The $72,000 Leak: How Scope Creep Silently Bankrupts Fixed-Fee Firms

I want to walk through a specific calculation. Not a hypothetical. An actual exercise I conducted with a firm owner named Marcus who ran a twelve-person practice focused on small business bookkeeping and tax compliance. Marcus had moved his firm to fixed-fee billing three years earlier and was convinced it was working well. His revenue was up. His clients liked the predictability. He had stopped the awkward “how many hours did that take” conversations.

Then I asked him to do something he had never done: track every minute his team spent on each client for one month and compare it to the fixed fee.

He resisted at first. “That defeats the purpose of fixed fees,” he said. “We price on value, not hours.”

I agreed with the philosophy. But I told him what I tell every firm owner who says that: you can price on value and still measure in hours. Value pricing does not mean ignorance of cost. It means you have chosen to decouple price from cost — but you still need to know the cost to know whether the price is working.

Marcus agreed to the exercise. His team tracked time for thirty days across all 180 active clients.

The results were not what he expected.

The $72,000 Math

Across 180 clients, Marcus’s firm was delivering an average of 4.2 hours per month per client. His fixed fees were based on a budget of 3.1 hours per month per client. The difference — 1.1 hours per client per month — was work his team was performing but the firm was not being paid for.

At the firm’s blended cost of $70 per hour, that was:

1.1 hours x 180 clients x $70 = $13,860 per month in unrecovered cost

But cost is not the right frame. The right frame is revenue. At Marcus’s average billing rate of $95 per hour, the same calculation yields:

1.1 hours x 180 clients x $95 = $18,810 per month in unbilled work

Annualised: $225,720.

Marcus went pale. His entire firm’s profit margin the previous year was $310,000. He was giving away nearly three-quarters of that in untracked scope creep.

Now, Marcus’s case was on the extreme end. Not every firm has a 35% overrun. But the phenomenon is universal. When I repeated this exercise across a dozen firms over the following eighteen months, the average overrun on fixed-fee engagements was 15-22%. And the firm that discovered the $6,000 per month figure — $72,000 per year — was a firm that considered itself well-managed.

Where the Money Actually Goes

Scope creep in accounting is not dramatic. Nobody walks in and says, “Please do an extra $72,000 of work for free.” It happens in increments so small that no individual instance feels worth pushing back on.

Here are the categories I see most often, ranked by how much they typically contribute to the total:

1. Ad hoc advisory (35-40% of scope creep). The client calls with a “quick question” about whether they should lease or buy a vehicle. The bookkeeper spends fifteen minutes researching the FBT implications and writes a two-paragraph email. The client asks a follow-up question. Another ten minutes. This happens twice a month. Twenty-five minutes per month, unbilled, across sixty clients who call with “quick questions” — that alone is twenty-five hours per month of advisory work delivered for free.

2. Scope expansion through complexity growth (25-30%). The client starts the year with one entity and one bank account. By March, they have formed a trust, opened three more bank accounts, started paying contractors, and are asking about GST grouping. The engagement letter covers “monthly bookkeeping for ABC Pty Ltd.” It says nothing about the trust, the additional accounts, or the contractor payments. But the bookkeeper is handling all of it because it arrived incrementally and nobody stopped to say, “This is now a different engagement.”

3. Error correction and rework from client data quality (15-20%). The client sends receipts with no descriptions. Invoices are missing. Bank transactions cannot be categorised because the client cannot explain what they were for. The bookkeeper spends an hour each month detective-working through transactions that should have taken ten minutes. This is scope creep by client negligence, and firms almost never bill for it.

4. Year-end and tax adjustments beyond the engagement (10-15%). The bookkeeping engagement covers monthly reconciliation and BAS preparation. But at year end, the client expects their accountant to prepare depreciation schedules, calculate provisions, process journal entries for prepayments and accruals, and generate the financial statements ready for tax lodgement. Some of this is in scope. Much of it is not. But it all gets done, and the fee does not change.

Why Firms Do Not Push Back

The reason scope creep persists is not ignorance. Every partner I have worked with knows it happens. The reason is discomfort.

Accounting is a relationship profession. Clients are not one-time transactions — they are long-term relationships that span years or decades. Telling a client that their “quick question” will cost $150 feels like nickel-and-diming someone you have known for ten years. Telling them that their new trust is not covered by their existing engagement feels adversarial. Writing down someone’s work on an invoice feels punitive.

So the default behaviour is to absorb the cost. The partner tells themselves it is an investment in the relationship. The staff member tells themselves the partner would want them to help the client. And the firm slowly bleeds margin while everyone remains polite.

This is a systems problem, not a people problem. You cannot solve it by telling your team to “push back more.” They will not, and you would not either if you were in their position. The solution is to build a system that makes scope boundaries visible and manageable before the work is performed, so the conversation is not “I did this work and now I am charging you for it” but “this would be additional work — would you like me to proceed?”

The ROI Calculation: What Recovery Looks Like

Let me walk through the math for a firm similar to Marcus’s — twelve staff, 180 clients, predominantly fixed-fee.

Current state:

• Average fixed fee per client: $950/month
• Average actual cost to serve per client: $840/month (12 hours x $70 blended rate)
• Gross margin: $110/client/month (11.6%)

That margin is dangerously thin. One bad month, one staff member leaving, one complex client issue, and the engagement is underwater.

After scope enforcement:

• Budgeted hours per client: 10 hours/month (matching the $950 fee at $95/hour)
• Actual hours after scope enforcement: 10.5 hours/month (some overrun is inevitable)
• Actual cost to serve: $735/month
• Gross margin: $215/client/month (22.6%)

That is a margin improvement of $105 per client per month. Across 180 clients:

$105 x 180 clients x 12 months = $226,800 in annual margin recovery.

But there is more. Of the 1.1 hours per client per month that was previously delivered free, a portion will convert to billed work. Not all of it — some clients will decline additional services and you will simply stop performing them. But in my experience, 30-50% of previously free work converts to paid work when you offer it explicitly as an add-on rather than absorbing it silently.

Assuming 40% conversion at $95/hour:

1.1 hours x 180 clients x 40% x $95 = $7,524/month = $90,288 per year in new revenue.

The combined impact — margin recovery plus new revenue — exceeds $300,000 per year for a firm of this size. That is not a rounding error. That is the difference between a firm that breaks even and a firm that is genuinely profitable.

Building the Detection System

Scope creep cannot be prevented if it cannot be seen. And in most firms, it is invisible until someone does the exercise Marcus did — tracking actual time against budgeted time, which nobody wants to do on an ongoing basis.

Automation solves this by making the comparison continuous and automatic. Here is the system:

Layer 1: Budget tracking. Every engagement has a monthly hour budget derived from the fixed fee and the target effective rate. As team members log time, the system calculates utilisation as a percentage of budget. At 80%, the engagement owner receives an alert. At 100%, a second alert goes out. At 120%, the partner is notified.

Layer 2: Request pattern detection. Client emails and requests are monitored for patterns that indicate out-of-scope work. Key phrases like “quick question about,” “can you also,” “we just set up a new,” and “we changed our” are flags. When detected, the system tags the email and notifies the engagement owner to assess whether the request falls within or outside the current scope.

Layer 3: Change order workflow. When out-of-scope work is identified — either through budget alerts or request detection — the system generates a draft communication to the client explaining what the additional work entails, what it would cost, and asking for approval before proceeding. This removes the emotional burden from the staff member. They are not “pushing back.” They are following a process.

The Pricing Feedback Loop

Here is the part most articles about scope creep miss: prevention is only half the solution. The other half is using scope creep data to fix your pricing.

If the same ten clients exceed their budget every single month, the problem is not scope creep. The problem is that those engagements are underpriced. Your budget assumption is wrong. Either the client is more complex than you estimated, or your service delivery for that client type takes more hours than your model assumes.

The tracking system I described above creates a feedback loop. Each quarter, you review which engagements exceeded budget and why. Patterns emerge: clients in the construction industry take 30% more time than clients in professional services because their transaction volumes are higher and their documentation is worse. Clients with multiple entities take double the time of single-entity clients, but your pricing only adds 40%.

These insights inform your pricing for the next year. At renewal, you adjust fees to reflect actual cost to serve. Clients who were underpriced get a fee increase that reflects the real value (and real cost) of the service. Clients who were well-priced stay where they are.

Over two to three annual cycles, your pricing converges on reality. Scope creep does not disappear entirely — there will always be edge cases and unusual requests — but the systemic underpricing that accounts for the bulk of the problem gets corrected.

The Uncomfortable Conversation That Gets Easier

I will not pretend that scope management never requires a difficult conversation. It does. Some clients have spent years receiving free advisory work and will be unhappy when it stops.

But in my experience, the vast majority of clients — north of 80% — respond well when the conversation is framed correctly. “We have been reviewing our engagement to make sure we are giving you the best service, and we noticed that several things you rely on us for are not covered by your current plan. We would like to add those services formally so we can guarantee the quality and response time you expect.”

That is a very different conversation from “We have been doing free work for you and we want you to start paying for it.”

The first framing is about service quality and commitment. The second is about money and resentment. The system you build determines which conversation you have. If scope creep is tracked, documented, and addressed proactively, you get the first conversation. If it festers silently for years and then explodes during a profitability review, you get the second.

Scope creep is not a client behaviour problem. It is a measurement and communication problem. Firms that measure actual time against budget, detect out-of-scope requests before the work is performed, and communicate additional costs professionally do not have a scope creep problem. They have a profitable practice where clients pay for the full value they receive — and where the team’s effort is recognised, not silently written off.