Question: What are your typical fees?
Answer: Although ranges can be given or simply an hourly rate charged, most clients prefer to budget and to understand their exposure for professional charges. An hourly rate oftentimes is quoted because it is tough for a professional services firm to represent the value of knowledge and experience of its staff. The problem with using an hourly billing rate though is that the client isn’t safeguarded against the firm’s inefficiency or the inefficiency of the company itself. Many companies would prefer to complete recommended clean-up or other ground level work that can be done easily themselves instead of paying a professional rate for “after the fact” corrective action.
At Dearborn LaSalle Advisors (DLA) we focus on value billing. It’s evidenced in everything from our tax preparation fees to our CFO Outsource contracts. This generally means that hourly rates don’t apply. Instead, the engagement attempts to forecast the amount of expected hours and then applies a standard bell curve of estimation risk. We then choose the median amount of time in order to determine the amount charged for the mix of hours expected from the various staff levels. This is more art than science, and requires the firm to absorb risk on behalf of the client. At DLA we then try to arrange multi-year engagements because there is typically overruns in the initial year as Client and Firm “get to know each other” as well as workpapers, support structure, and communication efforts that are higher in the initial year versus a typical recurring year.
Fees also take into account the relative size of the business, the reasons for the workproduct (compliance versus internal use), whether a company could be subject to litigation, the industry, and whether the firm has all of the required expertise within the organization. If possible, an analysis of the internal control environment, the accuracy and organization of existing information, and the qualitative assessment of long term client value, ratio performance, related party transactions, etc are then considered. A client’s ability to pay and the relative cost of these items compared to their gross revenue and profits are also items that should be considered much the same as one would evaluate the salary to offer a new hire – smaller companies just can’t pay as much as the big companies.
Our approach is to always perform a Requirements Study – which is a fancy phrase for saying that we should meet with the client, assess the current situation and needs, discuss options and alternatives, and then provide an estimate of the work to be performed. That estimate is typically then the basis for any engagement letter or consulting agreement. Doing this effort early on usually prevents surprises and frustration on the part of both Client and Firm.
