They surely must factor into this equation. Yeah, look, they do, but most people immediately think of that client as paying the smallest annual fee. So they think, well, that's my worst client because they're my smallest client. Mm. And what does your workbook say? I bet it says something different. Well, exactly right. It's not about the smallest fee. It's about starting with the client producing the weakest return. Right. So really what we're saying there is a twelve thousand
dollar a year client can actually be worse than a three thousand a year client. Yeah, really easily. So can you unpack that a little bit more for us? Sure. Well it's because you have to count the whole relationship with that client. So not just the time spent coding the transactions or processing their payroll. It's also about like, you know, what emails do you exchange with that client over the course of the year? what meetings are you attending with that client? Are you chasing them for documents? Are you making corrections?
do you have to review the client's coding or other urgent requests with other tasks that you need to help with? And of course these are all write-offs unless you do something about them. Yeah, exactly. And they might just be rude and annoying too. They could be. Gotta gotta factor that as well. Gotta factor that in. But what about things like, you know, just a six minute phone call? Do you do you have to try and factor that in? Well, if you think about that, if you repeat that six minute phone call or email
Forty times a year. What's that gonna do for you? Yes.
And the other one I really love is the while I've got you, that type of discussion. Yeah, that's that's always the one that sort of people forget about, isn't it? And suddenly that lovely fixed fee client that you've had for six years isn't quite so great. That's right, because the work has changed, but your fee hasn't. Yeah, important.
So there is a really useful worked example in the pricing health check workbook with a ten thousand dollar annual fee, hundred and fifty hours of time spent, and nine hundred of direct costs on software. Yep, and that's example produces an effective rate of only sixty six dollars an hour. Mm. And if you compare that against our required rate that you spoke about
just a couple of minutes ago was a hundred and five an hour. Yep. And at that maths, the contribution calculation shows that that particular client relationship is underwater by about six and a half thousand dollars each and every year. Mm-hmm It's a scary number that isn't it? It's certainly something that would get your attention pretty quickly. Yeah and importantly the workbook doesn't automatically say sack that client. It asks why? What is it that causes that sort of poor client return for that particular client? Is it scope creep? is it just simply poor records?
What about inefficient processes that I might be dealing with for that particular client? Or am I offering them too much support and ultimately it generates the wrong fee? So it's not necessarily sack the client, it's look at whether it's fixable first. Absolutely. And it's not about just, you know, sort of fixable, it's improving it. It's scoping it, it's repricing it, and it's changing your model. And I think only then, if it cannot be made commercially viable, then consider whether that client belongs in your business.
Absolutely. Okay. let's move on. Let's shift the focus to everyone's favorite pricing research methodology. Facebook. Yeah, well true. But close. But say you find three competitors, ask them what they charge them, pick something in the middle. What about that? Yeah, and the upshot of doing that way is of course to hope that their business model's better than yours. Otherwise you're Exactly. Exactly. Trouble otherwise you in trouble again. Trouble again, yeah.
look, Kel, market information certainly matters because at the end of the day, you still have to be competitive in the marketplace, but it's a sense check, not the starting point. Absolutely. And you also have to compare like with like I'm guessing because service offering can differ, you know, from the price. Yeah, that's exactly right. So if you think about things like client size, transaction volume, payroll, and that that can be quite complex.
and challenging and and changing from time to time. But there's also the frequency with which you do things. what about data quality and of course those urgent requests from your client. But then you factor in things like your expertise. we spoke about earlier about your risk that you face, your compliant risk, and of course what service level? And these all have to be factored into the equation. Yeah, absolutely. And y and you've got to be careful, haven't you? Because sometimes there's a statement on a website that says something starting from two hundred and fifty dollars a month.
But really that tells you pretty much nothing as to what a competitor would would be charging. Yeah, that's absolutely correct. And I guess that's why the workbook then moves in that into the actual pricing model. Hourly, fixed fee, value pricing, or a hybrid of a few of those. Yeah, that's right. And it deliberately doesn't say that one model is universally better than another, because an hourly rate model can certainly work when the effort genuinely can't be predicted.
If you think about fixed fees, well, they make sense where there might be a recurring scope of the job and the job is also quite stable. And then you look at value-based pricing, which really suits work where there might be a clear commercial outcome for the client that's really valuable to them, and therefore you can price it accordingly. And of course, the hybrid is really just a practical model that many practices use because there's a combination of the way you can bill. Sure. So you're saying maybe a fixed core service with separately
Priced extras, is that what you're kind of suggesting? Yeah, look, as I said, it really does depend. But if you think about catch-up work, special projects, corrections, urgent job scope changes, those sort of things, look, they would certainly sit outside that recurring fee type model. Sure. All right. Moving on to the the next part of the checklist. So we come to perhaps the three most expensive words in bookkeeping. Do you know what they are?
Yep, and those words are can you just? Can you just fix the payroll? Can you just clean up the last year's adjustments the accountant made? Can you just add this extra code to the chart of accounts for me? Can you just give me that other report and the pack you provide? Plenty of them. You hear it all the time. Absolutely. We've all heard those ones. And the response typically is, Of course I can. Of course I can. But really the next question should be, has that service been included in your fixed arrangement or or your fee arrangement?
or should there be addition to that? Yeah, that's right, Kel. And that's why the final check in your pricing model should be about scope discipline. Yeah, because even a perfectly calculated price can still go bad. Yeah, absolutely. And if scope moves and your price doesn't, then eventually that margin's gonna disappear. Yeah, absolutely. And the workbook gives people four things to think about in this area. So we talk about the scope, assumptions, triggers, and then a change process if that's what's needed.
Yeah, look, it's a process of determining what is included. So what does the client have to do to ensure that price? what events might cause a pricing review? And if something does change, how do we explain it? Price it, obtain the approval from the client, and then actually perform that extra work. Sure. So what we don't want to do is perform the work first and then send an awkward invoice later. Is that what you're saying? Yeah, look, that's j that's generally not the not the preferred sequence.
Look, the beauty of doing this well is that the eventual pricing conversation becomes far easier. You're not suddenly announcing an arbitrary fee increase. What you're actually saying is, look, we agreed on a scope. That scope has now changed. Here's the effect of it, but we have these options for you to consider. Sure. So evidence rather than an apology. Yep, that's exactly how it should work. Like it. All right. So we've done all that. how do I know now whether my pricing is healthy, sustainable, and capacity?
Well, that's where the name Pricing Health Check really earns it keep. There's a 15 question scorecard in the workbook that you can work through to determine exactly that. And I think that's a fantastic resource. Even for someone who doesn't want to do every calculation, they can answer these questions to see if more needs to be done. Yeah, so things like: can you state your annual cost base? Do you know your realistic billing capacity? Do you know what your recovery rate is?
do you do you provide enough time to assess your clients' profitability to your business? are fixed fees properly scoped? how often do you review fees? And ultimately, can you deal with commercially unsustainable clients? So they're the sorts of questions that that the workbook asks. Yeah, and and that's certainly the uncomfortable moment then, isn't it? If you if you look at those responses and you're seeing more yeses, that's great. But if you've got issues there then that's gonna be telling.
Yeah, pretty much. Look, if you've got twelve to fifteen yeses when you answer those questions, you've ri got a really strong foundation, so good work. eight to eleven means you might need a little bit of review. but if you're in that zero to seven yeses when you're answering those questions, then to me your pricing is at risk and you need to spend some time on your own business. Trouble again. Trouble. I like that word. Trouble. Trouble trouble.
then what I really like is the line underneath the most valuable outcome from this review is not what did I score? It is which gap is currently costing me the most money, time, or confidence I have to have a strong business. I like it. Yeah, that's correct. And and that's really you know what to attack first. Lovely. So look, it's a really great resource, KD, but unfortunately this is where these sorts of resources can sometimes fall over. You fill out a worksheet.
You discover your undercharging and you put it in a drawer for later. Is that what you do? not quite, but anyway. Look, the final part of the resource is the action plan. what you're going to do about it. And that comes in the form of a 90 day pricing plan. and it isn't reprice every client by Friday? No? No, look, definitely not. it's a stage process you should consider. my suggestion is to look at it perhaps over 90 days. First confirm your cost base and your recovery rate.
Then analyze your bottom three client relationships. next identify any major scope creep that could be occurring, then develop some pricing or scope options for those particular clients. And then of course you've got to update those engagement terms where necessary, implement those changes, and then yeah, rinse and repeat and review those results. Yeah, look, that's what I really like about this document. That action plan, it
It makes it a manageable process and I think that's really important. Yeah, you're not trying to rebuild your entire practice pricing in a weekend. I think that's the important point here. I agree. So there it is, the ABN pricing health check. Download it. Actually, do the health check. I think it's great. Don't just admire it and go, I'll do that one day. Schedule it in, get it done. And I'd suggest starting with two numbers: your real required recovery rate.
And your bottom three clients. Yeah, that's right, Kel, because look the reality is I think once you've got those two things, you may look at your pricing very differently, but also potentially your clients as well. Absolutely. So KD, we'll leave it there. The bookkeepers pricing health check is available through Australian Bookkeepers Network. Give yourself twenty or thirty minutes, so not a long time. You can get through that. Use real numbers, see what it tells you, and you may be very pleased with the result. Or importantly, you may not be.
and therefore you might need to change something. That's what it's all about. That's it. So thanks, KD. Great to chat about a very important but often overlooked element of practice management. I'm sure bookkeepers will get plenty out of this resource. Thank you.
Gabbi Samadi (22:47)
The Bookkeepers Pricing Health Check is a practical workbook to test whether your fees cover the real cost of running your practice and identifies where your pricing may need attention. If you'd like to download our Bookkeepers Pricing Health Check document, the link is in the show notes below. Now back to the show.
Darrren Hagarty (23:07)
Hello and welcome to the BK Pod. My name is Darren Hagarty and I'm a director of ABN. Today I want to spend a few moments telling you about a recent edition of our getting technical publication entitled Super Guarantee Opt Out for High Income Earners with Multiple Employers. Now, for most employees, having more than one employer doesn't create any particular superannuation problem, but for some higher income employees it can.
And that's because each employer generally works out its SG obligation independently, while the employee has a single concessional contributions cap applying across their super contributions as a whole. Put those two concepts together, and an employee with substantial earnings from multiple employers can find themselves receiving more compulsory super than they actually want, potentially pushing them beyond their concessional contributions cap.
There is, however, a mechanism that can help. In certain circumstances, an employee can apply to the ATO for a certificate that effectively switches off the statutory SG obligation for one or more of their employers. But as this addition explains, that deceptively simple proposition comes with some important qualifications. Who can apply? Which employer can stop paying SG? When can they stop?
What happens if the certificate is issued retrospectively? And perhaps most importantly, what actually happens to the SG that the employer is no longer required to contribute? That last question can make a significant difference to whether opting out is actually worthwhile for the employee. We also look at what the certificate does and importantly what it doesn't do, because removing an employer's statutory SG obligation does not necessarily rewrite the employee's remuneration
arrangements or remove other contractual or industrial obligations. And from the BASS agent's perspective, there are some important practical traps around timing, payroll adjustments, and contributions that may have already been made. Overall this edition takes a relatively little known SG concession and explores when it might be useful, how it operates, and what BAS agents need to think about when one of these certificates lands on their client's desk. Enjoy the read.
Gabbi Samadi (25:35)
Thank you so much for listening to BK Pod. If you loved what you heard, please feel free to leave a review or share it with your bookkeeper friends. And if you want to know more about Australian Bookkeepers Network or you're thinking about becoming a member, head to austbook.net or follow the link in the show notes. See you again next month.