Do you charge by the hour?

If you do, it really isn’t the best way of earning money, unless you’re an employee of course.

I’ll tell you why.

What happens if you only want or are able to work 30 hours a week?

Charging by the hour will restrict the amount of money you can earn without going over the hours you want to work.

Let’s flip that and say you want to earn a net profit of £30k, or £35k or £40k.

To move from £30k to £40k you’ll have to work more hours OR put your hourly rate up by 33% (assuming your costs don’t change too), but probably nearer 45% to cover the additional costs and tax.

Now let’s say you charge your fee based on the value you deliver to your customers instead?

Now you can earn more without charging higher hourly rates or working more hours.

I recently came across a bookkeeper who was charging by the hour at £20 per hour.

Assuming she worked 40 hours a week then she would never turnover more than £800 a week or £37600 a year (taking 5 weeks holiday) unless she worked more hours or took on staff.

If her costs were 25% then that’s a pre-tax profit of £28200 and tax would be approximately £5360 (as a Ltd Co.) this leaves her with just £22840 on which she would pay approximately £700 personal tax, meaning her income is now just over £22k.

Let’s say by pricing per job she could earn 30% more for the same work in the same time OR if she improved productivity she could do more work in the same time.

Now her income is £48880, cost remain at 25%, her pretax profit is now £39100 and tax is £7430, take out her personal tax and she’s left with £30175

An increase of 37% for no extra working hours.

NOW will you still be charging by the hour?

At Get Smart Accountants we work with our clients to drive growth and help them achieve their dreams.

If you’d like some advice or support to get your business moving in the right direction, then we’d love to hear from you.

Call Emma or Paul on 01902 212937

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