When delivering a service, product or solution many businesses may offer a fixed fee. This makes it easy for the customer to understand how much they need to budget, and the service provider knows how much money they will receive.
Fixed Fee Scenario
Amelie would like a new kitchen, however she has fixed budget of £10,000. Luckily Gorgeous Kitchens Ltd sell and install kitchens, and Amelie really likes some of the designs. Sam from Gorgeous Kitchens Ltd presents some options to Amelie and she chooses the option that she likes that is within her budget. She places an order, and within 6 weeks she has the kitchen that she wanted. Everyone is happy.
Benefits for Customer
Know how much they are going to pay
Don’t have to pay more if the service provider hits a snag, as long as it is in scope
Risks for Customer
Need to ensure they understand exactly what is in scope, so that the fixed fee doesn’t start climbing if they request something that wasn’t in the detail
Job is rushed and corners cut if the contractor is losing money on elements of the job and they try to recoup from this project
Ask for a detailed plan of works, so that you can see clearly what is in or out of scope
Ask for costs of optional items, so that you can ensure you won’t be stung if you alter your specification
Be clear that you don’t want any out of scope items unless price has been agreed beforehand
Ensure that the quality of the finished job is agreed
Service Provider’s Perspective
Benefits for Service Provider
You have agreement from the customer that the will pay the price, so you don’t risk haggling or arguing over the final price.
You can budget your price to ensure that you build in sufficient margin.
Risks for Service Provider
If prices of products or labour go up you risk losing some or all of your profit.
Need to ensure everything works to or under plan/timescales to keep your profit.
Service Provider Tips
If there are too many unknowns in the project, don’t agree to a fixed fee
Build in a contingency
Learn from experience and tweak your pricing model as appropriate
Document the full solution agreed, and be clear about what is in or out of scope
Notify the customer of out of scope items before providing them.
Goringe Accountants – Fixed Fees
We believe that fixed fees are essential for the majority of our clients, as it enables our clients to budget for a known cost, and know what they are signing up for.
For certain projects however, we still work on a time basis. For example, bookkeeping can vary dramatically from month to month, so for growing or sporadic businesses we bill on an hourly basis. However, we still give estimates, and notify clients before exceeding estimates so that the client is still in control.
For complex projects, such as acquisitions or mergers we also bill via an hourly basis, again with a detailed estimate beforehand.
Fortunately for our clients, we are extremely experienced in the usual annual requirements of businesses. Therefore we confidently provide fixed fees to our clients; that we stick to.
Typical Limited Company Fixed Fee
We would discuss with the client their requirements and then list in their letter of engagement everything that we have agreed to do, e.g.
Corporation Tax Return
Annual returns to Companies House
Director’s personal tax returns
Payroll for the company
Review of quarterly VAT returns
Regular Business Reviews
Telephone and email questions as required
We would then be clear that the following are out of scope:
If you would like to discuss how to introduce fixed fees into your business, and establish whether they could work for you, please contact us.
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