Confusion in the cloud: Is app pricing getting in the way of sales?

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As cloud service subscriber numbers continue to rise, so do the issues of comparing applications to each other - both in terms of functionality and how they charge. But what impact does this have on a firm’s ability to sell them? And does this point to a new relationship with vendors?

One of the recurring ‘over coffee’ topics at Accountex this year was around the increased complexity in pricing for different apps and how this made comparing one piece of software with another more difficult.

A case in point was made during the recent practice management software challenge AccountingWEB organised earlier this year. The four main new breed contenders of workflow and client management tools showed four different billing methodologies. Even with the very handy table, it’s not easy to make a like-for-like comparison.

Client-facing software is just as tricky to navigate. Although published prices for the main accounting and bookkeeping contenders follow a regular per-user subscription model, we know this is obscured by package deals - which also complicate the picture when looking at subscriber numbers.

New pricing models

The driving down of prices seems to be pre-empting market share in the post-MTD world and means there is some good value to be had but does show that the pricing model itself may be only temporary.

This strategy also has a consequence on the wider ecosystem of related apps and services.

When the bookkeeping application is more functionally rich but possibly the least expensive part of the client setup, it can make the add-ons seem very expensive and narrow the potential down to specific use cases.

As Ewan McCowen, chief marketing officer at Float said: “It’s not possible to compare our feature set to Xero and compare pricing, but it does happen. Some think we are expensive, but usually it’s because they don’t identify with the problem we solve”.

In order to compete and reach sustainability we can see that even the outer ring of add-on providers are willing to do extraordinary pricing deals to secure market share; good news in the short term but does compound the issue of being able to compare apples with apples - and could be storing up price hike shocks in the future.

How accountants charge apps

Those ‘coffee chats’ at Accountex voiced concerns that there is an increasing number of apps which together create a good experience for clients but are layering on more and more cost. Although individually they may not seem much, together it could add up to a significant shift in the fee compared to a couple of years ago.

Inevitably this can impact on the way accountants package up and communicate the value to clients.

In a recent poll for this article, 73% of accountants said that they incorporate the cost of apps within their fee, 19% advise clients to buy direct, and 8% absorb the cost themselves. With both @jonathanfwhite and @Si_Woodhams indicating that the truth might be more a mixed approach.

Alan Woods, owner of Woods Squared, added: “The issue accountants have is packaging things up, especially as clients can see the pricing for themselves on vendor websites - the line between what they see as the cost of the software and the service becomes quite black and white”.

Woods was also keen to stress that vendor pricing strategies can impact on software choices: “Some of the approaches can be a real disincentive - those with strict bandings around client numbers for example, where moving to the next tier can be costly. The pricing itself may not determine if we select it or not, but it might impact on thinking about the future and how we scale it”.

A hybrid approach

Although Woods admitted that he mainly incorporates cost into fees, he also pointed to what he sees as a new hybrid approach: “I’d like to see more emphasis on us paying for account, training and business development support packages and let clients sign up directly with the providers.”

If we see cloud adoption continue to grow at current rates, the relationship between cloud vendor and accountant could develop more along the lines that Woods describes.

The emphasis would be less about adoption and channel sale and more about education, support and consulting skills. Having the pricing and billing relationship handled by the vendor could help generate greater value in the setting up, consulting and advisory nature of the accounting role. And, quite possibly, the whole issue of complex pricing structures goes out of the window. Rather than accountants having to sell the concept and price of the software, the client takes on the cost directly and has greater clarity on the value add that their accountant plays.

Vendors such as app management and dashboard specialists 9Spokes are certainly encouraging the market to think more that way.

By curating a broad selection of financial and non-financial apps that end user clients can purchase directly from the vendor via their platform, it leaves the consultancy piece around app selection and interpreting the generated KPI data to the accountant.

As Brendan Roberts, 9Spokes chief operating officer explained: “We’ve done the hard work by qualifying the app software provider through our strict accreditation program and due diligence - leaving the accountant to advise clients on the best apps to suit their business.”

Looking back at the poll results, it would seem there is still a distance to go before firm will relinquish the billing side, but moving away from complex pricing models and possibly even the channel relationships could actually improve the overall client experience, and increase fee income for firms.

About Richard Sergeant

Richard Sergeant

Specialist insight and business development support for accountants and their vendors. Cloud advocate with a pragmatist eye.

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29th Jun 2017 10:34

Hi Richard, interesting article, what I have noticed is that the quotation process has become far more complex and the way apps are priced is not helping the situation. I was working with a firm that had hundreds of options based on perhaps 60 different Xero type options, then payroll with multiple options, then reporting with multiple option. If you then look to all the other services that an accountant offers and then present them in the now classic three price range offer, the actual total number of variables becomes quite large. As you say, if the cloud vendors price on variable basis then the situation gets even worse. However I don't think it stops sales, it may slow them but indication are that clients like choice and the new range of services that accountants can offer. The issue comes with consistency of pricing within a firm and the consistency across firms if you are shopping around and then closure and delivery. In the current ecommerce world clients like the digital experience but they expect that experience to be carried through to delivery. My belief is that cloud based solution are giving a massive boost to accountants profiles but perhaps the consequences of poor delivery create churn in the market that has not previously been seen.

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to Gerard P Wilkinson
29th Jun 2017 11:58

Thanks Gerard, interesting view.

I've deliberately tried to stay away from pricing (by firms to clients) per se -as I think this is well covered elsewhere and there are models to follow. I like your point about experiences though.

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29th Jun 2017 16:07

60 different Xero options? How did you get to that number?

Some firms may be over complicating it, its simple for me anyway - clients use Xero and its included in the price.

Pricing of software as with pricing of services will always vary from firm to firm.

Using cloud software should be helping firms move to fix fee packages - regular support/services throughout the year as data can be accessed all year and spread the work.

Fixed fees based on services required - adjust up or down each year if changes are required.

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to Kent accountant
29th Jun 2017 17:24

Thanks, and a common view, especially from those firms who have a small suite of cloud products they want their clients to to use.

For those that are using, or want to offer a broader range covering more than core bookkeeping, it is a slightly different picture.

Also, there are quite a few reasons why a firm might prefer clients to purchase direct - one of them is around the perception of where cost and value to the client lies, and I think there is something interesting in that.

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30th Jun 2017 13:10

I'm a sole practitioner and struggling to keep turnover under the VAT threshold. I encourage clients to subscribe for cloud software directly where there's not much difference in price, so that it doesn't get included in my turnover. At the moment, the only cloud software I subscribe for and pass on the cost in fees in FAC due to the discount we can get which we pass on to the client. It wouldn't be an issue if we were VAT registered, but that's not viable as a lot of clients aren't VAT registered themselves, so would be a 20% price increase for them.

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