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Why accountants and bookkeepers must adopt value-based pricing

24 July 2017

In this new era of accounting where cloud technology is driving automation, accountants and bookkeepers need to re-align their revenue models to what the customer is willing to pay. Value-based pricing is simple in theory but challenging in practice as lens of value is shifted from the practitioner to the customer. 

Tune in to another episode of Future Of Business and hear from Sophie Hossack, Country Manager of Receipt Bank, as she reveals some of the key benefits to value-based pricing but also tackles the challenges many practitioners face in adopting and delivering value-based pricing in their firm and to their customers. Some fantastic takeways in here for any accountant and bookkeeper building a practice for the future. 

Why accountants and bookkeepers must adopt value-based pricing from Alistair Lamond on Vimeo.

Don't feel like watching the full video interview? Refer below for each chapter and the scripts.

 Alistair Lamond:  Welcome to another episode of The Future of Business, proudly brought to you by Skippr Cash FlowI'm your host Alistair Lamond. Today we're going to be talking about value-based pricing, which is currently being widely discussed within the accounting and bookkeeping space, and who else better to talk to about it is Sophie Hossack, who is the country manager from Receipt Bank, for some insights on how value-based pricing is being adopted within the space. We'll also have some tips and tricks on how to best deliver it to your customers. So without further ado, let's go talk to Sophie. Sophie, welcome to the show.

Sophie Hossack: Hi, thank you for having me.

Chapter 1: Time vs. value-based pricing (1:00)

Time vs. value-based pricing from Alistair Lamond on Vimeo.

Sophie Hossack (On why time-based pricing doesn't work):  I think for two reasons. One key one is the efficiency gains that firms are now having with cloud automation. So the likes of cloud automations like Xero, Intuit, MYOB, etc. plus all the wealth of different add-ons and automation tools you can add-on to that. The way you can service a client is now much quicker than ever before. So rather than being penalised for being more efficient and charging per hour, essentially it doesn't really work as well. 

Alistair Lamond: Right, and it's all about delivering more value to the customer and now the customer is more sensitive to that value and know what they're paying for. So by definition what are we going to call value-based pricing?

Sophie Hossack: Well, I think if I go back to your comment about the clients, the clients are much more experienced now than ever before. They're much more knowledgeable and educated now than ever before on what they're buying, as you say. So the people are wanting speed, they're wanting convenience, they're wanting more real time information. So we can talk about the definition of value, but I often think about the definition of the experience a client is now receiving from this automation. So what should they be receiving? Rather than delivering a shoebox at the end of every quarter, at the end of every year, instead they could be having five day management accounts. They could be getting weekly PNRs, they could be getting the advice that they need to grow their business. And that's much more interesting and much more powerful for the client. 


Chapter 2: Benefits and challenges of value-based pricing (2:30)

Benefits and challenges of value-based pricing from Alistair Lamond on Vimeo.

Sophie Hossack (On the main benefits of value-based pricing): Yeah, a big one is cash flow. Being able to, as a firm, manage your cash flow in a far more consistent manner. If you know that you're gonna be getting recurring revenue from your client base, whether that's monthly or, indeed, quarterly, you can then stagger that cash flow within your firm. So a lot of people that I know are having at least two payment dates that their bank account is continually being filled up throughout the month, and then their supplier invoices go out at a corresponding time. So actually a firm can run their business much more efficiently than ever before if they're getting more regular revenue.

Alistair Lamond: Fantastic. I suppose there's also far more trust and transparency within the relationship because you're being more up-front in setting that price?

Sophie Hossack: Yeah, I think so. And also I think the appetite for this is much more common, across other surfaces as well, and so I know that the legal profession is exactly the same mold. A lot of firms are moving towards the fixed-fee up-front agreement for the work and the advice they're doing. So the accounting and bookkeeping profession isn't on its own here. Every time-based proposition is starting to evolve and to change toward the fixed-fee and value-based model, as well because the clients are happier to buy in that way.

Alistair Lamond: And it's not ever easy to just go and transition from a traditional time-based pricing model to any pricing model and then transition over and try to deliver that to your clients. I'm sure you understand a lot about that. What are some of the main challenges that you're seeing from accountants and bookkeepers trying to adopt value-based pricing?

Sophie Hossack: Yeah, it's really difficult. I mean, it's a difficult thing to start doing. It's a difficult thing to change. Any significant change in management, particularly if it's to do with revenue in your business, is difficult. So there are definitely some things to consider. One is how you're communicating it internally with your own team. How do you then communicate externally with your clients?

I also think there's a massive confidence component, whenever you're changing it can be ... You can often have the Imposter Syndrome concept of, "Are my clients going to like it? Are they going to respond well? Are they going to leave if I change?" But actually knowing and being confident in the service you deliver, and the value that provides, and knowing how to price that is something that a lot of firms struggle with.

Chapter 3: How Receipt Bank thinks about pricing (5:30)

How Receipt Bank thinks about pricing from Alistair Lamond on Vimeo.

Sophie Hossack: So we used to charge a per-client subscription, and that would vary according to the number of receipts or invoices the client submitted each month. So, maybe twenty dollars one month or it could be forty dollars the next, or it could go back. We were creating a variable cost within the firms that were using us, so it was really difficult for them to then move to a fixed-fee model confidently absorbing or dispersing the subscription cost.

So we've now moved to the fixed-fee model with the firms that work with us so they are charged a flat fee and they can add as many clients as they like and the clients can add as many receipts and invoices as they like. The firm can confidently then, as I say, absorb or disperse that cost knowing it won't fluctuate. 'Cause every time you've got a fluctuating cost from the business it becomes incredibly difficult then to know how to charge. 

Alistair Lamond: Yeah. It takes a lot more work to forecast accurately as well.

Sophie Hossack: Absolutely. The forecasting becomes incredibly difficult.

Alistair Lamond: Just focusing on your product again a little bit, is your ability to price in this fixed manner - has that come from the fact that your technology has become far more automated as well, so you can actually now ... It's got less manual labour behind it, so you can actually price it more according to the value that you provide?

Sophie Hossack: That's absolutely right, yes. So when we started the business, everything was very manual. We then moved to an era where it was much more OCR and templating technology, and then the last couple of years we've moved towards machine learning, AI driven data extraction platform. So actually the cost to deliver the service to the accountants and bookkeepers that use us is much cheaper for us. So we've looked at how do we then move that saving onto the firm that uses us.

So that's one reason - the automation of delivering the product is much better than ever before. Second reason was we knew just how complicated our pricing was, and how difficult and almost disjointed it was recommending firms move to value-based proposition, and at the same time we weren't actually helping them get there with this variable cost. 

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Chapter 4: Implementation of value-based pricing (8:10)

Implementation of value-based pricing from Alistair Lamond on Vimeo.

Sophie Hossack: I'd first of all look at your client base. So who within your client base are you actually wanting to work with ongoing? So really trying to identify a framework for your ideal client is really important. So whether that's industry or whether that's turnover or whatever it may be. Whether it's things like how do they communicate? How do they communicate with you? How technically advanced are those clients? You can choose the parameters. But first of all, identifying which clients you want to keep in this transition, because it's the perfect opportunity to do a spring cleaning list, and work out if there is a subset of clients who aren't going to transition with you, this may be the ideal time to free up your time and introduce them to a new firm. So that's the first thing.

Second thing is working out how much you want to grow by, so what profit margin you want to grow by consistently, and then looking at the direct costs and the overheads of the business that you currently have. A lot of firms, particularly the newer firms that we work with, are in this incredible position where they don't have a lot of the infrastructure, the traditional infrastructure, like expensive rent or signage or whatever it may be. They're able to reinvest the profit they have into much more digital ways of growing. So whether that's a CRM, whether that's a automated marketing platform, they've got the options to reinvest, as I say, the profit they have.

But working out what your costs are are key, and then working out how much per-revenue generating employee per FTE do you have? How much you need them to be billing is going to be key, so not how many hours you need them to billing for, but what the revenue you need them to be bringing in is. And that's a good way to slice and dice it because then you've got two options. You've either got the option of increasing the average bill amount per client, or you've got the option of engaging with more clients and scaling instead. Those are two levers that a firm can pull.

Alistair Lamond: Interesting. And you were talking about staff there and a lot of focus on FTE. They've traditionally been used to just billing by the hour, that's a big plus when they don't have to do that anymore.

Sophie Hossack: That's a huge thing. You're right, it's absolutely massive. I mean, particularly if you're looking at employing younger people. There's a lot of conversations about millennials and how do we start to employ Gen Y's and how do we incentivize and motivate them. If you're asking somebody to clock in every six minutes of their time, that is totally counter-productive. It shows a lack of ownership and accountability, and responsibility of the employee. Whereas if you're saying to them you don't need to do that, A, they're more efficient, and B, I genuinely feel that they have more accountability and ownership over what they're doing. So I think that's a massive, massive win.



Chapter 5: Value-based pricing tips (11:15)

Value-based pricing tips from Alistair Lamond on Vimeo.

Sophie Hossack: Yeah, the big thing with this McDonald's model of small, medium, large, is that you've got to have a clear understanding of when you would anticipate upselling the services. So, just like I know that you guys consider it really carefully at Skippr with the buyer journey and the buyer experience. It's exactly the same for firms. What's the experience the client is going to be having with that firm? They're not going to just suddenly subscribe to a new service that you're offering because you say so. It may be a transition and a moral movement throughout their journey with you as a firm.

If they're starting small, how many people who buy the small package would you like to move up to the medium package? And then how do you go about doing that? What other conversations need to happen and what time frame do they need to happen to get them to move? So that's a really key thing. Upselling doesn't just kind of happen overnight. You've got to put real thought into why would somebody want to move up to another plan. That's kind of one thing to consider.

Alistair Lamond: That's really important I think. So you've got to be very clear on what those foundation services are going to be. And then segment out those value-add services on top and understand the timings and when to deliver those and upsell those. 

Sophie Hossack: Yeah. Absolutely. The other big thing is that you often see the three price points, and then you'll have kind of a POA, you know, "When you come to us we'll reevaluate you." The other thing not to get too caught up by is putting everybody straight into that because of course then you fundamentally don't have your packages. That's another thing to bear in mind.

Thanks for tuning in! 

Want more background on Sophie Hossack and Receipt Bank? Check out Sophie's blog here!

The Skippr Team

Written by The Skippr Team

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