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Software pricing transparency: Who has it right?

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Practice owner Alex Falcon Huerta tackles one of the biggest challenges for ambitious accountancy firms – the cost of software – and looks at how some aspects of pricing have not shifted to the new cloud way of working.

20th Apr 2022
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Since starting my practice in 2015, one area that has been consistently challenging is software pricing. I wanted to run a technology-led firm – I even looked to implement tech before recruiting. Therefore, from the beginning, I knew software was going to be one of my biggest advantages, but also one of my biggest costs.

As a practice, there are fundamental tools you need in order to carry out the work – for example, preparation of financial statements, VAT submission and payroll. These are also the most costly. 

Today, we run several pieces of software that offer what our practice needs but it’s still not easy when you start to scale up and take on more clients. As you grow, each employee costs their pension, employer’s NI, computers and IT equipment, wellbeing costs, and now at the users per software. Bearing in mind we regularly use more than 50 apps, software pricing is always at the front of my mind. 

Keeping costs lean 

As a business, keeping costs as lean as possible is something we need to constantly maintain – after all, we are in business to make a profit and need to remain competitive with what we charge. 

If a software company wants us to use their products, they need to see how we operate and what we require to take them on.

I regularly speak to vendors and one thing I ask them is not for discounts but a more scalable pricing structure right at the start of our relationship.

Before the mass cloud adoption we’re seeing today, software companies would charge for a year upfront and then increase this price every year. You would need cash initially to get up and running, and when you added new users, it was another large sum to pay upfront. 

With the steady transition from desktop to cloud, this business model started to change but some aspects of pricing didn’t shift to match this new way of working.

As I outlined in a previous article on software pricing, with the move to cloud, many software tools are now offered monthly to help with cashflow, but the added extras did not follow suit. For example, a software company might charge £100 for up to 10 clients. As soon as you hit 11, the bracket will go to £200 pm. Almost double. So you need to find the next batch of clients fast to afford the software you need – and were using perfectly profitably before taking on new clients!

Scalability of software

When you add users, the cost is then added at almost the cost of the software again. With your first hire and adding the costs of software, this almost made it impossible to scale. Imagine every new employee, then repeating this for every piece of software where you’re charged per user – the bills increase fast.

Winning new clients and hiring new staff to deal with this demand should be amazing, but the software costs don’t always seem to align, making it difficult to start scaling up. 

Getting up and running can be a huge burden. Getting your firm to a stage where you don’t need to be too concerned about every penny and it becomes profitable takes time. It needs careful management and constant review.

I remember calling software companies and saying: “I’m not going to be the only one who asks for a new pricing structure – you need to consider changing.” Some listened, but others brushed me off. In the end, we chose software companies that worked with us and developed around our needs and requirements.

A few years later, more companies were developing and the pricing started to become a bit more realistic, with some even having unlimited users. Perfect! But some didn’t always have the functionality we needed and took time to develop – there’s always an element of patience.

Now seven years into my business, changing a fundamental software isn’t going to be as easy, as we would then need to move the data over and capacity needs to be considered. It would need careful planning. 

The plan is always to find the perfect software so you don’t need to move in the first place. You want to have the software tools that offer the functionality that you need at the right pricing. There should be transparent pricing as you scale with clients and the number of users at your firm. But the theory often doesn’t match the reality. There are examples across the industry of software companies that price well, and those that need to improve.

Who does it right? 

I recently spoke with Antoni Gomez, EMEA head of account management at Fathom and the conversation detailed several reasons why they are high on my “who does it right” list. Here are some of my main takeaways from our conversation:

  • The more customers you add, the price reduces per customer.
  • If you sit on, say, the 10 clients silver package, you can add one at a time until you get to the level of gold where it then reduces. Basically, you don't need to go from 10 price to 25 price, which as mentioned is a big hike when you’re a new practitioner.
  •  If you scale down, you can select the package you need and it then reduces the price accordingly. So you’re in control of the price you pay.
  • The prices are transparent and on their website.
  • Training is provided as and when needed – and in great detail. We have had this for Soaring Falcon and Smart offshore.
  • They have weekly webinars to keep customers updated. Fathom goes into a lot of detail on things you should need – especially when you need to consolidate accounts with groups or have multi-currency accounts.
  • Onboarding and training are free.
  • They have ready-made, customisable templates that are intuitive and user-friendly.
  • In the past when they have reviewed their own pricing, it didn’t skyrocket. The increase was reasonable and in line with the competition and the current market. No need to review their product and jump ship.

Gomez laid out his pricing philosophy as follows: “The most important thing in the SaaS industry is customer retention and in order to retain our customers, we aim to be as fair as possible. The best way to retain a customer is to help them get the most value out of the product. We make sure the price is right because I’d prefer to charge a fair price and keep that customer for two extra years, rather than a higher price but lose them after six months. 

“We wouldn’t underprice or undervalue our product, but at the same time building something remarkable is a team sport, so what’s best for our customers is normally best for us.”

Who doesn’t have it quite right?

I recently posted a post on LinkedIn about Dext software. It is a much-loved product here in the UK and around the world, but I felt they had never been transparent with their prices and I believed as a legacy customer I had significantly overpaid, compared to newer users.

My LinkedIn post obviously touched a nerve. Along with many comments below the post, I received direct messages, WhatsApps and emails. Lots of concerned accountants were wondering if they were on “the right price“. 

As a startup business back in its Receipt Bank days, Dext cut many deals and locked in some lifetime prices. But why keep the costs hidden now? 

I’ve been in contact with Dext and I’m happy to say they are making changes. They have promised to list their prices online and make it transparent, but in the meantime, they are working out what price users should be on. 

Should this be the case for such a software giant in this day and age? And how can this help small accountancy practices scale?

Understanding accounting firms

We do need to know what price we will pay because we have to cost our prices to our clients. We don’t necessarily want to be tied into a particular piece of software and then have the prices hiked by over 20% year on year, as we can’t hit our clients with the same increase.

We already have the pressures of hard deadlines on a daily basis, it would be great to not have concerns over software prices and huge increases throughout the year. This also means spending time on redoing proposals, letters of engagement, unhappy clients, potential loss of clients and time wasted that could have been spent on growing the business.

It seems relevant to end this article by saying that software companies don’t always get it right. However, those such as Dext that can hold their hands up and make the changes so we all know where we stand are on the right track. I’d like to think other software companies can follow suit and start to really understand how an accounting firm works

Replies (23)

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By jayesh21
21st Apr 2022 09:52

Dext is worse, we are trying and moving away from them.

They initiall gave us a deal for £200 + VAT a month, unlimited clients and users. Suddenly they now changed increased prices and not giving us £300 for 30 clients only.

Though the additional features they introduced have no benifit for us.

Not sure if others have similar stories?

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Replying to jayesh21:
wolfy
By rob winder
21st Apr 2022 11:22

After reading this I checked their pricing and it looks like we are paying to little so I anticipate a price hike in the near future. Their parameters have changed since we started using them which is more than a bit annoying.

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Neophyte
By Neophyte
21st Apr 2022 10:01

For me Tax Calc are a clear leader in this area. Prices are transparent and the scaling well explained. We came from Digita who were very opaque in this area and in all honesty I thing that does them more harm than good as it dissuades people from upgrading or adding capacity.

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By TB93
21st Apr 2022 10:03

A couple of lower priced but quality products I know of are Receipt Bot for OCR and LimeBooks for Bank analysis and MTD. It seems that the big boys like to think they have the market, when in reality it's more about finding the ones who don't shout as loud that are offering value for money, take TaxCalc v IRIS for example.

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By BryanS1958
21st Apr 2022 10:26

I have just had a quote from Digita to increase my package from 150 to 175 clients. The cost will increase from £4238 to £4939 plus VAT - an increase of £701pa for the first client, averaging down to £350.50 for my second client, etc! I may well switch to another product for some of my clients, I cannot recover £701 from one new client and am trying to retire, so in no rush to acquire 25 new clients.

To make it worse, Digita are not even upgrading the desktop version and it is very long in the tooth. I spent several hours yesterday trying to file a PSC2 form from Digita Company Secretarial, only to find out the country format for the country in question was not correct, so Companies House would never accept it! I updated the PSC information on Companies House in 5 minutes, saving about 2-3 hours compared with using Digita.

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Replying to BryanS1958:
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By Practice Admin Monkey
21st Apr 2022 13:06

We found this, the lack of desktop development for at least 5 years with no real viable cloud alternative at the moment (it's just not there yet with Onvio) led us to move to TaxCalc in the back half of last year, a little limited in some respects (CoSec - we've taken on extra software to cover, and a few other minor areas) but look & feel and active development ahead by a mile.

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Replying to Practice Admin Monkey:
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By BryanS1958
21st Apr 2022 14:04

I agree, we were promised that Onvio would be all singing and all dancing, but development is very slow, pricing very high and it still needs desktop last time I looked, so at the moment no benefit in switching to Onvio. If anything, I am more likely to switch away from Digita completely.

Sometimes I regret switching from Iris, it was far better than Digita, but unfortunately just way too expensive.

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wolfy
By rob winder
21st Apr 2022 11:17

We used Sage from day one until 2018/19. I had considered moving but stuck with them as migrating everything was daunting. However, over a three year period I suffered a 50% increase one year a 40% increase the next and a 25% increase in my last year with them. Despite my protestation they didn't give a damn so I moved. I'm now using Xero and Dext among other things and will soon encounter my Xero subscription doubling as I got a 50% discount for the first 3 years.

Over the last few years there are more competitively priced and advanced products than both of these. The issue I now face is do I go through the pain of migration again or stay put. One really pertinent point here is that moving to cloud based accounting our clients have become much more hands on with the software. In a lot of cases its been hard work to get them this far and do I want the irritation of having to get them to adopt new software?

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Replying to rob winder:
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By Hugo Fair
21st Apr 2022 11:55

Which is precisely what they're banking on (forgive the deliberate pun) ... and why they were happy to give you an initial discount.
They won't thank me for pointing it out, but this is the same 'marketing' ploy used by drug dealers outside schools with their initial free samples to kids.

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Replying to Hugo Fair:
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By Open all hours
21st Apr 2022 12:05

I would not be concerned about hurting the feelings of the software companies. They have deliberately chosen to act exactly in the way you describe. Useful on many occasions, but absolute parasites on others.

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By jan kool
21st Apr 2022 13:24

What if you were charged by use? - have seen this in a timesheet application that charged by timesheet. Would you consider this transparent and fair?

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Replying to jan kool:
wolfy
By rob winder
21st Apr 2022 14:17

I tried AutoEntry, which at the time charged on a usage basis. This was fine when trialling the product but as we rolled it out it became ridiculously expensive at which point we moved to Receipt Bank.

In theory paying for actual usage rather than a fixed fee makes sense but in this instance it was economic stupidity.

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By Practice Admin Monkey
21st Apr 2022 13:25

Would be interesting to hear how practices prefer charges to be set. Our practice tends to prefer banded levels based on client numbers (albeit this has limitations such as the tier barrier breach issue noted above).
I'm not sure how seat/user based licenses are a good idea as they always seem pricier compared to the, ahem, shared access option, which seems inevitable in smaller/growing practices; and multiplying access price to the same data seems, on the surface, a bit of a money grab.
Dext/Receipt Bank's old model of charging per client usage(uploads/processed items) seemed okay, but was again tiered, so if you breached a tier/only used sparingly there was always a minimum or a jump in price, but at least this was moderated over a 3 month rolling period, which was fun to calc for recharge :)
Aside from these models I don't recall coming across many other models.

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By Michael C Feltham
21st Apr 2022 14:42

Nothing new here!

From the early days of tax processing software, suppliers engaged in what is called "Stiffing": i.e. wait until users had digitised their client base and populated the new product and upon renewal, screw up the price, relying on the user's inconvenience and cost to remain with the original supplier.

The Cloud: nice idea: however what happens when one needs to access legacy data and has changed to another provider?

Me, I want software on a CD/DVD, to safeguard legacy processing and allow retention of all eventual data on some form of backup. If I have bought and paid for it, then it is mine; not retained by some devious outfit trying to hold me to ransom.

Remember, tax investigations can go back up to 20 years...

I'm different, I suppose, as I had been deeply involved in ICT since the beginning, even founding two IT companies; one a software house and the other a service provider, handling system integration and etc.

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Morph
By kevinringer
21st Apr 2022 16:19

"many software tools are now offered monthly to help with cashflow"

I disagree, my take is:

"many software tools are now offered monthly so they can get more money from of you"

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Replying to kevinringer:
Morph
By kevinringer
21st Apr 2022 16:36

This is going to become more of a problem with cloud systems. At least with desktop, if you switch supplier, you can usually still access your historic data when your licence expires: all you lose is the functionality to input new data. But with cloud systems, the only way you can retain access to your old data is to pay the subscription. Our tax return data goes back over 20 years and that is extremely useful. I deal with a lot of farmers so I regularly have to go back 5 years for 5-year averaging and CGT I often have to go back even further. I know I could print everything out before switching product but that seems a backwards step when the data is currently digital. What is needed is a common standard where the user owns the data on a cloud database, and that data is in a format that any accounting or tax provider can read, so I pay a subscription to a supplier to use their interface/functionality on my data, and if I switch supplier I merely switch the interface/functionality provider. That means no loss of data, no re-keying, and all history intact. But this is pie-in-the-sky because why would the software industry work together on developing a data standard that gave more power to users to switch and open up the market to real competition? HMRC could have made this a requirement of MTD ITSA but they chose not to. A lost opportunity that would have been of great value to businesses and accountants.

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Replying to kevinringer:
Morph
By kevinringer
22nd Apr 2022 12:11

kevinringer wrote:

"many software tools are now offered monthly to help with cashflow"

I disagree, my take is:

"many software tools are now offered monthly so they can get more money from of you"


A good example of this is Sage. My clients could buy a perpetual licence for about £90 + VAT. The software would work for many years until some HMRC change occurred which necessitated new software. Say the client ran it for 5 years (many ran it for over 10), that equates to £1.50 a month. MTD started and Sage saw this as a gold mine and started charging our clients £12 a month. That's a 700% increase. Since then the price has gone up to £30 a month. It's the same product, just with the MTD VAT module. So there's no excuse for what is now a 1900% price increase other than Sage's greed.
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Morph
By kevinringer
21st Apr 2022 16:24

There is a lack of transparency in accountancy software providers. I think some just see what they can get away with. We had one leading "provider" visit us and give us a demo of their Rolls Royce system. It was a great product but the price was beyond ridiculous: multiple tens of thousands. We never gave them a second thought. We were already using one product from one provider and asked about adding another product to it. The provider wanted £3000. We said no. They came back and offered us it for £1000. We said no. In the end we settled on £30! Now if they'd made a sensible offer in the first place, say £500, we probably would have said yes there and then.

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Morph
By kevinringer
21st Apr 2022 16:28

Software providers have users over a barrel, especially specialist providers such as accountancy and taxation, because the majority of the cost is the time in re-keying data into another system. If we wanted to switch our taxation software, there is no simple export>import, or data conversion. It would have to be re-keyed. And we'd lose all that history which has value. So once a practice is using a supplier, they have so much value tied up in their data it becomes hugely expensive to move, and that's assuming they have the capacity to re-key. We did that once when we moved payroll provider. Our old provider did export but only employer by employer and so much work had to be done on the data to get it into the format the new software required, it was quicker to re-key.

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Rebecca Benneyworth profile image
By Rebecca Benneyworth
22nd Apr 2022 08:48

I feel the same about Dext. I took out a £199 per month unlimited subscription several years ago when this was a massive commitment to an overhead for me, but I was convinced that I needed to make the investment to grow my practice and automate bookkeeping.

Just as I have got to the point where I feel that the cost isn't a dead weight any more the 'new improved version' is costing me much more and for limited users. Like others, I don't need any additional functionality - I just want some software that can capture receipts easily and present them to my bookkeeping staff for analysis and to publish to accounting software.

I am very disappointed indeed - I am gradually moving my clients off Dext and will be terminating my licence as soon as I can - the cost is unsustainable for my practice. I find the capture process in QBO very clunky but I can't justify the costs any more - it is costing considerably more than my monthly QBO subscription for 75 licences (albeit with some limited time deals) and that's not a good look.

Discussing this with a member of Dext staff at AccountingWEB Expo last year, his response was 'charge your clients for it' That just shows that they completely don't understand my practice - my clients won't pay for Dext - they will just say 'no thanks'.

If only there was a really simple product at a reasonable price - oh yes, I remember, it was called Receiptbank!

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Replying to RebeccaBenneyworth:
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By North East Accountant
22nd Apr 2022 09:56

Which software are you moving from Dext to?

Thanks.

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Replying to North East Accountant:
Rebecca Benneyworth profile image
By Rebecca Benneyworth
22nd Apr 2022 13:11

Still looking. I have put small clients on to the QuickBooks photo capture for now but my front runners are currently ReceiptBot. I need to assess what document volume I need to price it accurately but Datamolino also looks good. I think Auto entry won’t give me enough credits. I will be trying them out in my own business first. I don’t need it for bank statements as all of my clients are on a bank feed.

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Replying to RebeccaBenneyworth:
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By North East Accountant
22nd Apr 2022 13:52

We use Auto Entry and you can bulk buy credits as well as the plans.

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