The CPA firm's business model has been "effort determining value" for decades, but now we have to look for a more subjective model of value that allows for various levels of services.
What is Subscription Pricing?
In the subscription-based pricing model, customers pay on a regular basis for a service or product. Subscription pricing differs from traditional product pricing in that it is frequently based on the length of the subscription, with longer subscriptions being the cheapest option.
Subscription revenue is central to the DNA of SaaS companies. This model is no longer monopolized by gym memberships, satellite television, and mobile phone contracts. Microsoft products and Quickbooks have also shifted to subscription pricing. The rule to implement subscription-based pricing are:
If the customer is here to stay,
And services required are recurring.
Accountants' services stand true to both the tests mentioned above! And Technology is the main driving force behind the Implementation of Subscription-based pricing! Let’s look at some of the benefits of Subscription-based pricing!
Removes Ambiguity or Assumption of Services.
Differentiate Each Service Level.
Scalability and Replicability
Easy Budget for Client.
However, be cautious when implementing subscription-based pricing. Sometimes you price it too low, and you end up giving everything away for free, and your margins shrink!
Technology is driving the need for subscription billing because it has rendered several steps in the delivery of bookkeeping services obsolete or ineffective. Take into account bank reconciliations and coding. That service used to take a lot of time and effort. However, most businesses now digitally capture and code bank transactions.
Reconciling bank accounts takes little time or effort, and the service is not valuable. Tax preparation and audit sampling are following in the footsteps of technology, which is destroying the old business model for many CPA firms.
Collecting fees is difficult because invoices often do not reach the client until the firm has completed the work, and the invoice may be higher than the client expected. Most professionals have worked on a project that required more hours or effort than was initially quoted, and they had to figure out how to add those extra hours to the bill. Rather than charging clients after the work is completed, why not charge a flat monthly fee that covers all of your work for the entire year? In other words, offer your customers a subscription.
How to Get Started?
Firms that charge their services per hour often react to customer problems rather than address their needs proactively. The reason is that when a client would like to advise you, they don't know if their problem is a 15-minute problem or a 15-hour problem.
No matter how often you remind clients to call you before they make any major moves, they inevitably inform you of significant transactions after the fact. As Ed Kless, Senior Director of Partner Development and Strategy at Sage has mentioned, subscription pricing removes that perceived barrier to contacting you. Instead of putting out fires, you offer fire prevention, he says.
Among firms that have been hesitant to transition to fixed-fee pricing, one of their main fears is agreeing to a fee, then winding up doing more work than initially agreed upon. With subscription pricing, instead of setting a flat fee and then dealing with scope creep, you establish levels of service and let the client decide what they want.
Step1: Service Levels Should Be Created
According to behavioral pricing research, having three options makes it easy for clients to understand, and it also anchors the conversation around the middle level rather than encouraging the cheapest option. Begin by considering the various levels of service you can provide to your clients.
Continue down the line, making a list of all the services you currently offer as well as those you don't but would like to and are capable of delivering now. Avoid including "fluff" that does not add value to your client's experience.
Step 2: Set the Price
Not every client wants or needs the best-level service. Some are happy with good service. The key is, you’re not providing the best-level service at a good-level price.
- Always keep your leverage. Before the work is completed, set a price.
- Lowering the price requires no talent, but increasing the value requires talent.
- In most cases, pricing quickly results in a lower price. Create a well-thought-out pricing strategy. Plan out the scope.
- Low prices demand low respect.
- The higher up the organizational chart you work with, the less price-sensitive the individual. People at the top do not have the time to investigate all possibilities. They typically have more resources but less time.
- Pricing for value requires confidence and courage.
- The presence of an undesirable option influences the buyer's behavior by allowing them to choose between two desirable options. The concept of “anchor pricing” has a halo effect on other offerings. Offer the most expensive option first, and you'll usually sell more of the middle option.
- A good price is one that is set for the client rather than the service.
- Price competition benefits only the weakest competitors.
- There is no way to value the wrong client.
- When it comes to pricing, not all partners are created equal. Appoint a Chief Pricing Officer or a pricing task force to ensure that pricing is consistent throughout the organization.
Step 3: Implement Pilot test with 10-15 Clients
Reach out to your top 5-10 clients, those you believe will always be loyal to you and measure their reaction.
Step 4: Improvise and Perfect
If anything has to be modified or implemented, get it done. Create three to four service tiers, such as gold, silver, bronze, and platinum, based on the services required by the client.
Step 5 & 6: Communicate in Advance to clients and explain rationale
Communicate with the client ahead of time, transition carefully, and explain the rationale.
Step 7: Expect Some Resistance
There would be some client resistance. Find out the mid-way and solve the challenges and eventually over the period of time, they will transition to our pricing.
MRR (Monthly Recurring Revenue)
Firms must concentrate on achieving and tracking Net New MRR or Net New Monthly Recurring Revenue. This provides a calculation for practices to work with: Net New MRR equals New MRR (new revenue from new customers) plus Expansion MRR (new revenue from existing customers, such as cross-sells and upsells) minus Churned MRR (revenue lost due to customer cancellations, etc.) plus Contraction MRR (revenue lost due to a price decrease) or as a simplified equation
Net (New MRR + Expansion MRR) - (Churned MRR + Contraction MRR) = New MRR
We can also multiply MRR by 12 to get our Annual Run Rate (ARR), which is a simple multiplication of current Net New MRR.
How does Offshore Hiring Fit Here?
Using an offshore/outsourced team for accountants can help you scale your business and implement Subscription-based pricing in your organization. Firms will see significant margin expansion after integrating Offshoring or Outsourced Accounting in their firm, which will allow CPA firms to price services levels more cost-effectively while maintaining good margins. In an idealistic situation, you would package the regular compliance work, assign it to your team, and then go back over it for review purposes only. But first, you should take a look at your team's structure. More work requires the use of more people, which results in a lower profit margin from revenue. So relying solely on building local teams will only limit your MRR. Because talent is valuable, it is becoming increasingly difficult and expensive to find local talented people for Accounting and CPA firms. Accountants and CPA firms have started building their own outsourced accounting team and have started partnering with accounting outsourcing companies. All you have to do is look outside and work with the right partner in accounting outsourcing/offshoring for accountants. While this does not imply that the local team is no longer required. CPA firm outsourcing means building an offshore team at a fraction of the cost of what you would hire locally and support your A-team(Onshore team) to focus on delivering exceptional value to the clients. So your firm's offshore team is intended to assist them with the back end, compliance, and administrative work, allowing your local team to focus on what they do best and more client-facing work. India has was a wonderful ecosystem of building offshore/outsourced teams for accountants, CPA firms, Tax practices.
Entigrity™ is a trusted offshore staffing partner to over 550+ accountants, CPAs, and tax firms across the US and Canada. Our flexible and transparent hiring model helps firms of all sizes hire staff for accounting, bookkeeping, tax preparation, or any other task for 75% less cost. As a firm 'run by accountants, for the accountants', Entigrity captures the hiring needs of accounting firms most precisely, providing staff that works directly under your control and management, still, you are left with least to worry about compliance, payroll taxes, overheads or any other benefits.