Freelance bookkeepers often struggle with figuring out how much to charge for their services, because it’s hard to determine how much time it takes to complete the work. I’ve shared tips for estimating your time previously, but it’s not good enough to stop there.
Often, when you’re just getting started or in the process of training new staff, you’ll find that your estimate is far from accurate, and if you don’t track your actual time you’ll never know this discrepancy. Tracking your actual time against estimates is one of the keys to keeping and increasing your profitability.
Basically you need to set up time tracking software or an excel spreadsheet that gives you the following information for each client by month:
In the first column enter the time code that you are tracking.
In the second column enter the actual hours spent working by your staff person.
In the third column enter the estimated hours.
In the fourth column enter the difference or what I refer to as over/under.
Now you need to analyze the trends. This report is going to give you a lot of information and allow you to be really proactive with your clients and staff. Preparing the reports and not analyzing the trends makes no sense.
One of the things this report is going to tell you is whether or not volume is increasing or decreasing for a particular client. So if you notice that your client has steadily increased in volume for several months in a row, this tells you that three things could be going on.
• One – your staff person needs more training.
• Two – the client is not providing the information in the correct format.
• Three – the client’s volume really has increased.
So first have a conversation with your staff person to find out if the increase of time is coming from their need for further training or whether the client isn’t supplying the information correctly. (You don’t want too much time to pass so that bad habits don’t become ingrained. It can take a lot of time and energy to turn that around.)
If you discover that your client’s volume has increased, you need to go back to your client and have a conversation. Is this something temporary? If so, you may decide that you’re going to absorb the overage and let you client know this. You’ll also want to make a note in their file that you did this for future reference. You may decide that you’re not going to absorb the overage and that you’re going to charge the client. So you’ll have to inform them that they have entered into the next volume tier level and that their price needs to increase.
As you track actual time against the estimate for all of your clients, it will shine the spotlight as to whether or not your estimates are accurate. This will help you to refine your ability to estimate your time when you’re qualifying new clients.
A time tracking system is an integral part of a freelance bookkeeper’s business. Systems create structure that support your business and revolutionize the way you deliver your services. Check out The Power of Systems for the absolutely crucial systems that any profitable freelance bookkeeping business must have.
How are you invoicing your clients? Do you charge a flat rate or an hourly rate? What is the hourly rate that you are charging?
I am not a fan of trading dollars for hours which is why I charge a flat rate retainer for clients in ongoing support (maintenance.) When you charge by the hour, you don’t get paid if you aren’t working and you are opening yourself up to client’s “negotiating” your invoice if they feel you’ve spent too much time that month.
Check out the category Pricing Services on my blog for more articles and tips on how to price and package your services.