Based on a recent Rechargly webinar, this blog explores how accounting and bookkeeping firms can stop absorbing software costs, work out what to recharge, and keep client billing accurate as the new financial year begins.
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Why You're Quietly Losing Money on Software, and How to Fix It This Financial Year
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Most firms buy software on behalf of their clients. Xero, Class, BGL, Dext, and a long tail of everything else. The buying is easy. Getting paid back for it is where things quietly fall apart.
For most firms, recharging happens in a spreadsheet. That means it does not always happen, and when it does, it is rarely consistent. Prices rise, the recharge does not keep up, and margin walks out the door.
At Rechargly, we recently ran a webinar looking at what firms should recharge, what they might absorb, and why getting this right matters more than it used to. This blog shares the main takeaways.
The quiet cost of absorbing software
When you buy software for a client and do not pass the cost on, you are funding their tools out of your own margin. Even with a partner discount of 10% to 30%, that margin erodes as vendors lift their prices.
And prices do lift. The story firms have been sold for years is that software makes them more efficient. Then vendors introduce variable pricing, and a tool that started cheap climbs 20%, 30%, 50%, sometimes 100%. Xero is the clearest example. In the early days you could buy ledgers for a few dollars. Now a single file can sit at $30, $50 or $100.
Hold that cost on your WIP across a full year, and if the client leaves, you are writing it off. The tool is still needed. The real question is whether the firm or the client should be carrying the cost.
What to recharge and what to absorb
The answer is not always to recharge everything. Some costs you pass on, and some you may choose to keep.
A common approach is to recharge the business plans, the comprehensive subscriptions such as Grow and Ignite, and exclude the ledgers. If you would still like visibility on the ledgers you absorb, you can track that cost back to the job rather than invoice it. You can also decide how much of your partner discount to pass on, right down to the individual client.
Either way, the goal is the same: assess the true cost to serve each client, and make sure the money you outlay actually comes back.
Charge clients on the cadence you are charged
Firms often tell themselves they recoup software costs eventually. The problem is variability. When prices change through the year and you only bill annually, you carry the gap, and you have no reliable way to confirm the money came back.
A cleaner approach is to charge clients on the same cadence the vendor charges you. Most clients are comfortable with direct debit now, so there is little reason to hold these costs on your books all year. Bill monthly, collect monthly, and the cost stops sitting on your WIP waiting to be written off.
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