Cost of Outsourcing Accounting Services: What to Expect

According to a recent survey by the Association of Accounting Technicians, 42% of businesses reported losing money due to accounting mistakes (dealing with unqualified accountants or tax advisers). Additionally, 25% overpaid taxes and 17% missed tax deadlines.

The most obvious solution for such businesses would be hiring top talent for the role. However, this is unsustainable for most businesses, considering senior accounts and CFOs command annual wages of up to $122,665 and $283,272, respectively.

A more tenable solution?

Outsourcing accounting services to help you handle bookkeeping, tax preparation, and financial planning, without hiring the skills in-house.

This guide covers what to know about outsourcing accounting services, including factors affecting outsourcing costs, the impact of pricing models on outsourcing budgets, how to calculate an outsourcing budget, and how to measure ROI from accounting outsourcing.

TL;DR – Cost of Outsourcing Accounting Services

Here’s a quick overview of what we discuss in the article:

• Outsourcing accounting services typically costs a fraction of maintaining an in-house accountant. You may experience cost savings of between 20% – 60%.
• Accounting services firms often use different pricing models to charge businesses. The most common types of pricing models are: hourly pricing, fixed monthly pricing, transaction-based pricing, full-time equivalent (FTE) model, project-based pricing, and performance-based pricing.
• The average monthly costs of hiring an accounting services firm can range from $500 for basic bookkeeping and tax preparation to as much as $15,000 for fractional CFO services.

Keep reading for an in-depth review of outsourced accounting services, so you know what to expect when partnering with an accounting agency.

Key Factors That Affect the Cost of Outsourcing Accounting Services

The cost of outsourced accounting services primarily depends on your business needs. These include:

• Scope of Services: Most accounting services offer the option to handle specific tasks, such as accounting and bookkeeping, bank reconciliations, payroll processing, tax preparation and filing, and financial reporting. Basic accounting services often cost significantly less, while costs increase as you transition to business process outsourcing, where firms handle most, if not all, your accounting tasks.
• Volume of Transactions: Accounting services providers often price their services based on your organization’s transaction volume. If the firm processes 100 transactions per month for your business, you will pay less than if the firm were handling over 10,000 transactions during the same period. However, the cost difference may not be proportional due to bulk service discounts.
• Task Complexity: Accounting firms often charge more for services that need niche-specific expertise. For example, tasks involving multi-entity structures, international operations, industry regulations, and manufacturing tax services often incur higher outsourcing costs.
• Level of Expertise Needed: Some tasks require the involvement of CPAs and chartered accountants or CFO-level guidance, while an entry-level bookkeeper can handle others. Therefore, you will be charged depending on the seniority and qualifications of the consultant required to complete the tasks, with senior-level consultants charging more.
• Contract Terms: It is common practice for accounting services firms to charge a lower monthly rate for long-term contracts compared to short-term or one-off requests.
• Pricing Models: Accounting firms use several pricing models. They include the subscription or fixed-price model, in which you pay a predetermined rate for a defined set of services, and the hourly-rate model, in which you pay based on the time spent on your tasks. Lastly, the transaction-based model is a sliding scale that increases costs with the number of transactions.

How Do Pricing Models Impact Your Outsourcing Budget

You must understand the available pricing models, as they will help you choose the most cost-effective approach for your business.

Below is a description of several pricing models and how they can impact your outsourcing budget:

• Hourly Pricing Model: The agency charges an hourly rate for the time spent handling your accounting tasks. This model provides flexibility, making it ideal for short-term or ad hoc projects. You can also apply it to projects with evolving requirements. However, the model requires strict oversight to prevent your monthly costs from spiralling out of control.

• Fixed Monthly Pricing Model: In this arrangement, you pay a flat monthly fee for a defined set of services. It is ideal for projects with well-defined, non-evolving requirements. This approach also offers cost certainty, making budgeting significantly easier and reducing the risk of cost overruns. However, this means you risk paying for unused capacity and forfeiting flexibility, which can be disadvantageous if the scope of your project changes.
• Transaction-Based Pricing: In this model, the cost of outsourcing aligns directly with business volume. This means that as your business grows and transaction volume increases, your outsourcing costs will increase as well. It is ideal for fluctuating, high-volume workloads, where transactions can vary from one month to the next. However, transaction volatility can make budgeting for outsourcing challenging.
• Full-Time Equivalent (FTE) Model: In this model, you can hire a dedicated accountant or a dedicated team of accountants that works solely on your projects. You will pay the accountant or the team a monthly fee that is similar to a salary. This model is ideal for growing firms because it offers consistent, steady support at a fixed cost, making budgeting simpler. However, it is not a flexible model, meaning you will have to pay the same rates regardless of workload fluctuations.
• Project-Based Pricing: This model is ideal for one-off projects such as an audit, system migration, or tax preparation. The payment is often a one-time, agreed-upon fee. The model offers a clear scope of what you should expect and a fixed cost that doesn’t complicate budgeting.
• Performance-Based Pricing: In this pricing model, the fee you pay is tied to the results your accounting firm delivers. For example, it could be a percentage of the tax savings the firm achieves. It is an ideal model for high-impact services, such as CFO advisory and tax planning. However, it can complicate the budgeting process since payment occurs after the ROI.

What is the Average Cost of Accounting Outsourcing Services?

The cost of accounting outsourcing depends on several factors, including transaction volume, task complexity, pricing model, and business size.

Below are the average price ranges depending on the task:

Note that hourly rates can range from $50 to over $500, depending on the CPA’s expertise and location.

How to Calculate the Right Outsourcing Budget for Your Firm

Calculating the right outsourcing budget for your firm requires a strategic assessment of several factors, including your accounting needs and current in-house costs.

The following steps should help you determine your estimated outsourced accounting expenses:

Step 1: Calculate In-House Costs

Determine your current costs for maintaining an in-house accounting department. That includes human resource costs, such as salaries, benefits, and payroll taxes, as well as operating costs, such as business accounting software licences and leasing office space.

You should also calculate hidden costs, such as inefficiencies caused by incompetent employees.

Step 2: Identify Required Services

Evaluate the accounting department to determine your company’s needs. Your needs can range from basic bookkeeping to fractional CFO services.

It is vital to understand the scope of these needs and to consider factors such as transaction volume, reporting frequency, and growth projections. These will help you effectively negotiate a reasonable pricing structure.

Step 3: Evaluate Pricing Models

Request a transparent pricing breakdown to rule out firms that charge hidden fees that can impact your budget.

Proceed to choosing a pricing model that suits your company’s needs. Examples of pricing models include fixed monthly fees, hourly rates, and project-based fees.

Step 4: Request Detailed Proposals

Ask your outsourcing partner to provide you with a detailed proposal outlining costs and deliverables. The costs should include the monthly pricing breakdown, transition costs, and other non-monthly costs.

Tip: The deliverables and penalties for non-performance should be outlined, ideally in a Service Level Agreement (SLA).

Step 5: Consider Setup Costs

Account for non-monthly and one-time fees in your budget allocations. An example of such costs is onboarding, which includes tasks such as data migration and software setup.

Some outsourcing firms will also charge a software licensing fee for providing you with access to modern, cloud-based accounting solutions.

Step 6: Compare Cost vs. Value and Calculate ROI

Ensure the outsourcing firm’s pricing is justifiable. For example, evaluate their accuracy, turnaround time, compliance expertise, scalability, and communication quality. You should also calculate the ROI to ensure your budget is feasible.

Use the following formula:

ROI = (In-house Costs – Outsourcing Costs)/ Outsourcing Costs * 100

Not sure how to estimate the cost of outsourcing accounting services for your business or the expected ROI? Engage one of our experts.

CDH caters to businesses struggling to manage financial complexities across their subsidiaries or experiencing compliance and risk pressures due to changing tax regulations.

Our team offers integrated finance and technology expertise to give you full transparency into your accounting books. Additionally, we offer long-term partnership models for businesses that need ongoing support.

Speak with a CDH expert today to discover how much it would cost to outsource accounting services.

How to Measure ROI From Accounting Outsourcing

One of the primary reasons for outsourcing accounting tasks is cost savings. However, that is not the only benefit of outsourcing.

Below are some ways of measuring the ROI from accounting outsourcing:

• Direct Cost Savings: Compare the costs of hiring and maintaining an in-house accounting team versus outsourcing accounting services. For example, if hiring an accountant costs $90,000 annually in salary, payroll taxes, and benefits, while outsourcing costs $45,000 annually, you save $45,000 by outsourcing.
• Productivity Gains: Effective outsourcing should free up your employees to focus on client acquisition, advisory services, and revenue-generating activities. You should see such a difference, for example, in faster project turnaround times after outsourcing accounting services.
• Errors and Compliance Risks: Outsourcing accounting tasks should significantly reduce the error rates at your organization. This also reduces compliance risks that can result in fines and penalties, thus preventing further losses.

Tips to Choose the Right Accounting Outsourcing Partner

The accounting services you choose should complement your workflows and make your operations more efficient so that you can focus on core business functions.

Observe the following best practices when considering the accounting firm to hire:

• Verify Industry Experience: Ensure the accounting partner you choose has relevant industry experience to help you navigate sector-specific compliance and reporting standards. Look for certifications such as CPA or ACCA, and request a portfolio of companies they have worked with as proof of experience.
• Technological Expertise: Assess the partners’ proficiency with modern accounting tools such as Sage Intacct and FreshBooks. You should also ensure their accounting systems are compatible with your company’s systems.
• Check Security Standards: Ensure the accounting service has robust data protection protocols to safeguard your data against leaks and breaches. Ask about data encryption protocols and seek certifications indicating compliance with relevant regulations, such as GDPR.
• Review Client Testimonials: Request references and case studies of other businesses the accounting partner has worked with. Then, contact the references to determine the partner’s work ethic, dependability, and professionalism.
• Evaluate Communication: Select a partner who understands your communication needs, whether it is weekly, monthly, or quarterly updates. You should also establish clear communication channels, especially where your business and the accounting service operate in different time zones.

Frequently Asked Questions (FAQs)

Below are answers to common questions about the cost of outsourcing accounting services:

What Accounting Services Can Firms Outsource?

You can outsource a wide range of accounting services to improve efficiency and reduce costs.

The most common services firms outsource include bookkeeping, accounts payable and accounts receivable management, tax preparation, payroll management, and CFO advisory services, among others.

What is Included In the Cost of Outsourced Accounting Services?

Typically, an accounting outsourcing service will charge you to cover employee costs, software usage, compliance support, account reconciliation, and financial reporting.

Are There Hidden Fees in Outsourced Accounting Contracts?

Sometimes. You may incur hidden fees when outsourcing accounting services, such as onboarding costs, software integration costs, and processing fees.

However, a reputable firm will include such costs clearly in its pricing breakdown.

Is Outsourcing Accounting Services Cost-Effective for Small Firms?

Yes. Outsourcing accounting services is very cost-effective, especially for small businesses that cannot afford an in-house accountant or companies that experience frequent workload fluctuations.

Conclusion

Outsourcing accounting services is an excellent solution, especially for small and medium-sized businesses looking for operational efficiency and scalability. However, the focus shouldn’t be solely on outsourcing your accounting needs, but also on finding a firm that complements your workflows.

At CDH, we offer a full-service advisory approach, including integrated accounting, tax, audit, and advisory services to help our clients reduce risk and scale sustainably.

Additionally, our team has deep industry experience across multiple sectors, making our services ideal even for companies with subsidiaries across various markets and niches.

Schedule a call with an advisor today to discover how our outsourced accounting services can help you reduce your compliance and risk pressure.