Why is a fixed fee described as a "prediction"?

Because when a fee is set, it's really an estimate of how much effort the work will require. If that estimate is accurate, the engagement is profitable. If it's wrong, the firm absorbs the gap — but unlike hourly billing, nothing automatically signals when the prediction misses.

Why don't fixed-fee pricing errors get corrected over time?

Because the feedback loop that normally corrects mispricing — visible losses when a job takes longer than expected — doesn't exist in fixed-fee billing. The fee just gets rolled forward at renewal, often with a routine increase, without ever being checked against actual delivery effort.

How can a firm price fixed fees more accurately?

By tracking actual effort per client and service, then using that data — rather than last year's fee or gut feel — as the basis for the next quote or renewal. That turns pricing from an estimate into a calculation grounded in what the work genuinely requires.

Every Fixed Fee Is a Prediction — Most Are Never Checked

Every fixed fee is a prediction. If you run a small fixed-fee accounting practice in Australia — roughly five to fifteen people — you make dozens of these predictions every year, and most of them are never checked against what actually happened.

What a fixed fee actually is

When you quote a client for their annual compliance work, you're predicting how much effort that work will take. If the prediction is right, the fee is profitable. If the prediction is wrong, the firm absorbs the difference quietly, without it necessarily being flagged anywhere. So the accuracy of that prediction matters enormously — arguably more than almost any other number in the practice.

What most predictions are actually based on

Here's the structural problem. In most fixed-fee practices, the prediction is based on last year's fee, gut feel, what similar firms seem to charge, and what the client is likely to accept. Notice what's conspicuously missing from that list: the actual effort the work took last time. The one piece of information that would make the prediction genuinely accurate is usually the one piece nobody consults.

Why the feedback loop is broken

It gets more interesting from here. In most businesses, a wrong price corrects itself reasonably quickly — price too low, and the losses become visible fast. But in a fixed-fee practice, that feedback loop is broken by design. If the job takes longer than the fee assumed, nothing flags it. The invoice goes out at the agreed amount regardless. The extra hours get absorbed without ceremony. The client is happy, having received good service for the price they expected. The team moves on. And at renewal time, the same fee — the same unchecked prediction — gets rolled forward, often with a small increase applied to a number that may have been wrong to begin with.

Why underpricing tends to repeat, not correct

This is why underpricing in fixed-fee firms isn't usually a one-off mistake. It's a structural pattern. The same clients, mispriced the same way, year after year — not because anyone priced carelessly at the outset, but because the information needed to price accurately, what the work actually took, was never visible when the pricing decision was made, and stays invisible every year the fee gets rolled forward unchecked.

What changes when the prediction becomes a calculation

The firms that price with confidence do something different. They know their cost-to-serve. When you can see the actual effort a client required last year — by service, by entity, by team member — the fee stops being a prediction and becomes a calculation. Repricing conversations become much easier to have, because they're grounded in something real rather than an educated guess dressed up as confidence.

The question worth sitting with

Before the next round of engagement renewals: will your fees be based on what the work actually took last year, or on last year's fee, plus a percentage? For many small practices, it's the second — is that consistent with your experience?