How to price payroll services

Pricing payroll can be a minefield, especially when payroll providers charge such a variety of rates. However, there are also many factors to consider before settling on your price.   

So here is the FreshPay guide to pricing payroll.  

Don’t think you need to be the cheapest 

When pricing payroll services, one of the most common mistakes of a business new to the industry is to price their services based on what they think the market will bear. Comparing your prices to the accountant down the road is a bad strategy.  As hard as it might be, you need to focus on what it costs you to run payroll and how much profit you want to make.  When you compare yourself to other practices, you never really understand if that practice is running profitable payroll or not.   Even if they charge £20 per month per employee, if they pay their staff more to run the payroll due to inexperience, flawed processes, or high wages, they are not worth copying.

What type of businesses will you work with? 

Who will you be running payroll for?  If you are looking to work with larger companies, you might need to consider economies of scale.  If you are looking after startups, you might need to include a buffer for support.  Likewise, different types of businesses will have different needs.  Some will be more complex than others, so using a checklist or a tool such as GoProposal would help.

Straightforward payroll through to highly complex payroll

Many businesses are pretty straightforward and pay a consistent monthly salary. Still, some businesses have more complex needs, such as various overtime rates, bonus schemes and payrise structures.  This means that there might be slightly more work done each month as the requirements are more complex.  When you understand this in advance, it is easier to structure your fees in accordance rather than having to charge extra or, worse, having payroll as a loss leader. 

Consider how high the staff turnover is 

Consider the staff turnover rates of businesses in that industry. For example, if your clients have seasonal staff changes, then you may end up doing much more work than anticipated.  If it looks like it’s high churn, you might want to offer a lower price per payslip but make additional charges for starters and leavers in the month. 

Have a straightforward process in mind 

It makes sense that part of pricing correctly is about understanding your profit margin.  But that is tough to do if you don’t follow a process and understand what element you will need to do manually and what you can do automatically.  

For example, does your software send your payslips automatically, or is this something you need to do manually?  The more you can automate, the easier it will be for you to make a profit.  *Read Jennie’s blog on how to compare your software costs. >Insert Link< 

Sense check your pricing by monitoring time spent on payroll activities 

This works alongside having a process.  Make sure you or your staff record their time. You don’t have to do this forever but make sure you run this exercise periodically, or when you make a change, for example, you might change the software. 

Clearly communicate your service 

Addressing the scope of work early on is always advisable.  At this stage, you need to let your clients know what is and what is not included in your service.   If additional fees might apply in the future, this is the point it needs to be raised.   Pension setup/payroll re-runs/backlog queries / assessing handover info from a previous provider must be considered before you quote.  It is also worth understanding if the company has HR support or if they will be asking you HR-related questions.  

List of costs and considerations

  • Staff 
  • Equipment 
  • Software 
  • Training 
  • Time spent on queries 
  • Time spent on manual tasks 
  • How much profit do you make on other services 

List of charges 

  • Initial setup costs 
  • Price per employee
  • Additional employee set up
  • Time for advice and queries 

 

Summary 

Remember that this is your business, and try not to compare yourself to others.   Pricing correctly means understanding your profit margin.  If you are not making a profit, the service is not viable, and that is not helpful for you or your clients.    

 

  • If you want to know more about how to make payroll profitable, be sure to download our guide here

 

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