Streaming services, shaving supplies, cars, vegan meals, beauty products, and socks can be acquired via subscription — so why not accounting services?
That’s a question posed by Ron Baker, founder of the VeraSage Institute, who for the past 30 years has studied, taught, and written about the benefits of professional service firms transitioning from billing-by-the-hour to value-based pricing. “It’s what I’m calling Value Pricing 2.0 — the subscription business model,” Baker said. “The reason I know this is such a great idea is because it scares the hell out of people. It’s the same response I got back in 1994 in the early days of preaching value pricing. I’m kind of reliving my youth with this.”
The Thomson Reuters Institute (TRI) continues its interview with Baker with this final installment of the three-part series. We previously covered the accounting profession’s long, slow shift to value pricing and how accounting firms can make the transition.
TRI: What is Value Pricing 2.0?
Ron Baker: Some firms are sort of doing this. They’ll tell you, ‘Oh yeah. We have a subscription plan.’ But what they’re really doing is taking a fixed price and dividing it by 12. That’s not what I’m talking about.
For example, doctors are there to keep you healthy physically; and CPAs are there to keep you financially healthy. Both deal with human drama and listen to stories of fear and anxiety, and both work to change behaviors.
I really think the model for subscription pricing in professional services is the concierge doctor, which is a phenomenal model because it deals with peace-of-mind. Concierge doctors will basically tell you — for some set amount per month — that they will handle anything that they’re capable of doing under their roof. They don’t think about scope of work or about deliverables — they think about covered and uncovered. You both know you’re covered.
And what they can do under their roof is constantly expanding and yet your price doesn’t go up because the subscription model really focuses on the relationship. It doesn’t price the customer; it prices the relationship, and that’s a different animal completely.
TRI: Can you elaborate on the pricing model?
Ron Baker: The model prices the portfolio. You just tell your client, ‘Hey, whatever you need you’re covered.’ And among all your customers only some of them are going to use you really, really heavily. You’re probably going to have 10% of clients who drive 60% of your resources.
Everybody thinks these concierge doctors are for just the top 1% or 0.1% of the wealthy, but they’re not. There are some concierge doctors that literally charge what you pay for your cable bill — a couple hundred bucks a month.
TRI: How is this better for an accounting firm than traditional pricing models?
Ron Baker: If we’re trading hours for dollars, or even fees for service, that’s a crappy model. This model lets you spend as much time as you want helping your customers, which is why you became a CPA in the first place. You’re not selling your time — it’s a totally different business model.
As you can imagine, this is going to vary tremendously because embracing this model requires you to define your strategy and your positioning in the marketplace, long before you get to the pricing.
You’re going to have to define the kind of customers you want, which is much easier if you’re niched. I have a friend who provides accounting services only to dentists — and that’s all he does. This guys a sole proprietor with 12 employees. He’s on subscription, basically, with his dentist clients, and he can do anything for them. He’s handled so many of them he knows all their concerns, from womb to tomb.
He can take somebody right out of dental school, help them start their practice. He can do addition of practice partners, continuation plans for people who get disabled, whatever happens in that dentist’s life he can cover because he’s seen it all a million times. He’s got this incredible depth of knowledge and he charges probably up to six-times more than the average accounting firm.
TRI: How would an accounting firm implement subscription pricing?
Ron Baker: The first thing I recommend firms do is take a look at their highest revenue client and their lowest. Usually in smaller or midsize firms, you’ll see a pretty wide band. It always amazes me that some firms have $100,000 clients and yet they have a bunch of $500 clients — that’s insane. You can’t do that in this model. You have to pick one of the ends, or maybe gravitate a little bit toward the middle.
You’ve got to be really clear about the type of clients you want. Once you figure that out, then you can get a band of pricing and… you’re going to have to mark it up three- to five-times because that’s the actuarial component of pricing the portfolio.
So you have adequate capacity if, for example, two or three clients need audit representation. They’re covered. Not everybody’s going to get audited every year, and sometimes none of your clients do. But every now and then you might have a string of three or five — and they’re covered because that’s what they’re paying for.
In fact, they’ll gladly pay that premium price, knowing that they can access their CPA and get whatever they need when they need it. So again, it’s just like the concierge doctor — fewer customers, niched, and much higher pricing that result in higher profits and much better customer experience. You’re giving them incredible peace of mind.
As consumers, we have relationships with Amazon or with Netflix or, indeed, any business we subscribe to. Psychologically, it’s much different than a transaction — it’s a forever transaction, and I think that’s the future.