figure out which clients make you less money and why.
by hitendra patil
client accounting services: the definitive success guide
we discussed that you need to explain the why of your client accounting services pricing. a price is a measurable number. “value” of each of your cas component also needs to be reasonably measurable for your clients and prospects to understand the why. this is easier said than done, and you need to keep rewriting the value statements, testing them and revising them.
more: how to set your firm’s cas pricing | the top cas pricing strategies | how to choose your cas processes | nine ways to measure client experience | twelve clues it’s time to outsource or offshore | yes, you have the staffing for cas | why firms shy away from cas
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the best way to define the measurable value of each of your cas components is to state it from the client’s perspective, i.e., which business decisions the client can make based on the information/insight/intelligence you provide in a given cas component, and under which circumstances. then state the measurable impact of such business decisions. e.g., “on an average, we help our clients reduce money stuck in inventory by 11 percent, which in many cases results in lower overdraft interest costs by about 1.3 percent annually.” without the numbers in your value statements, clients can feel you are pitching marketing fluff.
tip: think of the proverbial “what keeps clients up at night,” but think of it in the words clients describe those concerns/anxieties. e.g., if the client expresses “i never know how much money i am really making,” you want to write the value of your income statement as, “you will exactly where the money came from, where did it go and exactly how much you made after providing to taxes. we can deliver this peace of mind every week.”
how to make your cas pricing more profitable
marketing legend jay abraham says there are only three ways to grow your business, but there are infinite combinations and variations of ways you can go about working with each of these areas. those three ways are:
- increase the number of clients
- increase the average transaction value
- increase the frequency of repurchase
while the first one above is directly related to the marketing and sales competencies of your firm, cas helps you achieve the next two. and your cas pricing can be adjusted to make those two ways more profitable for your firm.
increasing the transaction value
your cas packages, when designed expertly, can quickly move the prospects toward the higher level of price. it does not always mean you will do more work for the client. it can result in efficiency gains adding to the profitability, e.g., when staff works on a given client because the staff is producing multiple deliverables for the same clients, there is no need for that staff to keep switching between various clients’ work too frequently. in an interesting study, “programmer, interrupted: data, brains, and tools,” microsoft found that a programmer takes between 10-15 minutes to start editing the code after resuming work from an interruption. it also found that there can be as high as 20-30 percent overhead in “work resumption costs.” it is higher when “information density” is higher in a given task.
accounting can be considered as high-information density work for sure. multitasking, according to brain science, is a myth. “switching” between multiple client tasks is akin to work interruptions. when your staff produces deliverables for more service components for the same client at one go, your “cost” decreases, thereby increasing your profitability.
secondly, as you deliver more actionable insights to your cas clients, their business (should) grow, and that pushes the work volume upward. thus, your revenue from the client goes up.
thirdly, as the client’s business grows, the higher-end cas components become necessary for your clients. hence, they will end up upgrading to your next higher level of cas package, thereby resulting in revenue growth for your firm.
as you deliver consistent value, your clients generally want you to do more work for them. you can sell add-on services, partner services, solutions and so on. this has a direct impact on your firm’s top line, as well as the bottom line.
in effect, cost reduction and revenue growth will have a double-whammy positive impact on your cas profitability.
increasing the frequency of repurchases
cas, by very design, requires longer-term agreements, i.e., providing periodic services to your cas clients is a must. contrast that with other work accountants do, e.g., tax return preparation, sales tax filing, quarterly/annual compliance and so on. when a client’s business grows, that client may need weekly reports instead of monthly. some clients may even need daily reports instead of weekly. an increase in the frequency of service delivery necessitates that clients pay your firm more fee commensurate with the outcomes they receive. “usage-based fee” is a concept well entrenched in the software solutions world. it also applies well to the cas world of accountants.
adjusting your cas profitability
when all of these things are happening, it gives you more data to analyze your firm’s cas profitability. it will be possible for you to allocate your operating costs to each client’s work and prepare a per-client profitability worksheet. you will invariably find that for the same cas package level, some clients are more profitable for your firm than others. you need to dig into the causes of why so. you might find causes like:
- some of your staff members need gap training to make them more productive.
- some of your clients are habitually late in responding to your firm’s information needs or advice.
- your process steps involve some information-capturing duplication across different steps.
- your firm is not taking optimal advantage of the software automation features for all clients.
- software solutions used for some clients are not as automated as those used for other clients (ideally, your firm should decide which software to use for client accounting and put as many clients on the same software as possible).
- you haven’t periodically researched the market for new software solutions. an accountant who serves over 800 small business clients invests 1 percent of top-line revenue in exploring new software every year.
- some/all of your clients’ niche/industry-specific software solutions do not integrate well with your accounting software.
- some clients’ work has outgrown the cas package level they subscribed to.
- your client service communications are not automated optimally.
- you are allowing clients to get ad-hoc work processed without charge or you are answering unlimited client questions for free (check if you have a certain limit for “free consultations” in each cas level).
- you are not processing some client work that you should.
- your fundamental cas pricing itself was not profitable.
when you find the reasons, remedy them across that cas level to ensure a majority of clients within the same cas package are more or less similarly profitable for your firm.
one of my friends, an experienced cpa, increased the revenue of his cas practice by 75 percent in five years, without increasing the number of clients! sixty-five percent of his firm’s revenue comes now from cas and cfo services. it is because he managed to create and sell additional services to enhance the transaction value as well as repurchase frequency.