The digital price is right
As your practice becomes more digital, it can become harder to justify your pricing. This excerpt from Will Farnell’s The Digital Firm explains why automation is essential, and how it aﬀects fees.
Accountancy is changing. Billing by the hour is no longer an option when the client can clearly see the process of compliance is automated, so we need to change both our and our clients’ expectations.
The shift to advisory work is replacing income that will be lost, and it depends on us providing a better service to clients, ensuring we’re responding to the changing market, and recognising data entry and box ticking are likely to be done by robots.
That’s why I often say “compliance is dead”. It’s not, of course – I use it to grab attention – but we have to get our approach right. As long as we focus on selling commodities, our primary focus will be price-sensitive, forced down by fully automated, compliance-only shops, and our ﬁrms may die as a result.
The data today
To drive our digital practice, we need fast, accurate access to our clients’ data. And if they have their own book-keeper or do their own book-keeping, this can become more problematic. So the ﬁrst challenge is getting clients to change the way they see our charges and use our services.
A secondary challenge is that leading edge ﬁrms – particularly those specialising in tech – will get the tech to make the process faster and more eﬃcient, and will therefore be able to deliver a lower-cost offering.
This is where ﬁrms currently suspect they’ll lose money, fearing their clients may perceive they can get the same value for less money for a basic service – but in our experience that hasn’t been the case. There are two aspects to considering how to gain eﬃciencies: the accounting and the tax.
Currently, both require human expertise to get it right, so providing the data is entered correctly, the systems will give you a pretty good ﬁrst show.
Then it’s about reviewing it and thinking around it – that’s where human input comes in. Anything out of the ordinary is a bit harder, and has to be reorganised to be in the system correctly.
Diﬀerent systems have diﬀerent complexities, so the more complex systems require a more intellectual input. In theory the tax codes should be fairly logical, so machines should be able to do it all – but they can’t, for now.
The thing with machine learning is that it iterates towards the right answer but doesn’t necessarily ensure you’re actually going to get it. They’re not quite there yet – maintenance costs, indirect costs and invoices by a company for something unanticipated aren’t going to be recognised by the machine.
Having ‘the conversation’
After listening to the pricing gurus, I brought in an ex-managing partner of a mid-tier ﬁrm to give me support. He told me that if we had a conversation with our clients and explained why we needed to change the ﬁxed fees, we wouldn’t lose them. He was right, and I realised that, had I been able to go back and implement the technology we’re now using, we would already have had a diﬀerent practice.
At the same time as this was happening, we decided to implement GoProposal. One of the major reasons is that it closed the opportunity for scope creep, which itself means we have a more logical pricing scheme. With just a little training, we were able to set it up and start issuing proposals with it inside a day.
We’ve set it up so it works in bands of turnover thresholds and transaction numbers, and we’ve had no big issues since. Where clients were not paying the right fee, we started by reviewing our ﬁxed fees and standing orders, because we hadn’t reviewed them for years.
Before GoProposal, clients got an additional invoice only if they asked for another service. Some were ﬁne, but on examination we realised we’d been over-servicing others all along. Since I brought James in as MD, fees are reviewed regularly.
Where clients were not paying the right fee, we explained this to them. We also told each client that, for example, we might bill them £250 for the year and put a discount line on the invoice, which would bring it down to £175 for that year. That set our expectations, but also added hugely signiﬁcant additional fees straight on our bottom line.
After a year, we went round a second time, and in many cases, removed the transition discount.
This is an excerpt from The Digital Firm, by Will Farnell