How central is pricing to the shift to cloud accounting? Is a move to monthly fees necessary to maintain profitability?
The short answer: yes, pricing is central to profitability, but if you do it the wrong way you could lose money instead.
Intuit, maker of QuickBooks Online, is bullish on services sold by subscription. Pricing is one of three key factors an Intuit campaign claims are essential to creating the “Firm of the Future”. (The other two are promotion through social channels and the shift to advisory services.)
Accounting software vendors all seem to agree that bundling standard compliance service into a monthly fee is the best way to benefit from more efficient compliance software.
The reason for this is pretty straightforward. There’s a continuous avalanche of technology reducing the time to produce a tax return. If you’re charging hourly rates then your revenue will fall.
If you fix your service at a monthly rate then faster processes improve your margins.
Even if you accept the argument, implementing subscription services is not as simple as it seems. Rushing out a fixed-fee policy can actually hurt margins, says UK pricing expert Mark Wickersham, who spoke at Intuit’s Firm of the Future event in Sydney last week.
Firms that set a single fee for a tax-return bundle loses money in two ways. Customers who can’t afford the advertised fee will walk away. Customers who would have happily paid more will pay the lower fee instead.
Instead, each fee should be negotiated according to the value the customer sees in it, says Wickersham, a former accountant himself. This is sometimes referred to as value pricing.
Wickersham was pretty harsh on hourly rates. He referred to accountants who used them as “stupid accountants”. I think there will always be side jobs that pop up – such as investigating an M&A opportunity – that are easier to charge a one-off fee or even hourly rate rather than rework a subscription to cover it.
Wickersham’s entertaining presentation reminded me of a recent discussion among long-term Xero partners about whether to keep advertising their fixed fees. While Xero has signed up several thousand accounting and bookkeeping partners, only a fraction advertise fixed fees.
In fact, the fees advertised often turn out to be indicative anyway. In my experience the final price reflects the number of bank accounts that have to be reconciled, whether meetings are included, etc.
The one glaring exception to Wickersham’s advice comes from a deeply surprising corner – KPMG UK. It advertises fixed fees and solves the first problem (affordability) by making them so low that no customer would reject it.
Compliance for a sole trader starts at £149 a month. The package includes unlimited phone time with a KPMG accountant, all payroll, all bank rec, and so on. It’s a hugely generous package that many small businesses would find difficult to refuse.
Broadening the number of customers on its books translates to an enormous upsell opportunity. As one of the Big Four KPMG has a much deeper bench of services than other firms. It can offer assistance to expand overseas, merge and acquire another company, complex tax schemes, wealth management, and so on.
(For more information about how the Big Four are using the cloud to take on SMEs, see the Macpherson Report.)
I asked Nicolette Maury, Intuit’s Australian managing director, to explain the Firm of the Future concept. You can listen to the interview below.
Image credit: Mark Wickersham presentation