Why Compliance Work Is Less Profitable Than It Looks

Why the number looks wrong

Software is often where the gap sits. Costs get folded into the fee when it is set and never adjusted when Xero raises its prices, when a client moves plan, or when a new tool joins the stack.

The fee stays the same. The costs underneath it keep moving. Over time the gap widens, and what looked like a comfortable margin at the start of the year becomes a thin one by year end.

The structure of the fee is the problem. Until software costs are separated from the service fee, every vendor price increase becomes a margin decision made by default.

How to separate software from service fees

The fix is to take software costs out of the service fee and bill them separately.

This does not require renegotiating every client agreement at once. For new clients, it is simply how the engagement is set up from the start. For existing clients, the next fee review is the natural moment to separate the two.

The service fee covers the firm's work. Software costs are billed separately at the same rate the client would pay the vendor directly, with the firm keeping control of any partner discount or margin. When software is billed separately, vendor price increases pass through automatically. There is no project to manage, no conversation needed every time a vendor moves, and no margin to absorb. The fee the firm charges for its work is not touched by decisions Xero or Dext makes about their pricing.

Once agreements are in place, the firm does not need to go back to the client every time a new tool is added or a vendor changes their pricing. The agreement covers it.

What changes when you do

Visibility changes first. When software costs are tracked separately, the true cost of serving each client becomes clear. Compliance work that looked profitable on time alone looks very different once the software is billed correctly.

Margin changes too. When software passes through to clients rather than sitting inside the service fee, it stops eroding the firm's profitability each time a vendor updates their pricing.

The client conversation changes as well. When software appears as a separate line, clients see what they are paying for. Price increases from vendors become a vendor decision, not a firm decision. Clients understand that. It removes the awkwardness from what would otherwise be a difficult discussion whenever a vendor moves.

Final thoughts

Bundling software into service fees made sense when software costs were small and stable. They are neither now. Vendors raise prices regularly, clients move plans, and the gap between what a firm pays and what it recovers grows without anyone noticing.

Separating software from service fees is a one-time setup. Once it is in place, compliance work shows up at its actual margin, and price increases stop being absorbed by default.