In The Subscription Pricing Guide Part 1 – we talked about:
- How subscription pricing should simply be one of the three options you provide on your pricing menu (Hourly Retainers, Fixed Free & Upfront Billing, & Monthly Subscriptions).
- Firms should not view monthly subscription packages as an all or nothing switch to make with all clients at once.
In Part-2 we’ll discuss how to analyze your practice to determine if you should add this option to your menu.
Part 2 – Should you add a subscription pricing option?
That can be answered by honestly analyzing your pricing now. Go through these questions in order, to identify an answer for your specific practice.
Are you currently generating “enough” profit?
We all want as much profit as we can have (how you identify “profit” for tax purposes is obviously up to you) but all joking aside, above and beyond just paying your salary, are you also being personally compensated for all the stress and liability you carry as the owner of your business? Are you personally making enough compensation to make you feel good about what you’re doing for clients? So many people want a $1,000,000 or $2,000,000 practice, but most firms have such huge costs to carry at that level, they don’t ever feel the benefits of that revenue. Only you can answer this question, but try to answer honestly.
- If “Yes”: Congrats! If your practice is profit-strong right now, then something is working and your current pricing strategy may not need to be addressed.
- If “No”: The highest impact areas to your profit is your pricing structure. Your pricing is the doorway to your revenue. If you close the door on your revenue because your pricing isn’t optimized, you can never cut costs far enough to significantly increase your long-term profits. Unless you’re currently way over-spending and that’s rare for most firms.
Is your current ARPC at least at the national average?
We’ve been tracking subscription pricing data for over 10 years. The Average Revenue Per Client (ARPC) for individual, non-business owner clients on a value-based subscription model is currently $1,068/year. For business clients on a value-based subscription model (Schedule C businesses, S-corps, C-Corps, and LLC’s), the ARPC goes up to $4,788/year. What’s your current ARPC? Simply take your gross annual revenue and divide it by the number of clients you serve in each type (individual and business).
- If you’re at or higher than the average: Then your pricing points are healthy. Continue through the rest of the analysis to make your final determination.
- If your ARPC is lower than the national average: Odds are you’re leaving revenue on the table. A common reaction when firm owners compare their fees to the national subscription averages is, “My clients won’t pay higher fees”. That’s probably true – they won’t pay higher fees for your current offering. That’s why subscription pricing is designed to strategically update the value your fees are tied to, so the client can see and understand this is a different engagement than just paying for tax return prep or transactional bookkeeping. No one wants to pay more for the same thing. Updating what value your clients are paying for, is a proven way to increase your revenue with new and long-time clients, without alienating them or causing them to leave.
Is your current pricing based on the value today’s clients want and need?
Clients today see less and less value in traditional compliance services (tax prep/accounting/payroll). They still need these services, but data shows they view these services as a commodity and many Americans are looking for ways to conquer these needs on their own. IRS.gov shows in the last 5 years self-prepared returns ballooned from 50,378,000 to 71,761,000 – an increase of over 42%. Small business owner surveys show over 60% of small business owners believe they won’t need a traditional accountant by the year 2026. What value are your current fees being tied to? Are you getting paid for your knowledge and strategic help, or just your hours & labor?
- If your pricing is tied to strategic help: Then you’re offering value that cannot be easily replaced by technology. Technology is great at calculating numbers, but it’s a long way off from being able to educate clients about what those numbers mean in the context of their specific circumstances and goals. Implementing subscription-based pricing packages can help clarify what value your clients are really paying you for, and eliminate any comparison to DIY tech solutions.
- If your pricing is tied to your hours and labor: Clients will constantly be looking for a solution that can “do it” faster and cheaper. Regardless of what pricing options you choose to offer, you should educate clients about the difference between paying for “labor” to complete a return, process payroll, or reconcile a set of books – versus paying for “strategic planning” that will help them achieve specific goals.
What’s Your Ideal Client Roster Size (ICRS)?
The average time spent on client work outside of preparing a tax return increased by over 50% in 2020. The average number of client touches throughout the year has been rapidly increasing since 2018. Client’s need more time and attention than ever. The most profitable firms in today’s environment are focusing on spending more time, with fewer clients, instead of less time with more people. The “Volume” practice that thrived in the 70’s, 80’s, 90’s and even the early 2,000’s is no longer viable to serve today’s high-touch clients.
- If your “ideal” is smaller than your roster size now: Subscription pricing packages can help you increase your ARPC so you can scale-back without taking a pay cut. It will also move some of your annual revenue to monthly cash flow, so you can scale-back gradually and with control, without needing to make any drastic changes at once.
- If your “ideal” is larger than your roster size now: Subscription pricing packages can help you increase your roster with clients that align with your true value as a professional, and are willing to pay for the help they need.
Now that you have some critical answers about your current pricing, complete checkout Part-3 of The Subscription Pricing Guide to see what causes pricing packages to fail and what makes them successful. Combining the answers about your current pricing and understanding pitfalls with the Subscription model will give you a clear understanding if you should add a Subscription pricing option in your firm.
P.S. If you are ready to jump-start your firm’s Pricing packages right away, you can register for our FREE Mini-Course: How to Launch Pricing Packages that Work.
To your success,