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Wednesday
May102017

Why value billing doesn't work in accounting

Five ways to build sustainable value for your practice


We’ve all heard a lot of buzz about value billing. It sounds like a great way to boost a firm’s bottom line, but have you tried it? Chances are you haven’t.

First of all, although value billing is a great concept in theory, it’s too complex to use. Second, there's no easy way to apply it to core services like tax, accounting, audit and payroll, which make up more than 80% of most CPA firms’ work. These are either compliance services, or services that are considered commodity services. Therefore, these services are obviously not the right candidates for value pricing. Finally, the fees that you and your peers have traditionally been charging for these services have already set a precedent for the “right” fee for these services in the minds of your clients. That’s very hard to change.

So if the answer to growth isn’t value billing, what's the alternative?

There are simple techniques that virtually every CPA firm—large or small—can use to make their practices more profitable. We have to draw from parallels in other industries.  

Take the examples of Amazon Web Services, the largest Web hosting platform in the world, or Google Maps. These services are inexpensive or even free, and yet drive significant profitability for Amazon and Google—because those companies found ways to innovatively use the cloud to create exceptional value.

Accountants can do the same thing—build value for their practices by innovatively using the cloud.

The right cloud solutions can assist accounting firms in converting commodity accounting and payroll services into higher profits. Accounting is marred by numerous problems and inefficiencies because it is not led by accountants, but rather by a “DIY” program sold directly to small businesses. The solution: cloud-based professional systems that put accountants back in the driver’s seat. Using Accountant-Centric systems such as Accounting Power, CPA firms have turned Client Accounting Services into a highly profitable and sought-after service. And solutions with automated bank feeds can transform write-up from a low-margin, highly manual service to a reliable source of profits with up to 80% reduction in staff time.

And the same principle applies to payroll as well. Cloud-based payroll systems have made payroll processing highly profitable for accountants by giving them capabilities that only payroll service bureaus could previously afford—namely, high levels of automation.

OK, so if value billing can't be used effectively in accounting practices, are hourly fees a better answer for growth?

Absolutely not. Hourly billing is totally irrational for accounting practices in the digital age. If you use cloud technology to perform accounting and payroll more efficiently, hourly billing punishes you financially for your innovation and efficiency. Instead, accountants should charge clients a fixed monthly fee for most services.

And it’s easy to transition from hourly fees to a fixed fee, because given the choice, clients invariably prefer the greater certainty of a flat fee. Moving to a flat monthly fee model can help them better budget their monthly expenses and manage their cash flow. While their total yearly expenses would remain pretty much the same as before, switching to a fixed fee model is another way you provide extra convenience to them.

What is AccountantsWorld doing to help firms build sustainable value?

We built Accounting Power —the first cloud-based professional accounting system that puts accountants back in the driver’s seat. It includes everything you need for your professional work, along with a comprehensive general ledger system.  Now your staff can do everything that your clients’ staff currently does—only much faster, easier, and more accurately, all right from your office. That means you can offer highly profitable Client Accounting Services. 

We also developed Payroll Relief, our award-winning payroll processing system. Payroll Relief automates most compliance tasks, minimizes data entry, and is affordable for firms of all sizes. The result: a high-margin, perpetual revenue stream.

 

AccountantsWorld Value Building webinar


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