– MONTHLY RECURRING REVENUE –
The Top 5 Ways to Create Profitable Monthly Subscription Pricing Tiers
Monthly Subscriptions That Shatter Your Firm’s Revenue Ceiling
Hourly billing has been the default billing method for accountants for decades.
Everything seemed simpler:
The more you worked, the more revenue you generated.
Profitability was easy to track.
Timesheets kept every staff member fully utilized.
However, there were some significant weaknesses in the model.
You only generated revenue when you or a staff member was working.
Timesheets were incredibly inaccurate, and full utilization was a myth.
Long hours burned out firm owners and staff members.
Revenue was handcuffed to your finite resource of time.
Hourly billing creates a revenue ceiling for your firm.
Thank goodness the industry has changed.
Automation and cloud accounting has made fixed fee pricing and monthly subscription billing models a better choice.
Monthly subscription billing models can be significant game changers for firms, their cash flow, and revenue generation when done correctly.
Here are the top five ways to build highly profitable recurring monthly fees.
1. Review Each Service Separately In Your Offer
When I was finalizing my first subscription model, I did not give it too much thought.
I grouped a bunch of services together and slapped a price on them.
My prices were based more on what I thought the clients wanted and would pay.
I quickly discovered that with a few small mistakes, a monthly subscription could become a serious drain on cash flow.
At one point:
I made no difference between filing monthly and quarterly sales tax.
I did not consider the levels of complexity for corporate tax returns.
I was available to chat at any time with my clients, leading to frequent, time consuming calls.
I committed to everything that the client requested because my offers lacked clarity.
My offers lacked boundaries.
In the Monthly Subscription Success Model, you create clarity and boundaries without leaving profit on the table.
2. Create Three Main Offering Tiers For Clients
There are two main reasons to offer three choices to your clients.
First: People need choices. Giving a choice to the client empowers them. Clients are less likely to say ‘No’ outright if there is a choice in services and prices.
Many apps and service providers offer three choices for the same reason.
Three choices create the needed psychological assurance for the client without forcing your firm to offer numerous service combinations.
The more variation in offerings and services your firm provides, the less likely you can standardize workflows, automations and team member training.
Second: Showing the client the higher-tier services indirectly starts the conversation about adding higher-value services down the road.
Many clients will start with the foundational services of bookkeeping, accounting and tax work. Once they are confident in your firm and the relationship, adding outsourced services is a much easier sell.
By indirectly bringing the additional services, you prepare the way to bring up the services later in an organic manner.
Moving your client from one tier to a higher tier is the fastest way to increase your average revenue per client.
The Monthly Subscription Success Model is designed to work with three tiers from the start. You can quickly compare and customize the services and prices and display the value difference between tiers.
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3. Stick To A Clear Set Of Services
Businesses and business models are as varied as the people that run them.
In many cases, after working for someone else for years, an individual will start their own business. Without giving it much thought, the new business owners will use workflows, and even a business model similar to the business they just left.
With a mix of old and new ideas, business owners often do inefficient or unprofitable things in their business. They might be using old technology or resist doing things differently.
Don’t let your client’s workflows or methods dictate the services that you offer them.
Don’t offer to complete obscure services or processes that cannot be systematized for your team.
Your efficiency and profitability are built upon a repeatable and dependable system. Once you introduce unique and one-off solutions for your clients, you must recreate workflows, technology offerings, team member management and training.
The Monthly Subscription Success Model creates that list of defined services you will offer. It will become your excuse and guide to deny obscure client requests.
Even though you might not be able to offer them what they think they need, You can quickly show them how much flexibility you can provide in your established offerings.
4. Not Tracking Small Charges Can Have a Major Impact
In an airplane, there is something called the one-in-sixty rule. This means that for every degree you start your trip off course, you will land 60 miles from your intended location.
Coast to coast, if you travel 3,000 miles, and start your trip two degrees south off course, you will land 100 miles south of where you intended to go.
When preparing your monthly subscription model, a small missed item can significantly impact your business.
If you undercut the cost of your monthly transaction work by $75 a month, that will result in a yearly undercut of $900. That loss may not seem too large in a year for a client.
But if that exact undercut pricing is applied to 30 clients, the total lost revenue is $27,000.
Small changes, when applied against your entire client base, can add up.
The Monthly Subscription Success Model allows you to quickly see how small changes will impact the overall profitability of your firm. Being able to adjust your pricing model quickly while knowing the exact impact is empowering.
5. Do Not Include App and Tech Costs In Your Base Fee
You cannot do your work quickly and efficiently without the right tools.
Equitable and valuable monthly subscription pricing requires cloud tools to do your client work.
It’s plain and simple.
I initially included the cost of the technology and apps in my pricing. I was getting a discount on the cost of the apps as an accounting partner, so it didn’t seem like a big deal.
But again, those small amounts added up and ate into my profitability.
What you do as a trusted partner with your clients is above and beyond the tools and apps that you use.
Ensure that the cost of the tools is considered separately in your pricing model. The cost can be lumped into your monthly subscription fee, but ensure that the client knows they are included and at what cost.
The cost of the apps change all the time. By clearly showing the cost of the apps upfront, changes to that part of your pricing can be easily discussed with the client.
In many cases, the client already has accounting software or other tools to run their business. The tools you need will replace those already being used and paid for.
Explain to your client that these new tools will replace the old ones with a minimal increase in cost, and there will be significant savings in time working with the new cloud-based tools.
The Monthly Subscription Success Model provides a spot to add each piece of technology that is needed to service your clients. You won’t forget or be tempted to exclude the cost of the apps and tools when setting your monthly.
The truth is, no magic formula will convert each lead to a client. There is, however, a foundational method to create attractive pricing for your clients while ensuring you hit your firm’s profit targets.
The Monthly Subscription Success Formula is the start to that foundation.
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Good pricing is key to creating the firm you want.
Here’s to better pricing!