Accountants - time to reassess our business models
In the wake of COVID-19 and despite all the issues that people are currently facing, there is a commonality to great businesses and entrepreneurs in times like these. It can be summed up in the phrase "Never waste a crisis." We don't yet know how hard this crisis is going to be, but there is a sense that beyond current events lie significant opportunities and a chance to do things you thought you couldn’t do before, such as review your client base, re-examine your pricing strategy and focus on the niche services and sectors that contain the more valuable clients.
NOW IS A GREAT TIME TO BE AN ACCOUNTANT
The last few weeks have brought into stark relief how much clients rely on their accountants. Amid this pandemic, as businesses struggled to manage the changes, clients and HMRC alike turn to accountants to steer businesses through this crisis.
There is strong demand for accounting, tax and assurance services; and as tax legislation, accounting standards and general compliance become more complex, demand is certain to increase. The downside to this demand is the increase of unregulated accountants, many of whom are not doing a good job. Although Anti-Money Laundering legislation is beginning to restrict the work that unregulated “accountants” can do, their unchecked entry into the market, along with that of low-cost accountants, has contributed to the downward pressure on accountancy fees, leaving many in the profession working longer hours for less money.
Despite the growing demand for accounting services, the unfortunate reality is that for these last few weeks many accountants have been working for free. They’ll say they had a duty of care to see their clients through this crisis and help them stay in business. This is understandable and a fair argument, but irrespective of COVID-19, many accountancy firms have been providing clients with free services for years.
As a profession, we’ve always been poor at communicating with clients. We also have difficulty saying no. Something tells us we need to win every client at any cost and, in doing so, become all things to all people. We justify this by telling ourselves that we’ll recover the fees next year or make it up some other way. This is what software providers call the Freemium model, whereby you access basic services for free and sophisticated services for a premium. Although this has become the default business model for internet start-ups and app developers, it’s difficult to see how this translates to professional services—especially in the current marketplace.
Unlike software providers, who tend to interact with customers via a general support email or a messaging platform, accountants still provide their services based on one to one personal relationships. Unfortunately, once you’ve given something away for free, the die is cast, and like it or not, you’ve set a benchmark for the value you put on your services. From now on, your clients will have you down as a low-cost provider. How can you go from providing services for free (i.e., a letter for the bank, tax clearance, payroll and other tax queries), and then expect to charge a premium for other services? For one thing, because of our poor communication, clients generally don’t understand the full extent of the work we do. What’s more, you’ll catch them off guard because, up to this point, you’ve been doing everything for an annual fee. So, when you try to charge a premium, it’s a difficult leap for the client to make because, relatively speaking, whatever price you give them is going to be a lot more than zero.
Ideally, you should be outlining your services up front. In reality, our reluctance to say no and the tendency to accept any client that walks through the door, results in the sales cycle of doom—blindly collecting clients at unrealistic rates, causing the firm to rapidly hit its capacity and overload the office with work. Inevitably, the support queries pour in as more staff are hired to deal with the tsunami of emails and support calls . . . and so the so-called sales cycle of doom (aka overtrading) perpetuates.
COVID-19 will crystallise this reality for many practitioners, who will inevitably come under pressure to reduce fees that still haven’t recovered since the crash of 2008. But 2008 is long gone, and most firms have no scope to reduce fees because they can go no lower. Mounting evidence suggests it’s hard for low-cost service providers to keep their prices low while meeting client expectations.
Some of the low-cost accountants are rowing back on their pricing strategies and KPMG who launched their small business accountancy venture in 2015 pulled out of the market only five years later. Their pledge was to “disrupt and dominate the small business market” with fees starting at £150 per month and with more than 200 staff assigned to the unit “you can pay us the same as your current accountant, but we’ll give you more.” However, rumours began to circulate that they had not gained the traction they’d hoped for, and businesses that made the switch were unhappy with the level of service provided.
This begs the question as to how smaller firms can pull this off when you consider the large number of clients needed to generate the required sales to maintain this type of business model? Nevertheless, a cursory Google search will still throw up results for accountancy services for a limited company priced at £30 per month – less than the cost of many mobile phone or TV subscriptions.
The mistake accountants make when pricing is that they go out to the market to see what the competition is charging, they come across the low prices online and think the only way to compete is to operate at that rate or below it. The problem with this approach is that everybody is competing within the same bandwidth, and if you can’t articulate your differences or your expertise (because you’ll take on any client that walks through the door), the client’s decision will inevitably come down to price, and that isn’t good for anyone.
KNOW YOUR NICHE
As a firm, we’ve concentrated our expertise into several services and sectors. For example, one sector we’ve found a niche in is with Software as a Service (SaaS) providers who want to use cloud accounting to scale their business. We’ve also found a niche in tax-efficient liquidations, and we provide specialist tax services to international mobile workers.
But it wasn’t always that way. About four years ago, I carried out a review on our client list and as a result, we disengaged from clients that didn’t suit our delivery methods. We also stopped providing weekly payroll services because of the time involved going back and forth on payroll each week - changes to timesheets, starters, leavers, holiday pay, commissions, bank holiday pay, and we had to be available to the client on a specific day of the week for a very specific length of time. In my opinion, this type of on-call service should demand a premium; however, the rates for payroll providers are so low that we decided not to compete at that end of the market, and now we refer those clients to another provider who is better placed to provide that service.
The profession evolves by client demand, and right now clients are demanding cloud accounting. Specialisation seems inevitable, and if the only work you only do is compliance (i.e., data entry and number crunching), then you may be in trouble because the value for these services is perceived as very low.
The generalist accountant has a future, albeit short term. However, if your value proposition is aimed at “anyone who is running a business of any size, anywhere”, clients are unlikely to find it appealing, and it is very difficult to generate referrals in respect of “anyone, any place, any time”
THE JERRY MAGUIRE BUSINESS MODEL: FEWER CLIENTS
In the film Jerry Maguire, Tom Cruise plays a sports agent who has an epiphany one night and decides to write a mission statement advocating fewer clients and more personal attention, which would result in a better business model. The mission statement lost Jerry Maguire his job but ultimately spurred him on to set up his own sports agency.
COVID-19 is an opportunity for accountants to reassess their business models and consider the Jerry Maguire option. Building personal relationships has been an integral part of growing my business to-date, and if a practice has too many clients on too low a fee, those personal relationships will inevitably suffer. Rather than trying to keep pace with low-cost providers, it’s better to have half the clients on double the rate and not be held hostage by the crisis of the day because you’re trying to be all things to all people all of the time. One of the advantages of this approach is that as you increase prices, the competition reduces because fewer firms are competing in that market.
SUBSCRIPTION PRICING AND THE CONCIERGE ACCOUNTANT
A macroeconomic trend is currently sweeping the world—the subscription business model. Most of us have several subscriptions on the go: Netflix, Spotify, Amazon, iTunes, and Sky Sports, to name a few. For $3,000 a month, you can even subscribe to a Porsche, and the dealer will pay for everything—insurance, repairs, maintenance, everything except fuel costs. It’s called The Porsche Passport. In the US, concierge medicine is rapidly gaining traction. This is where doctors who’ve stepped away from government healthcare and private insurance to handle very wealthy individuals. They tell their patients that for $50,000 per year we will take care of all your medical requirements including MRI, pharmacology and a host of other expanding services. What they are selling is insurance and peace of mind. This type of pricing model could also work for accountants. For a fixed fee we’ll take care of everything: accounts, tax, revenue audits, tax queries, letters for the bank, tax clearance etc. — with exceptions! But subscription pricing doesn’t mean taking the annual fee and dividing it by twelve. If you’re offering customers a fixed fee, then you should be able to charge a premium. Look at mortgages. Which ones have the higher interest rates, fixed or variable?
Although the concept of the Concierge Accountant is still new, it is poised to disrupt an industry that hasn’t experienced significant changes in decades. Think of the subscription—based business model as the pricing of a portfolio not as a subscription to a group of services.
Within a few years, most clients and employees will be millennials with no time for the old ways. Employees won’t be attracted to firms that expect them to spend most of their day writing up purchase invoices and bank statements. Likewise, clients will be unwilling to pay accountants to manually write up purchase invoices when they know that this can be automated.
Now is the perfect time to re-evaluate your business model and consider taking a leaf out of the Jerry Maguire playbook or a business model that is subscription-based. Businesses are about more than just the sum of their individual products or services, they’re about building relationships. Business models and pricing model should reflect this reality.
* This original version of this article was written for the Irish market which you can view here https://www.bradyassociates.ie/blog/2020/5/12/never-waste-a-crisis
* The article is also on linkedin here. Leave a comment if agree or disagree/