An important, yet complex frequently-asked question: How much should I charge as a bookkeeper?
I often mention that, starting out as a bookkeeper, you can charge $40 per hour to your clients. Then, as you gain experience and niche down, you can charge up to $80 or sometimes more per hour. However, there is quite a bit that goes into the pricing beast, and it’s not always as cut and dry as this.
You can charge your bookkeeping clients multiple ways, and today we’ll dive deeper into the pros and cons of each of these pricing methods:
Hourly rate pricing
Fixed rate pricing
Per bank account
Per transaction
Percentage of income
I’ll also share more about the fact that as a contractor (who gets a 1099, not an employee), you should charge more, and I’ll give you some tips on negotiating a higher rate when a client hires you.
Watch the video here or keep reading
Hourly Pricing
Charging hourly for your services is one of the most commonly-known methods. You see this with regular employment, some service-based businesses such as your plumber or lawyer, and many bookkeepers choose to start with an hourly rate.
It’s reasonable for a new bookkeeper to charge around $40 an hour, but you’ll need to do some research in your area to make sure that is a good starting point. From there, you can raise your rates as you gain more experience, and many top out around $80 or more an hour.
It’s interesting that you’ll find advertisem*nts for bookkeeping at rates of $20 an hour on CraigsList or other job postings, but the difference with these comes with being an employee of a business or being a contractor in business for yourself. We’ll get into that a little bit later on.
Do you want to find out if bookkeeping is the right career for you?
Fixed Rate Pricing
Right now my goal is to have all my clients on a fixed-rate pricing scale. In an ideal world, I’d have a handful of clients, I’d work two days a week, and I would have them pay me a set amount up front with automatic payments so we both know what to expect each month.
What I recommend when you’re starting out is to begin with your hourly rate and transition your client into a fixed monthly rate. It’s really hard to figure out what to charge someone without actually doing the work and finding out how much time your client’s account will take you each month. Many times you’ll be discovering things about the business as you get to know your client, and you may even find some issues your client didn’t know were there.
Starting with an hourly rate with a new client is beneficial because usually it will take more time to get their books set up, as they could have been quite a mess before you took them on. You may be helping them play catch-up to get organized not only in the current year, but also in previous years. It will be more work upfront, so you can bill more upfront.
A few months down the road, once you’ve immersed yourself into their business, have their books organized, and have a steady flow, you can switch your client to a fixed monthly rate. By then you will have figured out just how long it will take on a monthly basis to keep their books current.
One thing to note as you’re deciding on a fixed rate is to think about the expenses to keep their books. Are you covering their QuickBooks subscription? Will you need equipment updates on occasion?
How do you calculate the rate? Take your hourly rate times the amount of time you believe it is taking you each month and add a little more on top of that for added expenses. This will be the monthly rate you can present to your client.
Don’t forget to let your client know that moving from hourly to a fixed rate is for their benefit too because they will now know exactly what they are spending on bookkeeping each month and can budget accordingly.
What is the Difference Between Small, Medium, and Large Clients?
You can categorize your clients into small, medium, and large based on the amount of time you spend on their bookkeeping each month.
Small clients: 5 hours per month
Medium clients: 10 hours per month
Large clients: 20+ hours per month
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Small, Medium and Large clients, explained!
Charge Based on a Percentage of Your Client’s Income
A client with a higher income is going to be able to afford a higher price tag for a bookkeeper, and your workload will be quite a bit higher than a small or medium client. This is the benefit to charging based on a percentage of your client’s revenue.
An industry standard would be to charge about 1-3% of your client’s gross income, and that is about what they should spend on a monthly bookkeeper (or all of their bill pay and invoicing or other office tasks). If they have an office worker designated to some of those other tasks, not all of the 1-3% would be distributed directly to you.
Veronica Wasek from 5-Minute Bookkeeping has a great pricing strategy. For her fixed-rate pricing, I believe she does the 1-3% for any clients that are $300k or below. For a client who’s revenue starts at $300k and goes up, she will insert a base of $400 and then add on any extra services they may need.
For example, a client with about $500k in revenue, she would charge $650 a month as a bookkeeper. This would be for the basic bookkeeping, reconciling, and bank accounts.
For clients with more than $1 million in revenue, it would be good to look at how much they would pay a full-time bookkeeper, sitting in their office, working 40 hours a week. As a contractor, you’ll be doing the work quicker because you won’t be dealing with all the office management, so it’s actually better for them to hire you part time than it is to hire a full-time employee.
Why Would You Charge for an Initial Consult?
Many bookkeepers charge their clients for initial consultations because it gives them a chance to look at the books. This gives them an opportunity to let the client know just how much they will need to charge to take over their bookkeeping.
In the consultation, you can take a look at their bank account, see how many transactions they have, and see how complex everything is. You’ll be able to gauge how much time you think it will take to do their books each month. This initial meeting is helpful before you commit to a price.
Charge Per Transaction
In the past, it was popular for bookkeepers to charge per transaction. To be honest, I’ve never done it that way, so I’m not as familiar with what the rates would be for this type of pricing. If you’re interested to learn more, Google it, and I’m sure a plethora of information will show up.
This way of charging has changed quite a bit now that we have QuickBooks Online. The actual inputting of transactions isn’t what is taking the most time. What is taking the most time is being aware of their finances, organizing things, and pulling reports. However, it is true that the bigger the account is and the more transactions they have means the more time it’s going to take you.
How to Charge Per Bank Account
One thing you need to be aware of is how many bank accounts your client has. Each bank account will take you significantly more time because you will have to look up the statements individually and reconcile them. There are a number of steps for each bank account.
If you have a client with one bank account and 400 transactions, that’s going to take significantly less time than if you have a client who has 4 bank accounts each with 100 transactions.
Other Pricing Strategies to Think About
Charge what you’re worth!
I want you to think about all the hidden costs that come along with starting your own business. You are paying for your own computer, your own equipment, and your own office supplies. You are usually paying for QuickBooks, your education, and insurance. Also your taxes, business licenses, and credit card fees.
I know it’s hard when you’re starting out because you often don't feel worthy of this dollar amount that you should be charging, but if you add up all the normal expenses and hidden costs, it’s not worth your while to work at a rate that is too low.
Negotiate Your Fair Contractor Pay
If you see a bookkeeping job posted on CraigsList or another job search site, and it’s listed for $15-20 an hour, I want you to go into that interview confident that you can negotiate a fair pay as a contractor.
RELATED: The Best Job Interview Tips from a Previous Hiring Manager of a Fortune 100 Company
5 Talking Points to Snag that Client
As we close, I want to share a few talking points to help you share with the potential client about why it would be better for that person to hire you as a contractor instead of as an employee.
You save the employer at tax time
As a contractor, the main thing that you are saving an employer--or your client in this case--is TAXES! They have to pay so much more in social security, Medicare, worker’s compensation, and unemployment taxes for an employee. When you work for a company, and they give you a W-2, they are paying a bunch of money to have you working for them.
Outside expenses are covered by you
Additionally, there are quite a few outside expenses that come with hiring an employee. At minimum, they need to provide you with an office space, a desk, and a computer. As a contractor, you’re using all your own equipment, so you’re saving them all of that money.
You are specialized and efficient saving time
Don’t forget, as a bookkeeper, you should have a specific expertise. Anytime you can niche down and be specialized in a specific area of bookkeeping, you’ll be able to charge more money for your services.
Sometimes employers have an office worker or HR staff who does their bookkeeping for them, but if you are only doing bookkeeping, and you are focused on that, then you’re going to be more quick and efficient and be able to do the same work in less time. Overall, the money will equal out for the employer.
Contract may be terminated at any time
As a contractor, you have flexibility, and you can terminate the contract at any time if either of you are dissatisfied with it. As an employee, there are more hoops for an employer to jump through to terminate employment.
Client doesn’t have to provide benefits
If you’re contracted as a bookkeeper, your client isn’t in charge of your sick time or vacation time or disability or leave or anything that they may have to think about with an employee.
As a contracted bookkeeper, you can charge your clients multiple ways: hourly, fixed rate, per bank account, per transaction, or a percentage of income.
Which way do you charge your clients? Do you use more than one of these methods? Which way do you prefer most?
