WHITEPAPER. WHY TECHNOLOGY IS MAKING VALUE PRICING ESSENTIAL By Mark Wickersham

Transcription

1 WHITEPAPER WHY TECHNOLOGY IS MAKING VALUE PRICING ESSENTIAL By Mark Wickersham

2 Why technology is making value pricing essential According to Professor Brian Cox, the world spins at up to a thousand and forty miles per hour. Curiously we don t feel it. However, the speed at which new technology is hitting us often feels just as quick, and much harder to ignore. This is especially true when it comes to accounting and the way the industry prices its services. The accounting profession has changed greatly in recent years. Accountants have seen thresholds for audit work dip, new regulatory demands come in and frequent changes to accounting standards. Meanwhile the Internet and social social media have changed the face of marketing irrevocably. A CHANGE TOO BIG TO IGNORE Out of all these new arrivals, nothing has impacted the industry as much as cloud accounting. In fact, recent studies by Oxford University and Deloitte (2015) suggest that about 95% of what accounting firms currently do will - in the not-too-distant future - become automated thanks to new technology. This figure is even higher for bookkeepers. Whilst that might sound extreme, we re seeing it already. Data reconciliationis disappearing. For example, with cloud accounting technology, bank feeds are automatically entering the bank transactions into the accounting system. At the same time new tools (like Receipt Bank) are automating data entry. 95% of basic accounts work could be automated Deloitte/Oxford University 32

3 THE OPPORTUNITY FOR YOU Whilst that might sound scary, it s also a huge opportunity for accountants and bookkeepers to do more for clients. A common refrain in recent years from many professionals has been to claim, I d love to add more value, but I simply don t have the time. Time seems to be the biggest restriction and that s because historically, data processing and compliance work has been immensely time consuming. Technology is changing that, and fast. In the words of UK sole practitioner Alan Hemingway, Because we use OCR technology, when we visit a new potential bookkeeping client who does not use it, we know we can instantly make efficiency savings. With this in mind, and also knowing the benefits of Cloud Accounting, we can offer them fixed-fee packages with confidence. Alan Hemingway, UK sole practitioner HOW TECHNOLOGY IMPACTS THE WAY YOU PRICE Automation of traditional processes has a significant impact on pricing and the profession has to adjust. Historically, accountants priced based on time i.e. how long the work takes. However, there have always been problems with this approach. 15% Median amount written off by accountants 3

4 Problem 1 A conflict of interests There s a significant conflict of interest when billing based on how long a job takes. There s a difference in incentives for the client and for the accountant. The client wants the work done as fast as possible because the less time it takes, the lower the price. And yet that can lead to cutting corners, which is not in their long term best interest. Meanwhile, working faster reduces fees for the accountant or bookkeeper. And working slower perhaps from making mistakes is clearly not in the clients best interest. Problem 2 Too much time is written off Another surprising thing about time-based billing is the amount of time written-off as a profession. Back in February 2013, AVN carried out research looking at the typical ` write-offs for those firms that kept time records. The study looked at a sample of 284 UK accounting firms and found that the middle 50% of accountants in the survey wrote-off anywhere between 25% and 5% of their time. In fact, the median was a 15% write-off with an average recovery rate of 85%. This reveals a culture of accountants and bookkeepers not valuing their own services.time is written off for the worry that the client will think the service too expensive. Average recovery rate 85% So instead of arguing the case with clients, it becomes far easier to write some time off. 34

5 Problem 3 There is no inherent value in an hourly rate Another big problem with time-based billing is there s no inherent value in an hourly rate. It s been reported, for example, in the UK, bookkeepers charge an average of 25 per hour. The problem is that an 25 hourly rate doesn t transmit any value. When you quote your hourly rate at 25 that will always seem expensive because there s no value in an hour of your time. Clients do not buy time from an accountant or a bookkeeper. They buy a result. They buy a solution. This leads to an inescapable conclusion: advances in technology means accountants absolutely must change their pricing models. And here is why. ONCE UPON A TIME 30 years ago, a common job for trainee accounts was to call over accounts. In those days the accounts were word-processed. For a limited company, there would be a set of word-processed full statutory accounts and also abbreviated accounts. Two junior accountant trainees would get together. One would read out the draft accounts that had the numbers manually written by the manager. The other junior would be checking the word-processed version to ensure that they had been properly typed-up and were correct. It s no surprise to learn that was a very manual, time-consuming job. The time spent to call over the accounts and check them by the juniors was added to the time sheets. Then came the task of creating, for example, abbreviated accounts, for smaller companies to file with Companies House. Because time for doing those was put on the ledger, some firms would charge a separate price, itemised on the bill, for doing them more time and more expense. 35

6 GONE IN THE BLINK OF AN EYE Things have now changed. The increase in the use of technology and the advance in accounts production software meant that very soon abbreviated accounts became a by-product created at the touch of a button. Most accounting firms now give abbreviated accounts away free of charge because they re produced by just pressing a button. It s a by-product of doing the full accounts. It now takes no time at all to produce those abbreviated accounts. But there is a problem - the value hasn t changed. The question we have to ask is this Are abbreviated accounts valuable to the customer? The answer is yes, because abbreviated accounts means that they can disclose less information in their published accounts. Yet, that service is now done for free because the time involved to create those abbreviated accounts is - thanks to technology - next to zero. If we take this trend forward, then any work that can be automated will become impossible to charge for after all, there is no time involved. Remember, in 2015 Oxford University s research predicts that sometime in the near future, 95% of basic work will be done at the touch of a button. We are delivering more value to clients by making their life easier too - and it s that value we should be basing our prices on Jason Blackman THE PROSPECT OF WORKING FOR FREE If those forecasts are right, and we follow the trends (abbreviated financial statements produced for free), accountants will at some point be doing the bookkeeping and the accounting work for free. Yet, it s still got value. That means it is time to change the pricing model from time-based billing to value pricing because there s still value in what we do. It doesn t matter that technology makes it easier. 36

7 VALUE PRICING GOES HAND-IN-HAND WITH TECHNOLOGY In the words of sole practitioner Jason Blackman: I think technology has turned the accountancy profession on its head. Products like Receipt Bank make our job so much more streamlined and, most importantly, take us much less time than before. So it s another massive reason why charging by the hour doesn t work. It may take us less time but surely we are delivering more value to clients by making their life easier too - and it s that value we should be basing our prices on. Jason Blackman, Sole practitioner SO HOW CAN YOU DO IT? The future requires a move to value pricing. Value pricing has nothing to do with time and how long a piece of work takes. The customer doesn t care about time. All they care about is the end result, the solution, the value. To do that, it is crucial to have a pricing conversation with the client what their pain points are, what their goals are, what their needs are and what their wants are. It s about understanding what they value. You must find that out first by asking the right questions. Once that is done, you can give them the options to choose a package or solution that best meets their own individual perception of what constitutes value for them. Luckily, the same software that is pushing the profession towards a value-based future can provide a solution. With a software-based approach to pricing, one can create credibility with the pricing process. It becomes transparent. Firms that adopt this approach are getting value-based fees that are very often 50%, sometimes double and sometimes four times the prices they were charging using the old, redundant, outdated, time-based billing model. 37

8 That means technology isn t making your role redundant but making your time more valuable than ever. Technology is opening up new opportunities to do more for the client to add more value. According to Rajeev Sharma, Managing Director of LotusWise Chartered Accountants: The use of cloud technologies such as Receipt Bank has enabled us to offer small business clients regular process driven accounting solutions, giving them access to finger on the pulse financial management services. It has underpinned our philosophy of giving small businesses access to processes and controls normally affordable only by large businesses. Rajeev Sharma, Managing Director of LotusWise Chartered Accountants In a technology driven future, there is more value to to be had for accountants and bookkeepers, and their clients, but only if pricing changes too. 38

9 Find out how you can use Receipt Bank to build a profitable, value-based bookkeeping business TALK TO ONE OF OUR TEAM TODAY us at partners@receipt-bank.com