Take a deep breath for the first time in months. Tax season is over. While many of us in the accounting profession can once again enjoy dinner with our families or make weekend plans, a new worry waits on the sidelines: Is it enough? How can you drive growth?
The answer this year comes in the form of a new business model that promises revenue you can count on every month of the year.
You're familiar with the traditional pricing models for accounting: hourly and fixed-rate. Hourly billing comes with timesheets and hassle, which is why many firms have tried to move away from it. Fixed price reduces the hassle by assigning a flat rate to recurring services. Packages group the services for clients, with many firms offering add-ons. All good, but how do you grow with these models? The answer: Add more clients and do more work.
The new model is called value pricing, a concept introduced by
Subscriptions are game-changers for many other industries. We pay for Netflix, for example, to have access to a library of movies and TV series. As long as we get value out of Netflix, we're happy to continue paying that subscription fee every month.
Now think about Amazon Prime. You pay that subscription fee annually. New features are constantly being added, but the fee doesn't automatically go up. Instead, the pot gets sweeter — so much so that we can't imagine living without access to all the Prime goodies. That's value pricing.
Let's look at what the model means for accounting.
Subscription-based service
Your accounting firm can become the go-to solution to an entire bundle of client problems. Instead of charging for a service package (the fixed price model), firms charge a monthly or quarterly subscription fee to be their clients' go-to accounting service, all included.
It requires moving away from thinking in terms of service packages and hours spent and even distinguishing between different departments within the firm. Instead, you'll become a single-source solution to a variety of needs.
Here's how it works: The client pays a regular subscription for access to you, the accounting experts. Some months, they won't need you very much. You'll do perfunctory things, like payroll. But other months, the client may be audited, and you step in and take care of that. You're charging the client for an ongoing relationship, which becomes naturally more valuable the longer they work with you because you come to better understand their needs and personality. The client is paying for your expertise and for access.
Joining the subscription economy
The same subscription model can be seen in many aspects of our lives. I mentioned entertainment subscriptions, however there are also subscription boxes — for meal ingredients, snacks, toiletry items, clothing, pet food, toys, and more. These subscriptions offer peace of mind. There's no need to stress over what to buy at the wine shop. Just pay for your wine-of-the-month subscription, and four bottles are delivered to your doorstep so you can enjoy a variety curated by your favorite wine expert.
We've even seen subscriptions in medical services. Some practices now offer concierge services with unlimited access to doctor expertise, tests, and clinic services for a monthly fee. It's not a stretch to imagine accounting firms doing the same.
Predictable outcomes, predictable profits
What are the enduring benefits of moving to a subscription-based firm? Predictable costs for your clients and predictable income for your firm. Those who have made the model change show how value pricing also increases profit.
Initially, your firm is more profitable because billing is recurring, and you have baseline cash coming in the door. You also have more touchpoints with recurring services. And there are more opportunities to drive expansion revenue and upgrade service packages — without any acquisition costs associated with it.
Value pricing opens up a new pipeline where firms can be more proactive, offering ever-sweeter services until clients can't imagine how they ever managed without you. Let's say you start by offering a basic package of back-office systems. It includes accounting, bookkeeping, payroll, and tax. Then, you introduce more premium tiers that include cash flow forecasting or tax planning. You're building a better relationship because you have more touchpoints with your subscription service. It's seamless to introduce these product lines as you continue to grow.
Lifetime value
With recurring revenue, firms can project and track the lifetime value of clients. Your clients' lifetime value is already exceptionally high, if you're doing a good job, with many firms holding clients for eight to 10 years on average. Value pricing increases how much clients spend and how long they stay, boosting lifetime value even higher — and giving you super-valuable information about the appropriate spend for new acquisitions.
Knowing how much you can afford to spend to attract new clients is a major competitive advantage. It allows you to invest in marketing and more sophisticated relationship-building tactics to attract and retain your most profitable clients. The insights gained from a subscription model can inform your ambitions, allowing you to be more aggressive in growing your firm, hiring, or introducing new technology.
As your firm slows its pace following tax season, look at value pricing and consider how a subscription to your expertise and services could change the game for your clients and your bottom line.
