Really?

Do you understand what your customers are wanting?  Really?

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There is a lot of noise (especially in the accounting press) about the move from the classic compliance offerings from accountants into more advisory work.  All the industry pundits are saying that the accounting profession is going through a period of change and we, as professionals in the industry, need to adapt.  I fully agree with them.

The issue seems to be though that many of our colleagues are fearful of the change.  I believe this has a lot to do with the type of people who have been attracted to and trained in the profession.

The following is a short list of adjectives that can describe the approach adopted by a lot of people in the profession:

  • amiable (nice people to have a chat with)
  • good listener (wanting to get to the heart of the issue)
  • loyal (will “go in to bat” for their clients)
  • dependable
  • sincere

We can couple these with a few more for the real technocrats in our industry:

  • accurate
  • precise
  • fact finder
  • careful
  • cautious
  • conservative

All absolutely perfect for an accountant preparing your financial statements and assisting you with your taxation and compliance matters.

Contrast those traits with the approach required to help a customer in the advisory space.  Adjectives we might use to describe people in this arena include:

  • direct
  • inquisitive
  • daring
  • assertive
  • driving

Mixed with a few of the following:

  • persuasive
  • enthusiastic
  • confident
  • influential
  • positive

Now when I look at the lists above, I see polar opposites.  The “traditional” accountant approach and style can be somewhat disconnected with the “advisory” accountant style.

When you look at the changes that are imposing themselves (being imposed?) on the profession at the moment, consider whether your mindset and approach is what is truly required to deliver the service your clients want.  Having worked as an accountant for over 20 years, I know a hell of a lot of my colleagues are very precise, accurate and cautious.  And that is a great thing.  In the right area.

I find the same issue crops up with the firms who move proactively into issues like value pricing and changing the way they engage with their clients.  The more conservative, “classic” accountants do the whole fear and attack response when challenged.  They will generally evade the issues and resort to “the rules” rather than assess the opportunity on its merits.  They will, politely, pay lip service to the idea while telling you it cannot work.

The transition in the accounting profession is therefore going to be quite painful for many of our colleagues.  Their natural style will make it incredibly difficult for them to make the move.  In effect, they want to see a lot of other firms make the change before they do.  This will, in their eyes, reduce the risk of such a move.

The challenge with this approach is that they will be starting well behind the game and therefore struggle to catch up.

There are piles of surveys and reports indicating what it is that clients want from their accountants.  The problem is a lot of accountants are too busy being focused on the compliance aspects of their businesses, and they will miss the significant opportunities that lie directly under their feet.

We have had some success of late by talking with clients about what they are wanting.  They really want support to think and act for the future – not tell them what happened last year (which you cannot do anything about).

Many younger practitioners are “getting” the whole idea, but they are more focused on marketing than delivery.  With this situation, a melding of the old and the new – marketing with the “young guys” and delivery (with experience) from the “old guys”, can be a powerful combination.

When you next have a conversation with an accountant, ask them how they are going remaining relevant with and for their clients.  If they say that the industry transition doesn’t apply to them or their clients, ask them just one question.  Really?

Beware the Progressive Promise

With more firms moving to the Verasage pricing model (good on them – great move), we occasionally come across examples where firms haven’t really arranged their systems and processes to support the delivery of services.

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We are fortunate enough to be picking up a new customer (via referral) from a competitor who has “productised” their offering and built their model around cloud accounting.  Terrific.

The customer in question has been working with their accountant for many years and supported them as they moved the model to an agreed pricing platform (I don’t believe based on our discussions with the customer that the firm is anywhere near value pricing their services).  They had been paying the monthly direct debit to cover all the services required.  They had been providing all the information required to enable the firm to do what was required.

Now, put yourself in this customer’s shoes.  They’ve been paying a monthly amount to the firm for the various compliance obligations for the past three years.  However, they have only just now received the financials and tax returns for 2013/14 and 2014/15.  Are they frustrated?  Bloody oath.

To be clear here, they are pretty happy with the quality of the work they were getting – when they got it.  They were driven up the wall by the constant chasing up to get information from the firm.  They like the accountant they have been working with.  But they feel like they have been “left for dead”.  The experience they have had has been very unsettling for them. As they said – “we’ve paid for the work, why hasn’t it been done?”

Many firms are making the move to productising their offerings and moving more to an agreed pricing model.

They fall down badly though when their focus is on marketing and “brand building” rather than service delivery.

Having your customers pay into your account regularly is great for your cashflow.  When you’re not delivering the services agreed to under that model, you have a problem.

The firm our new customer was going to is widely lauded as a “leader” in its field.  It is held up as a paragon of virtue and “a major disruptor”.  The problem is, the lived experience of their customers doesn’t support the hype.

We will be making sure we deliver our agreed services to them on time and support them up hill and down dale.  We will also regularly check in with them to ensure they are happy with our delivery and service.  The great thing is, once they get embedded into our firm, they are wanting to refer a whole heap of their mates to us who are also with this “progressive” firm as they are all having the same experience.

The other thing is, we are value pricing the engagement with the customer.  They are wanting a heap more real-value services and they are more than happy to pay for them.  This is money the “disruptive, progressive” firm was leaving on the table by productising their offering.  The firm’s focus wasn’t on the customer, and that has created a marvellous opportunity for us.

When you do go down the path of changing your model, please ensure that you deliver what you agree to and keep the customer in the loop.  It’s no use being a “leader” in the industry/profession if your walk doesn’t match your talk.

You also need to have the value conversation with the customer and listen to their needs and wants.

Ends up being a far better outcome for all concerned.

Could not say it better myself!

Only just received the 2015 copy of the “Good, Bad Ugly” report on the Australian Accounting profession prepared by Business Fitness.  Makes for interesting reading.

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There are a couple of points that are worth repeating:

  • revenue per partner has decreased by 8.9%;
  • average client fees have reduced by over 18% in the past two years;
  • for firms using timesheets, productivity is falling;
  • lower marketing spend over the past three years; and
  • 6% increase in firms using outsourcing (reasonable number, but not very many firms are doing it).

There is one very telling comment made in the introduction to the statistics in the report (my highlights):

When analysing the 14 years’ worth
of data relating to high-performing
firms, we can conclusively say that
productivity based on chargeable
hours has no correlation to
profitability.

Having just returned from the Verasage get-together in Boston, it has become even more apparent that the old models of firm management are not only redundant, they are dangerous.  Much of the discussion at the symposium related to the way successful firms focus on relationships – both internal and external.  This has to do with building, maintaining and honoring decent relationships.  Not relationships where everything is about flogging the crap out of your people and billing the hell out of your clients.  Relationships which are based on trust, accountability and common goals.

Having seen the damage done by the Almighty Billable Hour and looking at the impact this approach has on the cultures of firms, it amazes me that so many firms still use this model.

There is change already here in our industry and, as the GBU report reveals, this change is having an all-pervasive impact on our profession.  Either adapt or die.

How to reply to a professional who gives you a rate

Friend of VeraSage, Jim Hart, and I traded a few messages on Facebook today. During one of the exchanges we had this conversation:

Jim: Buddy… this world is still upside down.

Ed: How so?

Jim: I am trying to engage a lawyer. I met with her yesterday and she gave me a “rate.” Because I thought you would enjoy that I am standing on premise, here is my response:

Ed: Do tell.

Jim: Hi NameWithheld:

I’m hoping we can work together. I have been consulting for many years. I don’t charge by the hour. As a corollary to that, I also don’t pay by the hour. You see, I’m paying for your knowledge and expertise; not your effort.

That said, my hope would be that we could meet, agree on a scope of work and you could give me a price for that expertise.

Let me know if that would be acceptable.

So far, there has been no reply. I think that this is fantastic response to the professional who tosses out a rate. If you are a potential customer of a professional firm who has just quoted you a rate, go ahead and try a version of the above reply. Alternatively, you could just go to the VeraSage List.

The Measurement Focus

In recent posts here, I have argued as to the effectiveness of various forms of measurement and their utility in managing outcomes.

I have just posted in further detail on our firm website (and, to keep Ron and Ed happy, I haven’t referred to cricket, but rather Aussie Rules football).  I encourage you to have a read – let me know what your thoughts are.

Regrets? They’ll have a few

OK, so we’ve all got them.  You know, those things that we look back on and think “what the hell – why did I do that?” or, (even worse) “why didn’t I do that?”

I’ve had plenty – more of the former type than latter, but it all forms part of the rich tapestry of life that we humans form part of.  And, much as we may regret things, it helps us develop into the people we are and forms the foundations of who we will be.  Great.

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BUT, what would happen if you knew that something was going to happen and, despite every nerve in your body screaming at you to do something, you didn’t “do it” (whatever “it” might be) – is that really a regret?  If you adopted a stance of denial, does that turn into a form of regret?

How is it that, even when confronted with massive amounts of evidence supporting a reality that is going to occur (and I’m not talking “consensus” here) – I am talking incontrovertible facts – you still don’t make the moves that are required?

I’m not going to launch into semantics here (I will leave that to my far more learned colleagues in Verasage), I am just trying to posit the argument that often times, people do not do what they should and don’t take action when they should or find a million reasons not to do something they know they need to because, well, they have lost something.

What is the loss they have made?

Consider if you will the current state of the accounting profession.  We are seeing massive changes set upon us – mainly from technology/cloud solutions, but also from offshoring operations.  Did you know, for example, that most of the Big Four have established offices throughout Asia to which they “in-source” their compliance work at (about) AUD10 per hour?  I know of an Australian example where a large corporate has moved a significant volume of their processing/admin work to a Pacific nation as the effective wage rate there is AUD1.20 per hour – a bit better than the award rate over here!

This is all happening now.  Today.  To our beloved accounting profession.  And what are the vast majority of our colleagues around the world doing about?  Nothing.

I posted some time ago about the changes that were occurring to our profession.  The changes that were coming then are rolling out even more quickly than I anticipated.

So, what is the profession doing to adapt to this change?  Not much.  Some of us a screaming to all who can be bothered to listen that there needs to be a change in business model.  Hardly anyone seems to be listening.  Or caring.  And we are not, by the way, being “chooky looky” – the sky is falling in!

What are most accounting firms doing to try and combat the inevitable?  They are trying to be more efficient.  Making better time recording platforms and putting greater emphasis on staff productivity.  Anyone recall Danny DeVito in “Other People’s Money”?  Buggy whips.

To make the process more precise isn’t what’s required in the accounting profession today (or tomorrow).  As Ron Baker is fond of saying – “I’d rather be approximately right than precisely wrong”.  Bravo Ron!  But tell that to the Luddites who persist with a 1950’s business model 65 years after it was made common place and 64 years after it became redundant.

The time-sheet is an anachronistic tool that does not fit with today’s requirements.  Staff hate them, admin hates them, managers hate them and Partners/Directors hate them.  The people who hate them most however, are the second most important people in your business – your customers.

In some respects, I am advocating a “back to the future” scenario – get rid of time-sheets – but with some important changes.  Changes like agreeing the scope of work and price up front with your customer.  The change which includes and involves your people in determining scope – and price!  The one where you truly empower your people to shine rather than record their misery in 6 minute increments.

Ed Chan of Chan & Naylor last week posted on Linked In.  Chan’s argument is that accountants sell time.  No.  We don’t.  We sell solutions to our customers’ problems.  His argument is that the “solutions” (I am expanding his argument a little here, but I believe it is in the same vein as what he has written) are all compliance-based whereby all we are doing is the “same thing” for each client.  As I have illustrated above, the basis of a lot of the compliance work is going to be automated or off-shored.  So scalability only applies if you’re doing basic, processing and bookkeeping work.  Not exactly what we’re trained for is it?

Similarly, setting an arbitrary hourly rate to charge them for your time isn’t reflective of their need or the value that they place on the work to be done.  Using the same rate for everything you do makes you pretty “average”.  And remember – average is where the best of the worst meets the worst of the best.

My belief is that every customer is unique and have their own set of fears, needs and the like.  To try and put them all in one basket is to demean both them and the people who work on their files.

Chan’s argument is also based on the premise that all you have to do is to hire more people and more customers will come to you.  Oh, to live in such a wonderful world!

From my experience (such as it is), the only way you can achieve this is to discount your offering to a level that drives people to you.  And then, what happens to “the margin” that Ed believes is the Holy Grail?  That and the fact that you’ll generally get the bottom-feeding clients who don’t value what you do anyway and will bring a whole heap of their “friends” along with them – High School Chemistry – like attracts like.  You will also not exactly engage your people as they merely become cogs in a never-ending grind out of tax returns.  Inspiring isn’t it!

So, in Ed’s world, where “you build a business to prepare a tax return”, I believe there will be regrets.  Lots of them.

Customers don’t want tax returns.  They want advice.  Support,  Counsel.  Encouragement.  SOLUTIONS.  The tax return work is only there because the government stipulates it.  Nobody really “values” it in the true sense of the word.  And the ultimate disruption?  I know of at least one of the Big Four that will be offering their clients compliance work for $0 in the coming years.  How’s “the margin” on that?

Getting the business model right for accounting firms is critical given the disruptive times we are in.  Making a bigger or cheaper version of what exists won’t answer the challenge – it merely cements in a race to the bottom for those firms that don’t adapt.

Regrets?  Yep, I have them.  A number of them.  One I do not have however is getting rid of time-sheets and moving to a business model that will sustain our business, our people and our customers for a long time.

Oh – the loss they have made that I referred to above?  It’s a loss of self esteem and belief in why they do what they do.  And that, my friends, can be scaled!

October 31st Show Notes: Interview with Pricing Expert and Mentor, Dr. Reed K. Holden

Ed and I were honored to interview Dr. Reed K. Holden. Reed is a legend in the pricing profession, and has been a mentor to Ron ever since they first met at a Professional Pricing Society conference, back in 2000.

Our discussion with Reed covered a variety of topics: Who were his mentors in pricing (Tom Nagle and Dan Nimer, author of Visionary Pricing); Fair vs. Just price; the market share myth; his mantra: innovate for growth, price for profit; how the Stan Shih Smile Curve impacts strategic pricing, will pricing become profession (Reed says it already is), and is he working on any new books. We also discussed his most recent books, Pricing with Confidence and Negotiating with Backbone.

Holden Advisors publishes a monthly newsletter, which you can subscribe to for free here. We highly recommend it for all business owners.

smile-curve

 About Reed Holden 

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Reed Holden, D.B.A., Founder & Coach  
Dr. Reed K. Holden (Concord, MA), Founder of Holden Advisors, is a world-class pricing expert who helps clients build go-to-market strategies to drive price leadership, selling backbone and profitable growth. Dr. Holden specializes in helping sales organizations avoid the Procurement Buzz SawSM by implementing value strategies to recognize and counter margin-reducing buying tactics. He is an enthusiastic and persuasive advocate for demonstrating customer value and price leadership with companies that need to adapt in highly competitive markets.

A dynamic and engaging presenter with over 20 years of experience, Dr. Holden is a regular speaker and keynote for executive and sales events for Fortune 1000 companies. He is engaged to facilitate negotiation, pricing and customer value workshops and coaches sales people and senior executives in companies that strive for price leadership.

 Additional resources

 

July 18th Show Notes: The Second Law of Marketing: All Prices are Contextual

In our July 11th show we discussed The First Law of Marketing: The Value of Value.

The Second Law of Marketing is just as critical to help your organization communicate value, and help convince your customers to pay for that value.

One of the most customer-centric strategies your company can deploy is to offer an array options to your customers. It is very “outer-directed,” rather than just offering a one-size-fits-all, take-it or leave-it option.

Customers prefer options, especially in today’s world where they face a plethora of choices regarding who, when, what, and how to patronize a business. Contemplate these examples:

  • Universal Studios Theme Parks standard admission price is $80, but for $139 you can get a “Front of the Line Pass” and for $299 a “VIP Experience,” giving guests behind-the-scenes access.
  • When the final book in the Harry Potter series was released, the publisher offered the regular version for $34.99 and the deluxe version for $65. They were ranked number one and two, respectively, on Amazon and Barnes and Noble websites.
  • Tourists in New York can avoid the long lines to get to the observation deck of the Empire State Building for double the regular admission price, guaranteed to take no longer than 20 minutes.

We simply must get over the false idea that there is one optimal price for a customer. There is a range of optimal prices, commensurate with the value being created. Dutch psychologist Peter van Westendorp developed the van Westendorp Price Sensitivity Meter (PSM) by posing these five questions:

  1. At what price would this service be so expensive the customer would not consider buying it?
  2. At what price would the service be expensive, but the customer would still buy it?
  3. At what price would the service be perceived as inexpensive?
  4. At what price does the service become so inexpensive the customer would question its value?
  5. What price would be the most acceptable price to pay?

The Magic of Three––Goldilocks Pricing

There is strong empirical evidence—from both the rational and behavioral schools of economics—that offering customers at least three options can often times result in them purchasing more, at a higher price, than merely offering one take-it or leave-it option.

In his book, Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions, behavioral economist Dan Ariely illustrates the utility of offering options by illustrating The Economist magazine’s offerings. First, he presented the following two options to 100 students at MIT’s Sloan School of Management:

  1. Economist.com subscription $59: One-year subscription to Economist.com, including access to all articles from The Economist since 1997—68 students chose this option.
  2. Print & web subscriptions $125: One-year subscription to the print edition of The Economist and online access to all articles from The Economist since 1997—32 students.

Now compare those results to the actual ad that The Economist offered, which contained three options, not two:

  1. Economist.com subscription $59: One-year subscription to Economist.com, including access to all articles from The Economist since 1997—16 students chose this option.
  2. Print subscription $125: One-year subscription to the print edition of The Economist—0 students.
  3. Print & web subscriptions $125: One-year subscription to the print edition of The Economist and online access to all articles from The Economist since 1997—84 students.

Ariely concludes that there is nothing rational about this change in choices. The mere presence of an option that was not desired—known as the decoy or dominated option—affected behavior, leading to a potential 42.8% increase in incremental revenue for The Economist.

When two options are presented, the decision is mostly made on price, yet when three options are offered it becomes a decision based on value.

The Anchor and Framing Effects

Offering options creates the anchoring effect, whereby the customer is now comparing prices to your highest offering. This is why Victoria’s Secret offers a diamond ornamented bra for $6.5 million that no one probably ever bought; and Prada stores always display one incredibly high-priced article that acts as an anchor for all the other products.

All of these high priced items act as an anchor, even if the customer never buys them—throwing a halo effect over the other offerings, allowing for prices to be higher, while increasing average per customer sales.

The first lesson from the above is if you do not offer a high-end premium package, how could you customers ever select one? Second, list your most expensive option first. The third lesson is that by offering three options, you almost always sell more of the middle option, and less of the cheapest offering.

This confirms what most pricing experts know: people are not price sensitive; they are value conscious.

Another behavioral phenomenon is the framing effect. What you compare something to will determine an acceptable price to pay. If I offered to sell you my Unicorn, you’d have no idea what to pay since no one has ever purchased one. But you’re happy to pay for coffee in little pods—which are more expensive than coffee purchased in bulk—because you are comparing it to Starbucks.

This is why brands pay so much attention to what you’re comparing their offerings to: Red Bull is packaged in a skinny can so it will not be compared to a Coke or Pepsi, and Woolite is in a bottle so it’s not compared with Tide, but rather dry cleaning.

When you present three options to the customer, you are also subtly changing their psychology. Rather than thinking about whether or not they will do business with your company, the options nudge them in the direction of thinking about how they are going to do business with your company.

Pay close attention to the context in which your prices are anchored and framed. It will have an enormous impact on your profitability.

Additional Resources and Books Mentioned

For more on why are we in business, Peter Drucker’s Marketing Concept, and the role of profit, see Pricing on Purpose: Creating and Capturing Value, by Ronald J. Baker.

Minding the Store: A Memoir, by Stanley Marcus. Ron believes this is the best book ever written on customer service.

Positioning for Professionals: How Professional Knowledge Firms Can Differentiate Their Way to Success, by our VeraSage Institute colleague Tim Williams, who will be a guest on a future show.

Ed mentioned Harry Gordon Selfridge and Amazon’s Kindle Unlimited.

We referred to Rory Sutherland TED.com talk, and his example the breakfast cereal Shreddies. Here is the video. Rory will be a guest on our August 29th show.

The infamous Wendy’s commercial from the Cold War era, about offering choices.

Email us at: tsoe@verasage.com

Twitter: @edkless @ronaldbaker #tsoe

How agencies are transforming approach to compensation

VeraSage Senior Fellow Tim Williams recently delivered an excellent talk about firm compensation (that is, pricing) at IPA’s Performance Adaptathon.

I believe it is relevant to all professional firms. Enjoy!


Uploaded on authorSTREAM by TheIPA

And meanwhile, on the Beeb…

Gucci HandbagLying in bed last night having a listen to the World Service on the BBC (as you do when you’re an exciting accountant), I happened across a very interesting program on pricing.

Being a rampant technophobe, after about 5 minutes, a link to the broadcast was sourced and it is available here.

I recommend you have a listen to it as there are some worthwhile observations through the broadcast – particularly when it comes to Gucci pricing their new handbag. It may surprise some readers to find out that the cost of manufacture had little (nothing) to do with eventual sales price which was set by the customers! The reporter on the job seems to take some umbrage at this, however the earnest Gucci rep explains it quite simply.