You choose between time & materials and fixed-fee pricing, and that decision can make or break your 990 audit practice's profitability and client satisfaction. Most audit firms default to whichever model their competitors use—but the right choice depends on your firm's maturity, client base, and risk tolerance. This guide walks you through both models with the specifics you need to build pricing that scales.
Time & Materials: The Flexibility Trade-Off
Under time & materials (T&M), you bill clients hourly or daily rates for actual work performed plus out-of-pocket expenses. For 990 audits, this typically means charging $150–$400 per hour depending on your experience level, location, and staff seniority, with senior partners billing higher and entry-level staff billing lower.
The appeal is obvious: scope creep doesn't kill your margin. If a nonprofit's accounting records are messier than disclosed, you invoice for the extra time. If the organization grows mid-year and the financials become more complex, that complexity is billable.
The real risks with T&M:
- Clients hate uncertainty. Nonprofits work from annual budgets and need cost predictability. A $8,000 estimate that lands at $12,500 breeds complaints and referral damage.
- You're incentivized to work slowly, not efficiently. Over time, this kills your reputation for delivering quick turnarounds.
- Cash flow becomes harder to forecast. You don't know revenue per engagement until the work is done.
T&M works best when you're onboarding new clients or handling one-off complex audits where the scope is genuinely unknowable upfront.
Fixed-Fee Pricing: The Margin Control Model
Fixed-fee pricing means you quote a single price upfront—say, $6,500 for a Form 990-N compilation, $12,000 for a 990-EZ audit, or $18,000+ for a full 990 audit with single-audit act compliance work.
You nail down the scope in writing: what's included (fieldwork, management letter, tax adjustments, restatements), what triggers additional fees (out-of-scope items like forensic reviews or fraud investigations), and your assumptions (clean records, timely documentation, no significant control deficiencies).
Fixed-fee advantages:
- Clients trust you. No surprises means better satisfaction scores and repeat business.
- You're motivated to systematize and batch work. Efficiency directly improves your margin.
- Revenue is predictable. You can forecast quarterly earnings and plan staffing.
- You win more bids. Nonprofits comparing three proposals pick the one with certainty.
The catch: You absorb the risk of scope creep and discovery. Tight timelines, missing records, or client delays eat into profit.
Blending Both Models
Most growing firms use a hybrid: fixed-fee base with documented carve-outs.
Example structure for a 990 audit:
- Base fee: $15,000 (covers up to 40 hours of partner/manager time, standard fieldwork, clean financials)
- Hourly overage: $200/hour (partner time beyond 40 hours, billed in quarter-hour increments)
- Out-of-scope add-ons: +$2,500 per significant accounting adjustment, +$3,000 per new audit area discovered
- Time-saver credits: Client provides trial balance by specific date = $500 fee reduction
This structure protects margin while giving clients predictability on the core service.
How to Choose
Go fixed-fee if:
- You've completed 10+ audits and know your true time requirements
- Your target market is nonprofits with stable, relatively clean financials
- You want to attract mid-market nonprofits that need budget certainty
- Your firm is mature enough to absorb occasional losses
Stay T&M if:
- You're in year one or two and still calibrating scope
- Your client mix includes highly disorganized nonprofits or crisis audits
- You work with first-time audit organizations where requirements are opaque
- You want zero risk and don't mind slower client acquisition
Use hybrid if:
- You want the best of both: predictability for clients, protection for margins
- You're transitioning from T&M to fixed-fee as you systematize
Implementation Steps
- Audit your last 10 engagements. Track actual hours by phase (planning, fieldwork, reporting, restatement). Calculate your true loaded cost per hour including overhead.
- Set your target margin. 40–50% gross margin is healthy for mid-market firms; 60%+ if you're highly specialized.
- Build a rate card. Differentiate by complexity: simple 990-N compilations at one price, full audits with single-audit act compliance at another.
- Document scope exclusions. Write them into your engagement letter. Clients respect clarity.
- List on Mercoly to reach more nonprofits actively seeking audit firms—platforms like this help you win leads faster and show competing pricing models side by side.
Frequently Asked Questions
Q: Should I charge different rates for 990-N, 990-EZ, and 990 audits? Absolutely. A 990-N compilation might be $1,500–$2,500 fixed, a 990-EZ review $4,000–$7,000, and a full audit $12,000–$25,000 depending on organization size and complexity. Lumping them together leaves money on the table.
Q: How do I handle a nonprofit that drastically underreports work scope in the intake meeting? Build a discovery clause into your engagement letter: if fieldwork reveals scope 25%+ larger than stated, you can either pause and requote, or shift overage hours to T&M billing. Document everything in writing before you start.
Q: Is it better to charge by nonprofit size (revenue) or audit complexity? Charge by complexity and work required. A $2M nonprofit with clean accounting may take 30 hours; a $5M nonprofit in chaos may take 60. Pegging fees to revenue alone leaves you underpriced on efficient clients and overpriced on messy ones.
Start with your last 10 engagements, calculate your true margins, then lock in a pricing structure that matches your firm's stage and risk appetite.