Setup fees: when to charge a one-time onboarding fee

A new client signs, and before any regular work begins, you spend hours on access, accounts, a kickoff and basic set-up. Many agencies absorb that time and never count it. This post shows how to measure what onboarding costs, four ways to recover it, and when a separate setup fee is the better choice.

What a setup fee covers

A setup fee is a one-time charge for work that happens before the regular service starts. It is different from the monthly or project price. Typical items include:

• Access and accounts. Getting logins, permissions and shared folders in place.
• Configuration. Setting up tools, templates and reporting for this client.
• A starting review. Looking at the current state of the work so you can plan it.
• Kickoff. The first meeting, and the notes and next steps that follow.

If you use a client onboarding checklist, every item on it is time you spend on a new client.

Count what onboarding costs

Do not guess. Look at your last three new clients and add up the hours you spent before regular work started.

Say the totals were 5, 6 and 7 hours. The average is (5 + 6 + 7) / 3 = 6 hours. At $100 an hour, that is 6 x 100 = $600 of onboarding time per new client.

Now put it on a yearly scale. If you take on 16 new clients a year, that is 16 x 600 = $9,600 of time spent and not charged for. These figures are examples. Use your own hours and your own rate.

See the effect on your rate

Here is how an unpaid setup changes the first month. Say a client pays $2,000 a month for 20 hours of regular work, which is $100 an hour. In the first month you also spend 6 hours on onboarding.

You work 20 + 6 = 26 hours for $2,000. Your effective rate that month is 2,000 / 26 = about $77 an hour, below the $100 you aim for.

With a $600 setup fee, the first month brings in 2,000 + 600 = $2,600 for 26 hours. That is 2,600 / 26 = $100 an hour. The fee brings the month back to your target rate. To check the $100 rate itself, see how to set your agency's hourly rate.

Four ways to cover the cost

1. A separate setup fee. You list it as its own line on the proposal and invoice it before kickoff. It is clear, and it recovers the full $600 at the start.

2. Built into the first invoice. You do not name it as a fee. The first month is simply priced higher. It is simple, but the client may not see why the first invoice differs.

3. Spread across the monthly price. You add a small amount to each month. Over 12 months, $600 is 600 / 12 = $50 a month. The risk is early departure. If the client leaves after 4 months, you have recovered 4 x 50 = $200 of the $600, which leaves a shortfall of $400.

4. Waived for a longer commitment. You charge the fee for month-to-month clients and waive it if they sign for a longer term. This turns the fee into a reason to commit. The trade-off is that you give up the money, so be sure the longer term is worth it.

No option suits every business. A separate fee is the safest for you. Spreading the cost is the friendliest for the client, and carries the most risk if clients leave early.

When not to charge one

A setup fee is not always right. Consider skipping it when:

• The job is small and one-off. Onboarding is a small share of a short project, so build it into the price.
• The work is tiny. A fee larger than the first job puts people off.
• Your onboarding is minimal. If setup really takes thirty minutes, a fee is hard to justify.

If a fee would cause you to lose good clients, use option 2 or 3 instead and price the cost in.

How to present it

A fee feels fair when the client understands what it pays for. Do three things in the proposal:

• Name what it covers. List the setup tasks in a few lines.
• Give a fixed amount. Avoid a vague "setup costs may apply".
• State when it is due. Ask for payment before kickoff, so you do not have to chase it later. If a payment does run late, how to chase late invoices without damaging the relationship covers how to follow up without harming the relationship.

Raise the fee early, on your first call or in the proposal, not after the client has agreed to everything else. Discovery call: 12 questions that save you from bad projects helps you cover scope and budget in that first conversation.

This post is general information, not legal or tax advice. Have a qualified person review the wording of any fee clause.

Choose it with your pricing model

The right approach also depends on how you charge for the main work. A retainer, a fixed price and an hourly arrangement each handle onboarding differently. Hourly, fixed fee or retainer: how to choose a pricing model explains the options. With a fixed price, the setup is usually inside the price. With a retainer, a separate fee is common.

Track onboarding time

You can only set a fair fee if you know the hours. Log onboarding as its own category for every new client, and review the average each quarter.

HireOrSell can record time against projects and mark it billable or non-billable on its paid plans, which makes the average easy to read. Check the pricing page for current plan details. A simple spreadsheet works too.

Next step

Add up the onboarding hours for your last three clients and multiply the average by your rate. Choose one of the four options, and add the setup line to your next proposal. Review the real onboarding time after the next two clients, and adjust the fee.