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digital clouds | accountingweb | Accountants face up to the cost of cloud app stacks
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Accountants face up to the cost of cloud app stacks

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A recent rise in software fees has sparked debate among practice owners about how the cost of multiple, interconnecting cloud applications should be packaged and presented to clients, whether price hikes should be passed on and when this should happen.

15th Aug 2023
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Whether it’s music festivals worrying about the rain or broadband companies brooding about the state of their cables, any number of industries have issues baked into their operational makeup that can cause sleepless nights.

For the accountancy profession, one particular faultline where the cracks seem to have widened in recent weeks is the increasing reliance on layers of interconnected cloud software from different vendors, often used to create internal efficiencies, reduce manual data entry and boost customer service.

The decision of several major vendors to increase their fees in the past two weeks has once again sparked debate among practice owners about how these software fees should be packaged up and presented to clients, and whether any associated price hikes should be passed on.

As each accounting firm has differing staffing setups, client bases and appetite for new technology, there is a multitude of different ways in which they present software costs to clients. 

Below are some of the preferred methods for those using layers of cloud applications, with some firms choosing to do a mixture depending on the client.

  • Absorb the price of software as an operational cost of doing business
  • Factor the cost into client pricing but don’t pass price rises on
  • Factor the cost into client pricing and pass price rises on whenever the client’s package is reviewed, for example, annually
  • Factor the cost into client pricing and pass price rises on immediately
  • Ask the client to subscribe directly with the vendor.

Each approach has its own pros and cons for both the firm and its clients.

Absorb or don’t pass on

For those soaking up the software costs or not passing on the price rises, there are benefits on an intangible level: goodwill from clients for sacrificing profit to maintain a service level and not penny-pinching, and on a more concrete level, perhaps efficiencies in the time saved not having to contact all their clients every time their bookkeeping tool raises its price by £1.

Paul Meissner, chief compliance officer at 5ways Group chartered accountants and host of the From the Trenches podcast, has not increased his prices in 14 years for “consistent services to consistent clients”. Instead, Meissner said every job is properly priced and these prices grow over time.

“In my opinion, the ‘my costs have gone up so my clients should automatically pay more’ strategy is flawed,” said Meissner.

However, while the individual increases may not seem much, together they can add up to a significant shift in software spending, and if the firm uses a full suite of different cloud tools it can get expensive relatively quickly. For example, if a practice has 100 clients and one vendor puts its price up by £1 a month, it’s already looking at an extra £1,200 a year just to stand still with one piece of software.

Factor in the software costs and pass on

Commenting on a recent related article, AccountingWEB member whyowhy stated: “We itemise the software costs on the proposals and state that cost increases are passed on to the client.”

As for when such increases should be passed on, this can depend on when the firm reviews its client base. Those who religiously book in a client review and pricing conversation each year may be set up to do this, but those who don’t can easily let the pricing conversation drift into next year and beyond.

Practices that pass on price rises immediately are certainly keeping on top of their costs, and automated proposal and practice management tools can help minimise the admin legwork required to communicate the news and enact the billing changes – although they may not be able to help with the potential fallout from clients.

However, software companies’ price rises aren’t harmonised. They happen all through the year for a variety of reasons, and this makes it difficult to plan for. Passing on the costs straightaway runs the risk of alienating the client, particularly if several vendors raise prices within a few weeks of each other and the client perceives that their accounting firm cares more about its bottom line than their own.

Direct billing approach

Speaking on AccountingWEB’s No Accounting for Taste podcast, Minerva Accounting founder Della Hudson stated that as far as possible her firm asks clients to subscribe direct to their own software.

“We explain that this way they own the subscription and that way they’re not tied to us for a cheaper fee,” said Hudson. “It also helps us cashflow-wise. Initially, when we started using Xero we paid the fee and recharged it to our clients. However, as you grow your business you see that figure going up and up and it’s quite a commitment. It’s a lot easier if clients handle it themselves.”

But going to direct billing could mean the client losing out on any discount that may come with an accountant partner subscription. While this tends to be negligible for one piece of software, it can add up depending on how much tech the client is using. 

A wider concern of accountants with the direct billing approach is around control over the relationship, with some understandably nervous about vendors upselling products to their clients that may not be appropriate. 

A much-needed discussion

A lot of work has been done to help firms avoid scope creep in terms of the services provided to their clients – somewhat ironically by some of the vendors now raising prices without a noticeable improvement in service level. 

But perhaps this latest round of increases may kick off a more serious discussion about how accountants approach the thorny issue of pricing software costs into their services in the future.

It could be that firms become more targeted with their IT spending, seeking greater flexibility or interoperability, cutting back on non-essential apps or products and streamlining the services they offer. 

Or perhaps they could seek refuge in one of the larger vendors seeking to bundle cloud tools together under one roof and offer discounts to firms using multiple apps such as Sage and Bright Group?

Alternatively, aforementioned AccountingWEB member whyowhy added: “Going forward I think it is going to get easier and easier for accounting firms of all sizes to start building their own solutions using AI etc.”

Replies (6)

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By Catherine Newman
16th Aug 2023 07:35

When Quickbook Desktop closed I told my alleged Account Manager that I couldn't suddenly ask my clients to buy their software from now on. He said he thought I should be doing as that is what other clients do.

I love VT.

Can anyone, however, tell me how you change the date if you have put the wrong date in. At the moment I am deleting the transaction and re-imputting it.

Thanks (1)
Replying to Catherine Newman:
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By acceje
16th Aug 2023 08:52

On the home page - right click on the transaction, choose "edit transaction" then change the date in the date box

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Replying to acceje:
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By Catherine Newman
16th Aug 2023 10:53

Thank you very much. That's very helpful. I have just spotted it now-under "General" and then you proceed to "Entry".

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By AdamJones82
16th Aug 2023 18:46

Emperor's New Clothes fable.

Oh look we've got a nice shiny app, low price, come and use.

Reel people in, jack up the price and those taken in realise desktop did things just as well (and mostly better)

Thanks (3)
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By dmmarler
17th Aug 2023 10:27

Oh, so the penny is starting to drop! The only way costs can be recovered is through charging clients more (by whichever method is appropriate to the firm and clients).

The next problem is HMRC being pursuaded that we should all do everything in the cloud, and imposing applications which are unhelpful/additional cost to clients and accountants (iXBRL anyone?). Or is HMRC just supporting parts of the IT industry? If so, how much is GPPR compliant?

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By jon dickinson
18th Aug 2023 09:29

It requires us as a Body of Accountants to say to these SAAS scammers that "enough is enough" and be prepared to move. My own Practice pays Xero tens of thousands a year and when they inevitably raise prices once again (next year I am off!

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