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The rise of cloud technology will be the force that kills hourly pricing in the accounting industry. I’m excited to see it go, and I’m excited to see the transformation this will put accounting and bookkeeping firms through.
Newsletter
Cloud technology will kill hourly pricing models
30 November 2016
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11 minute read
Hourly pricing is a negative force in the accounting industry on two fronts: firstly it can impact our potential to increase revenue, and secondly it focuses our customers on how long it takes to complete a job instead of the quality of our work, or the relationship we hold with our clients. Hourly pricing has served its purpose. It’s been around since the 1960s and was well suited to what the market needed at that point in time. 2016 calls for a readjustment on how firms should price their services in the future.
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By 2025 we're expected to see 5 million jobs replaced by robots and automation; approximately 40 per cent of Australian jobs are expected to be impacted. With the rise of blockchain, this is becoming more and more the reality for accounting and bookkeeping firms. The roles and jobs that are most likely to be automated are those with low levels of social interaction, low levels of creativity or low levels of mobility and dexterity.
Technology and outsourcing are named by firms as the two most likely strategies to improve practice productivity and create capacity for advice services. The most profitable firms use technology as a key driver of business strategy, and outsource non-core services like IT and marketing to reduce costs. This allows them to stay keenly focused on activities in the business value chain – including face time with key clients.
In 2016 accounting firms should be focused on a few key things:
- Value: what is the value received by your client/customer?
- Costs: are your costs fixed/variable and when do they fall due?
- Invoicing/payments: how do you invoice and when? What pricing methods do you use? The current time/cost model does not work for the cloud.
The majority of accounting firms in Australia would still suggest that hourly billing is their primary pricing strategy. The majority of accounting firms have also acknowledged that introducing cloud technology into their firm is part of their future within the next 12 to 24 months. And this will be the cause of death for hourly billing. As skilled accounting and bookkeeping technicians, your knowledge and expertise should not be measured on time. The outcome of the work completed is what you’ll want to start focusing on. You’ll spend more time focusing on the added value you can bring to these client relationships – time focused on insightful data and how to articulate it to your client in a language that they can understand. Moving away from hourly billing will force your firm to rethink your go-to market strategy. This, ladies and gentlemen, is a step into the future.
The future of pricing strategies for the accounting industry lies in value-based packaging or pricing, which has been a debated topic as accounting and bookkeeping firms have found it difficult to move to a new pricing strategy, often causing them to fall back to the comfort of hourly billing.
Mark Wickersham, value pricing author, says “I’ve found that accounting and bookkeeping firms find moving to value pricing difficult. I think it is now widely accepted amongst the accounting profession that time-based billing has got to go and that we have to switch to value pricing. But increasingly firms are saying to me 'This is so hard, we don’t know how to do it'.
“Firstly, value is very subjective. It’s very difficult, if not impossible, to put any sort of quantification on value. Secondly, to make it even worse, everybody values things differently. So when you are trying to value price your tax return service, for example, you are faced with the problem that every single client you talk to places a different value on you doing their tax return. That is why value pricing is hard.”
Michael Young, a New Zealand accountant, worked with Mark on moving away from hourly billing and into value pricing. Here are a few of his key learnings:
- Value price, don’t price on time
- Offer up-front fixed prices to give clients price certainty – no surprise bills
- Explain the value of services offered
- Link the value to the price
- Offer a suite of services that gives clients choices that meet their needs
- Only offer services you have the competence to offer, so you don’t under-deliver
- Maintain close professional relationships with clients – be visible, contactable and connected
- Offer the occasional freebie
- Express appreciation that they are value clients
Cloud technology will see the beginning of the end for hourly billing methods. How long it takes to see the demise will be determined by firms’ willingness to explore this pricing strategy and the impact it can have on their business. Through the laws of cause and effect, you’ll understand that as we adapt and change the dynamics of accounting firms this will have effects in other areas. In this case, it’s impacting billable time, which will soon be a term long forgotten. If firms can focus on one thing, Guy Pearson, chief ignitioneer at Practice Ignition, suggests it should be to “add value for your clients, your lifeblood. Your clients fund your business, so don’t over-promise and under-deliver. Ask them regularly what they want and don’t be afraid to follow up with them to see how they are”.
Trent McLaren, senior BDM, Intuit QuickBooks Australia
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