How to Implement Subscription Based Pricing For Accounting Firms

I. Introduction

Understanding Subscription-Based Pricing for Accounting Firms

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. 

If there were ever a trending buzzword in the business sector these days, I'd bet my left shoe it's “subscription-based pricing.” Much like free refills at your local diner, a subscription model offers ongoing service for a regular payment. It's like taking a year-long ride on the accounting merry-go-round, where the fun (and the bookkeeping!) never stops.

Why Subscription-Based Pricing is Vital for Accounting Firms

What is subscription-based pricing for accounting firms?

In the subscription-based pricing model, customers pay regularly 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. Gym memberships, satellite television, and mobile phone contracts no longer monopolize this model. Microsoft products and Quickbooks have also shifted to subscription pricing. The rules to implement subscription-based pricing are:

1. If the customer is here to stay.
2. And services required are recurring.

Now, if you're wondering, "Why should my accounting firm make this switch?" here's my take: let's imagine your firm as a lovely fruit tree. With the traditional hourly pricing, each client engagement is a ripe orange: plucked and consumed once. But with subscription pricing, your tree is evergreen, bearing fruits all year round and offering steady nourishment (income) for the firm.

Accountants' services stand true to both the tests mentioned above! And Technology is the main driving force behind the Implementation of accounting subscription services. Let’s look at some of the benefits of Subscription-based pricing!

1. Removes Ambiguity or Assumption of Services.
2. Automated Billing.
3. Differentiate Each Service Level.
4. Scalability and Replicability
5. Transparent Pricing!
6. Easy Budget for Client.

However, be cautious when implementing subscription in accounting. Sometimes, you price it too low and give everything away for free, and your margins shrink!

Differentiating Subscription-based Pricing from Traditional Pricing:

Unlike traditional pricing, which works in bursts like a popcorn machine, accounting subscription services spread income over time, correlating with the continuous, ongoing service provided. It's less about selling individual bottles of accounting magic and more about offering a constant supply of the good stuff.

Why is Building MRR a Key For Your Firm?

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.

II. Evaluating Your Firm and Making the Switch:

1. Assessing Firm's Structure and Preparedness for Subscription Pricing:

Before jumping into the subscription pool, however, verifying whether your firm has the necessary water wings is crucial. This means evaluating the structure of your firm—skills, abilities, resources—and potential ability to navigate the tides of change.

2.  Identifying the Ideal Clients for Subscription-Based Pricing:

Not every dance floor is meant for a breakdance showdown; only some clients will be ready for the subscription model. Ideal candidates will benefit from regular, ongoing services and have the potential for a long-term, mutually beneficial relationship. In short, Implement a 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.

Overcoming Challenges in the Transition from Traditional Pricing:

While a subscription in accounting can offer plenty of benefits like predictability and dependability, the path to transition could have some tricky pebbles. But fear not—with careful planning, firm resolve, and some killer tunes for motivation, no challenge is insurmountable!

III. Key Elements in Implementing Subscription-Based Pricing:

1. Determining the Right Pricing Structure:

Setting up the right pricing structure is a bit like deciding on the perfect pizza toppings—it should cater to client needs while keeping your firm in mind too. There is no one-size-fits-all approach here—some may prefer more traditional toppings like pepperoni, while others might enjoy an adventurous pineapple!

2. Developing Varied Subscription Levels to Cater for Different Client Needs:

Subscription levels are a great way to personalize the services offered, like different flavors of bubble gum. Each client can pick, mix, and match services according to their needs, providing flexibility and addressing varying budget constraints. Create three to four service tiers, such as gold, silver, bronze, and platinum, based on the services required by the client.

3. Making Use of Technology in Managing Subscription Pricing:

No one manually counts coins in a piggy bank anymore, alright? The era of technology we are in allows us to manage subscription pricing efficiently. Embracing technology doesn't just mean chasing the newest shiny gadget—it's about making processes more effective, efficient, and perhaps a little more slick!

 IV. Perfecting the Client's Journey:

1. Educating Clients about the Benefits and Mechanics of Subscription Pricing:

Implementing subscription-based pricing for accounting firms isn't just about the firm's decision—it's about the client's journey too! A successful journey starts with educating clients about the benefits of this pricing model. It's like preparing them for an epic road trip—making sure they have all the necessary information for a smooth ride.

Ensuring the Payment Process is Seamless and Convenient

The payment process should be as easy as skipping through a field of daisies on a warm summer day. It should ensure convenience for the client, be easily managed by the firm, and be as transparent as grandma's antique crystal!

2. Addressing Client Concerns and Ensuring Retention:

While making the transition, clients might have their concerns, much like hesitant swimmers dipping their toes in for the first time. Here, communication is key, and answering any questions will boost client confidence and increase their likelihood of staying on for the long haul.

V. Reviewing & Refining Your Subscription Pricing Model:

1. Regularly Reviewing and Updating your Pricing Model:

A smart move while using Accounting subscription services? Keep a keen eye on the model and refresh it regularly like a minty mouthwash. Regular reviews ensure the model stays aligned with external market conditions and internal reality checks.

2. Utilizing Client Feedback for Continuous Improvement:

Critiques are like salt—they may sting a little but preserve and enhance flavor. By embracing client feedback, you could make necessary tweaks to ensure your service provides top-notch value.

3. Ensuring Legal and Ethical Compliance in Subscription Pricing:

Last but not least, keep it clean! Subscription in accounting pricing should be legal, ethical, and above board. This isn't just 'good manners' but essential to maintain credibility and client trust.

VI.How Does the Offshore Accounting Team 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 service 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 teams 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.

However, 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 supporting 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 a wonderful ecosystem of building offshore/outsourced teams for accountants, CPA firms, and Tax practices.

Conclusion:

Subscription-based pricing is the future, folks! It offers predictability, steady income, and a chance to build more profound client relationships. It is a mutual win for both the accounting firm and the clients. As we head into this brave new world, let's keep the focus on quality service, strong relationships, and maybe making accounting a little more jazzy!

FAQ's:

1.  What are the Benefits of Subscription-Based Pricing over Traditional Pricing for Accounting Firms?

Ans: Subscription pricing, compared to traditional, is like an amusement park season pass instead of a one-time ticket. It allows firms to generate predictable revenue and build more in-depth, long-term client relationships.

2. What are some Common Challenges in Implementing Subscription Pricing and How Can they be Overcome?

Ans: Common challenges include identifying suitable clients, transitioning from traditional models, and implementing new technologies. Like learning to ride a unicycle, however, these can be overcome with practice, guidance, and a dash of adventurous spirit!

3. What Legal Issues should be Addressed when Implementing Subscription-Based Pricing?

Ans: The usual bad eggs—misleading pricing or contract matters—should tread carefully. Making sure everything is as clear as a blue sky day, legally speaking, will save you future headaches and a lot of aspirin.

4. Why is subscription-based pricing vital for accounting firms?

Ans: Subscription-based pricing is crucial for accounting firms as it provides a steady income stream, removes ambiguity in service delivery, automates billing, and allows scalability. It transforms client engagements into ongoing relationships, ensuring continuous value and financial stability for the firm.

5: How does building Monthly Recurring Revenue (MRR) contribute to the success of accounting firms adopting subscription-based pricing?

Ans: Building Net New MRR, a combination of revenue from new and existing clients minus any losses, is essential. It reflects the growth potential and financial health of the firm, ensuring sustained profitability in the transition to subscription-based pricing.

6: What key elements should accounting firms focus on when implementing subscription-based pricing?

Ans: Firms should prioritize determining the right pricing structure, creating varied subscription levels, embracing technology for efficient management, educating clients on the benefits, ensuring seamless payment processes, and addressing client concerns. These elements form the foundation for a successful transition and long-term client satisfaction.

 

Entigrity™ is a trusted offshore staffing partner for 725+ accountants, CPAs, and tax firms across the US and Canada. With a flexible and transparent hiring model, the company empowers firms of all sizes to acquire skilled accounting, bookkeeping, and tax preparation staff. As a firm 'run by accountants, for the accountants,' Entigrity ensures precise alignment with the hiring needs of accounting firms, providing staff under your control and management, minimizing concerns about compliance, payroll taxes, overheads, or benefits. Entigrity is a proud independent member of the BDO Alliance USA. We have collaborated with IMA to train and upskill 5,000 Professionals in India. We were also recognized as one of the "Dream Companies to Work For" and won the "Great Place to Work® Certified™" in the accounting offshoring industry.