Most accountants have some difficulty in charging their worth.
Value pricing is last year’s thinking when it comes to pricing your accounting services.
It’s no longer about value at the centre of pricing your services, now it is about the customer at the centre of pricing your services.
Volvo does it, Porsche is doing it, Dollar Shave Club does it and of course Netflix does it.
The subscription model is here to stay, and accountants need to jump in and make the most of this opportunity.
What Is A Subscription Business Model?
The subscription based business model is a business model that charges clients a recurring fee – typically monthly, sometimes yearly.
Monthly Recurring Revenue Via Subscription
A subscription revenue model enables you to capitalise on the most valuable thing a practice can have – relationships with clients. This model works as long as you are providing value that the client continuously sees. If they see the value they will continue to pay for it.
This recurring revenue accumulates with every new client you take on, which is great for cash flow, practice stability and your profits.
Content streaming services are probably the most well known example of a subscription based model. Netflix and Spotify have built incredible businesses by leveraging the potential growth of this pricing strategy.
They provide huge value every month, often adding to the value with no extra cost. Some customers watch Netflix all day every day, others watch it once a month at most. Both kinds of customers pay the same price for the service.
How COVID Has Affected Pricing Within Your Practice
Subscription based pricing covers all the work you do with your clients. It basically says if you need it we will do it – it’s included. For example, your client needs a mortgage so they come to you for an accounts certificate – you say “no problem” and you don’t charge extra for it.
Here in the UK businesses were crying out for support with the bounce back loan and recovery loan schemes. In forums on Facebook the number one question from accountants was “how do I charge for this”.
If the subscription model was being used in the practice then, there would have been no additional charge for this work, as it would have been included in the subscription.
You might give a cry of indignation when you read this, feeling horror that you would not charge for this work, but bear with me. Let me explain how to price the subscription based model.
You scrap the pay by the hour fees. You get clear on your ideal client. (You cannot market to all kinds of businesses when you run a subscription based model, you need to have a business of a certain size all with similar needs and requirements) Work out your lowest priced ideal client and your highest priced ideal client. This could be anywhere from £30,000 for the year down to £1,000 for the year. Then you have to decide which end of the spectrum you truly want to work with. You will have to pick as you cannot serve both using this model. Once you have chosen which end of the spectrum you want to position yourself, you then need to mark it up by at least 30-50%. This will cover the “extras” you may get asked to do by some of your clients. You will charge premium pricing, but in return your clients will get a premium service.
A good client will gladly pay a premium price knowing they can access their accountant/CPA at any time for anything.
And just like Netflix, a percentage of your clients will use your services more than others. 20% of your clients will take up 80% of your time and 80% of your clients will take up 20% of your time. But your pricing will factor this in.
You will end up with fewer customers, you will have a niche practice and your profits will be much higher. Most importantly for your clients they will have a much better experience, and peace of mind.
The transaction with your clients will no longer be an exchange of service for money, it will be an exchange of relationships. A win win for both parties.
Subscription based pricing models are highly adaptable and you can test and re-evaluate your prices on an ongoing basis.
Through direct customer and market research you will get clearer on your offering.
One thing I teach on the Momentum programme is the subscription based recurring revenue model.
Getting 3 new clients every month, month in month out.
At the end of one year you have 36 new clients.
If you charged a monthly subscription of £500 a month you would have a monthly recurring revenue of £18,000 a month by month 12.
If you charged a monthly subscription of £1000 a month you would have monthly recurring revenue of £36,000 by month 12.
If you continued to add 3 clients a month to your subscription portfolio for 3 years you would have 108 clients. At the end of 3 years your MRR would be £51,000 (at £500 a month), or £108,000 (at £1000 a month).
The subscription based pricing model becomes even easier when you introduce Leveraged Advisory. But that is a conversation for another day.