Update on the Accounting Profession’s Evolving Business Model

Update on the Accounting Profession’s Evolving Business Model

We’re seeing some really big strides in the business (and revenue) model shifts in the accounting profession. At this writing, FIVE of the US Top 100 largest CPA firms, and several Top 200 firms, are currently instituting Fore’s Advanced Pricing Methods℠. These brave large firms are on the very front end of the innovation curve: the pace at which new ideas are spread or diffused.

In her recent article about Changing the Business Model, INSIDE Public Accounting’s editor Chris Camara did an amazing job summarizing what’s happening, why (what’s driving changes), and some of my thoughts on how you can get started on a new pricing approach.

Here’s a snip (click on article thumbnail for the full piece):

Within the last few years, firm leaders have begun accepting that a new revenue model is inevitable, spurred by the rapid introduction of time- saving technologies. Since fewer hours mean reduced WIP-based billings, firm leaders are implementing – or at least investigating – different revenue methods that capture each solution’s worth, not the time spent on it, which is irrelevant as far as the client is concerned.

The impact of work speed on traditional billing is already being felt, says River. One East Coast firm, for example, implemented data analytics and reduced time spent on one aspect of audit from five hours to about 15 minutes. If an hours-X-fee system is used, the time reduction across hundreds of clients means a serious revenue deficit, River says. Another example is an IPA 200 firm that implemented Lean Six Sigma techniques and a workflow product that reduced tax preparation time up to 50% in some cases. Without another revenue model in place first, even after adding clients, they had a $900,000 shortfall between their 2017 and 2018 WIP.

If you’re interested in more “how to” check out my half-day workshop on Nov 5, 2019 in Indianapolis at the 2019 PRIME Symposium. This workshop is open to the public and is limited to 50 guests. Contact prime@plattgroupllc.com for details!

Unlearning and Relearning is a Struggle, But See What Happens Once You Do

Embarking on a business model change? I don’t want to give any spoilers for this terrific and inspiring video, but here’s one of Dustin’s quotes:

“Once you have a rigid way of thinking in your head, sometimes you cannot change it even if you want to.”

Barry Melancon, the AICPA’s CEO, speaks often about our need in the accounting profession to “Unlearn and Relearn.”

I’d love to help you and your firm unlearn and relearn how to:

  • collaborate with customers to deepen the relationship and have more of an impact
  • collaborate with your team to increase your solution creativity to make a greater difference
  • price your work (upfront!) so it makes sense for everyone commensurate with worth.

Firms’ Reasons for Changing Pricing Models have Shifted from Years Past

My friend and colleague Gale Crosley kindly featured an article I wrote in her excellent Crosley+Company Business Discipline of Practice Growth newsletter last week.

Here’s a brief excerpt:

In the early days of new-model exploration, CPAs saw “value pricing” as an opportunity to lift the artificial revenue ceiling “hours X rates” creates. Others defaulted to fixed prices because they detested timekeeping or did it so poorly their bills were just guesses, anyway. Some felt it was a more ethical or appropriate way to price—that a seller should be able to answer a buyer asking “how much will this cost?”—not expecting clients to hand them blank checks. And others figured up-front pricing would be a competitive differentiator. These motivators still exist, but we have new factors at play now, as well.

I also highlight some outcomes from those early adopters and then talk about what it is that partners are telling me this year that’s quite different from before. I don’t want to give a spoiler but it has a lot to do with creating a business advisor culture.

Check out the full article on Gale’s site here: Are You Ready to Change Your Pricing Model Yet?
Or view PDF if you’re having trouble with the link.

Accounting Today Podcast Featuring Michelle Golden on Pricing in Advance

This week’s Accounting Today podcast is a 19-minute interview of yours truly by editor-in-chief, Dan Hood.

We cover:

  • the 4 elements of Advanced Pricing (also reference this blog post: What Exactly Are Advanced Pricing Methods)
  • how you benefit from giving multiple price options
  • the difference between billing and pricing
  • why the word “value” has baggage
  • some problems with traditional pricing methods
  • why it feels so bad to “bill and duck” & how to stop
  • some ways to get started pricing in advance
  • what 3 skills to build to be ready to use these methods
  • what I’ve learned working “inside” at KCoe Isom and with other large firms about institutionalizing pricing in advance
  • what led me to start Fore LLC

Check out Accounting Today’sA primer on the new pricing” podcast.

What Exactly are Advanced Pricing Methods?

What Exactly are Advanced Pricing Methods?

Advanced Pricing Methods℠ (APM) is a term I coined to encompass techniques that I teach professionals to use to price knowledge work before the work is performed. Key is presenting the work in such a way that the focus is on the worth of outcomes and results of the sellers’ solutions, rather than a list of activities and tasks the seller will undertake. My methods include learning how to incorporate options into offerings, significant attention to defining scope, and ways to engage in deeper dialogue with the buyer about what’s important to them, and discovering why or why not.

With APM, the buyer has certainty in price and a welcomed sense of control in the initial purchase as well as when accepting additional work that is also pre-priced. And with APM, once both buyer and seller have a strong sense of WHY the work is going to be done; they can agree on the worth. The buyer agrees to a price worth paying for their defined outcomes, and the firm agrees it’s worth doing the work for that price associated with their thoughtfully defined scope.

When would you rather know the buyer is happy with your price, before you do the work, or after?

Pricing in advance is not a foreign concept to CPAs who have pre-priced audit and certain other work for years, but it’s usually with the caveat that the price is just an estimate and will be adjusted if “actual” work took longer than the CPA firm originally thought. Long-term fallout from having this built-in “cushion” potential, firms simply aren’t careful about overages. But with that comes a handful of consequences that include having to choose between suffering unchecked profit-margin erosion or risking damage to customer relationships from hitting them up to pay “surprise” bills after work was already performed. I call this “billing and ducking.” As someone who did it, too (once upon a time when I used to charge hourly rates), billing and ducking was exactly what it felt like to send that bill and hope beyond hope that they wouldn’t be upset, they’d just pay it. What a terrible way to feel (on both ends). And I knew it was a lousy way to do business and that it compromised my buyers’ trust in me when I did that.

The biggest difference between pseudo pre-pricing (with after-the-fact adjustments) and Advanced Pricing Methods℠ is that APM eliminates surprises. When price certainty is adhered to, customer trust is not only preserved, it increases.

I suspect that the ability to rely on a back-up plan of billing overages after the fact has led to an unfortunate skill deficit: most firms lack people with highly developed project-management skills—skills that start with really good project definition—which is the number one way to prevent scope creep. Great project management corrects much of that margin-erosion problem even if work isn’t priced in advance. And it becomes essential when the firm commits to absorbing overage risks instead of transferring the risk onto the buyer. It also improves communications for managing expectations, both with the customer and among your team members. APM will enhance your project management skills, too.

My Advanced Pricing Methods℠ teach:

  • How to ascertain the most valuable part of what you do
  • How to identify scope risks and head them off at the pass (leading to better project definition for better project management)
  • How and why to offer multiple price options instead of a single price
  • How to use your options as a key scope-management tool
  • How to anticipate and easily capture extra revenue for the additional work that arises
  • Why it’s advantageous to put your customers in control of their purchases

 

Is your firm ready for Advanced Pricing Methods℠? Some firms institutionalize it, and others pilot with an industry group or two. No two firms are the same. And lots of CPAs just want to learn the methods and “go rogue” practicing the techniques one proposal at a time.

Either way, let’s talk.