Receipt Bank Blog>Advice>Value-Based Pricing 2.0 Webinar Series: A Ron Baker recap

Value-Based Pricing 2.0 Webinar Series: A Ron Baker recap

08/12/2020

By

ron baker

Ron Baker

VeraSage Institute Founder and Radio Talk Show Host

It was an honor to present the three-part series of webinars on Value-Based Pricing 2.0 on behalf of Receipt Bank in November 2020.

The content focused around the shift taking place in the economy—that is, the world is moving from products and services to subscriptions, favoring access and transformations over ownership and deliverables.

There were many excellent questions that were answered in the first two webinars, focusing on the specifics of implementation, and the third webinar in the series was dedicated solely to questions and answers.

It was an honor to present the three-part series of webinars on Value-Based Pricing 2.0 on behalf of Receipt Bank in November 2020. The content focused around the shift taking place in the economy—that is, the world is moving from products and services to subscriptions, favoring access and transformations over ownership and deliverables.

There were many excellent questions that were answered in the first two webinars, focusing on the specifics of implementation, and the third webinar in the series was dedicated solely to questions and answers.

How will this shift impact the accounting profession? What does a subscription business model look like for firms of the future?

The Evolution of the Profession’s Business Model

In the 1960s and 70s, the accounting profession began to bill by the hour, following law firms, which created this model in 1919. Beginning in the late 1980s, firms began to experiment with “fixed fees”—whereby a fee would be set in advance for a determined scope of work. 

Then, in the 1990s, Value Pricing 1.0 started to shake the foundation of the professions’ business model. Value pricing doesn’t price the services, it prices the customer. Because all value is subjective, custom-tailoring a price to each customer drives greater creation of value, enhanced customer loyalty, and profits for firms.

[For more information on Value Pricing 1.0, see the three-part series of webinars conducted in October, 2020, at: xxxxxxxxxxxxxx.com].

But for the past decade, we have witnessed an explosion of subscription business models, in both business-to-consumer and business-to-business markets. McKinsey, the famed consulting firm, reports that subscription businesses have grown 350% in the past 7.5 years, and five times faster than the S&P 500 Index. Subscription-based businesses have held up better during the COVID-19 pandemic than traditional transactional companies.

In a subscription business model, you do not price the customer. You price the relationship, and the portfolio. What’s the difference between the customer and the relationship? 

With a subscription, the customer has a direct relationship with the firm. They are not buying services, they are subscribing to your firm. It changes the psychology of the relationship—refocusing it from transactional to relational.

Is There a Model for Professional Firms?

Howard Marson, the former team doctor for the NBA’s Seattle Supersonics, launched Seattle-based MD2 in 1996. It has grown to 16 concierge medical practices across the United States. It spawned an entire industry, now with over 6,500 concierge practices—and another 6,000+ Direct Primary Care practices—in every state in the country. Why would you subscribe to a physician? For convenience, peace-of-mind, and medical care delivered where and when you need it.

Just as a doctor keeps their patients physically healthy, accountants keep their customers financially healthy.

This is why most of us entered the profession: to help people. Why not have a business model that puts relationships at the heart of the firm, one that offers some version of the following value proposition:

Whatever your accounting and tax needs are, you are covered for anything this firm can competently perform.

The focus moves away from “within scope” and “out of scope” services to “covered” or “not covered.” Obviously, you can still offer three (or four) options to the customer that would encompass different service categories—accounting, tax, advisory, IT consulting, etc.

This would require firms to have fewer customers to ensure they always have available capacity to handle immediate and emergency situations. Customers appreciate, and are willing to pay a premium for, this spare capacity. No one who has a toothache wants to be told by their dentist that they’ll have to wait five days for an appointment.

Advantages

·  Predictable revenue;

·  Not selling services, but creating annuities with a lifetime value that far exceeds whatever you paid to acquire them;

·  Leverage the collective knowledge of your customers, which is a competitive advantage that cannot be duplicated;

·  Places the customer relationship at the center of the firm;

·  From transactional to relational—taking responsibility for providing a series of customer transformations, the very definition of a professional;

·  More predictable demand, revenue, and the ability to plan capacity more effectively.

·  Increase the value of your firm’s selling price, since businesses with annual recurring revenue are more valuable than firms that are transaction based.

The AICPA has reported that it costs eleven times more to acquire a new customer than retain one. According to Tien Tzuo, subscription businesses that can retain a customer for one year have a 90% chance of having them as a member for life. With this type of loyalty, you can scale the firm to any size you desire while delivering superior customer experiences and value.

We discussed Summit CPA Group, founded by Jody Grunden, which offers Virtual CFO Services. Jody meets with business owners on a weekly basis to assist them with Cash Flow Management, Forecasting, Budgeting, Debt Restructuring, Cost Accounting, and Cutting Edge Tax Planning. He takes great pride in helping business owners strive in all economic conditions. He strongly believes that a well-run company will excel in both a good, and bad, economy. By utilizing a hybrid subscription business model, he grew his firm from $600,000 in revenue in 2004 to over $7,000,000 today.

Pivot to the Future

As science fiction writer William Gibson once wrote: “The future is already here. It’s just not evenly distributed yet.” The subscription tsunami washing over the economy is beginning to shift the ground beneath the feet of the profession. Skeptics will call for an incremental approach in order to maintain the status quo. But how do you make incremental changes to an existing business model that is already dying?

There is no limit to what you can achieve, as long as you do not lose faith in yourself. It is the difference between remaining a firm of the past, or, like a chrysalis, emerging as a firm of the future. The choice is yours.

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