UPDATE: Response from Xero saying it is priced at the lower end of the field once bundled services added to rival products.
OPINION: What is a fair price for accounting software? That question was tested this week when Australia’s most expensive cloud accounting program for small business raised its prices – drawing a furious response.
I doubt Xero would like to be known as the most expensive software, but the fact is the new pricing scheme puts it well above Saasu, QuickBooks Online, MYOB LiveAccounts and AccountRight Live, CCH iBizz and Reckon One. (Xero said it included free features such as automated super payments which cost extra for rival programs, and once taken into account Xero was one of the cheaper options.)
Xero’s response is simple; the software is worth it. Xero has prioritised internet-based services to boost productivity and efficiency ahead of accounting staples such as a proper quoting system. Purchase orders only arrived last week, well after online invoices and payments, online document storage and, for accountants and bookkeepers, uploading of tax forms direct to the Australian Taxation Office.
Xero’s philosophy is to automate the transactional chores in managing a business’ finances so accountants and bookkeepers can provide more valuable services to business owners such as helping them plan ahead. It’s a worthy mission and has clearly struck a chord with Xero’s passionate following of accounting partners.
This week showed that while Xero’s philosophy has underpinned great improvements in accounting software, it still has a long way to go at selling that philosophy to its target market. The flip side of Xero’s message is that business owners should pay for the value of a service – in this case, software – according to its potential to reduce costs and boost cash flow or profits.
Xero believes so strongly in charging for value that in the US it quadrupled the price for businesses with 100 employees – from US$39 a month to US$180 a month (double the price of the Premium 100 plan in Australia). UPDATE: The Premium 100 plan in the US includes payroll which was previously sold separately, hence the much higher price.
Xero contacted BoxFreeIT to say the comparison was unfair. “The previous $39 product and the $180 product are completely different,” said Chris Ridd, Xero’s managing director for Australia. “Up until our pricing announcement, the US product did not include payroll. The new plans announced (along with payroll) also include Direct Deposit to employee bank accounts.”
The same philosophy underpins the move by Xero’s top accountants and bookkeepers from hourly rates to fixed-price packages, set according to the value they can deliver to a business.
But while newer partners are attracted to the software, some have struggled to sell the value message to small business owners who judge everything on cost alone. Some have had to work hard just to get their clients paying every month for their software. Within two years most businesses would have more than paid for a desktop accounting program and just used their bookkeeper or accountant for support.
This is why the price rise has had such a varied response. Accountants further down the path of value billing shrugged their shoulders. But partners newer to the front line, busy trying to absorb this philosophy within their own businesses as well as sell it to their clients, have been caught on the hop.
“I have converted a client who had a big problem with a monthly fee. (I talked her around.) She was on an older version of an accounting program which worked fine for her and her 15-20 casual employees. Now I have to tell her the monthly fee is going up by $21,” wrote Donna, a commenter on Xero’s post announcing the price rise.
“One of her fears was changing everything over and then the price going up. With Christmas coming she will be employing a couple more casual staff, so it will be another $31. I feel sick having to face her with this information,” Donna added.
Xero has to ask itself whether all small businesses will learn to pay for value. The refusal to pay more for a product that could deliver a higher return on investment is one reason why most small businesses stay small.
Xero may be winning converts in droves based on the efficiency of its software. But it may have jumped the gun in its broader mission of convincing small businesses to buy on value and not on price.