{"id":108467,"date":"2023-02-10t00:53:33","date_gmt":"2023-02-10t05:53:33","guid":{"rendered":"\/\/www.g005e.com\/?p=108467"},"modified":"2024-01-15t16:00:01","modified_gmt":"2024-01-15t21:00:01","slug":"ron-baker-monetize-the-relationship-not-the-transaction","status":"publish","type":"post","link":"\/\/www.g005e.com\/2023\/02\/10\/ron-baker-monetize-the-relationship-not-the-transaction\/","title":{"rendered":"ron baker: monetize the relationship, not the transaction"},"content":{"rendered":"<p><strong>ron baker: the subscription model optimizes lifetime customer value.<\/strong><\/p>\n<div style=\"padding: 56.25% 0 0 0; position: relative;\"><iframe style=\"position: absolute; top: 0; left: 0; width: 100%; height: 100%;\" title=\"ron baker: monetize the relationship, not the transaction.\" src=\"https:\/\/player.vimeo.com\/video\/789607080?h=72af982533&amp;badge=0&amp;autopause=0&amp;player_id=0&amp;app_id=58479\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/div>\n<p><strong>subscribe to 卡塔尔世界杯常规比赛时间 podcasts anywhere:<\/strong> <span style=\"color: #0056a6;\"><a style=\"color: #0056a6;\" href=\"https:\/\/cpa.click\/apple-podcasts\">apple<\/a>,<\/span> <a href=\"https:\/\/cpa.click\/google-podcasts\">google<\/a>, <a href=\"https:\/\/cpa.click\/spotify\">spotify<\/a>, <a href=\"https:\/\/cpa.click\/iheart-podcasts\">iheart<\/a>, <a href=\"https:\/\/cpa.click\/deezer\">deezer,<\/a> <a href=\"https:\/\/cpa.click\/amazon-podcasts\">amazon music and audible<\/a>, <a href=\"https:\/\/cpa.click\/playerfm-podcasts\">player fm<\/a>, <a href=\"https:\/\/cpa.click\/audacy\">audacy<\/a>, <a href=\"https:\/\/cpa.click\/gaana\">gaana (india)<\/a>, and <a href=\"https:\/\/cpa.click\/boomplay\">boomplay (africa)<\/a>.<\/p>\n<p><iframe loading=\"lazy\" src=\"https:\/\/www.podomatic.com\/embed\/html5\/episode\/10475996?style=normal&amp;width=&amp;height=208\" width=\"100%\" height=\"208\" frameborder=\"0\"><\/iframe><\/p>\n<p><strong>the disruptors <img loading=\"lazy\" decoding=\"async\" class=\" wp-image-96261 alignright\" src=\"\/\/www.g005e.com\/wp-content\/uploads\/2022\/04\/the-disruptors-with-liz-farr-and-cpat-hdr-vf-2022-424x242.png\" alt=\"\" width=\"254\" height=\"145\" srcset=\"\/\/www.g005e.com\/wp-content\/uploads\/2022\/04\/the-disruptors-with-liz-farr-and-cpat-hdr-vf-2022-424x242.png 424w, \/\/www.g005e.com\/wp-content\/uploads\/2022\/04\/the-disruptors-with-liz-farr-and-cpat-hdr-vf-2022-300x171.png 300w, \/\/www.g005e.com\/wp-content\/uploads\/2022\/04\/the-disruptors-with-liz-farr-and-cpat-hdr-vf-2022-600x343.png 600w, \/\/www.g005e.com\/wp-content\/uploads\/2022\/04\/the-disruptors-with-liz-farr-and-cpat-hdr-vf-2022-849x485.png 849w, \/\/www.g005e.com\/wp-content\/uploads\/2022\/04\/the-disruptors-with-liz-farr-and-cpat-hdr-vf-2022-768x439.png 768w, \/\/www.g005e.com\/wp-content\/uploads\/2022\/04\/the-disruptors-with-liz-farr-and-cpat-hdr-vf-2022-1536x877.png 1536w, \/\/www.g005e.com\/wp-content\/uploads\/2022\/04\/the-disruptors-with-liz-farr-and-cpat-hdr-vf-2022.png 1600w\" sizes=\"(max-width: 254px) 100vw, 254px\" \/><br \/>\n<\/strong><em>with liz farr for 卡塔尔世界杯常规比赛时间<\/em><\/p>\n<p>ron baker has been on a crusade to transform accounting firms for decades, first by pushing us to kill the billable hour and to implement value pricing. today, he\u2019s advising accountants to switch to a radically different business model. his new book, co-authored with paul dunn, &#8220;time\u2019s up! the subscription business model for professional firms,&#8221; explains the subscription model and why moving to this model aligns the values of firm owners with those of their customers.<\/p>\n<blockquote><p><strong>more:<\/strong> <a href=\"\/\/www.g005e.com\/2022\/12\/12\/erik-solbakken-work-less-and-make-more\/\">erik solbakken: yes, you can work less and make more<\/a> | <a href=\"\/\/www.g005e.com\/2022\/12\/05\/future-firm-growth-requires-a-mindset-shift\/\">donny shimamoto: future firm growth requires a mindshift<\/a> |\u00a0<a href=\"\/\/www.g005e.com\/2022\/11\/28\/jennifer-wilson-empower-young-workers-to-build-the-firm-everyone-loves\/\">jennifer wilson: empower young workers to build the firm everyone loves<\/a> |\u00a0<a href=\"\/\/www.g005e.com\/2022\/11\/16\/mike-whitmire-re-think-your-hiring-and-training-practices\/\">mike whitmire: re-think your hiring and training practices<\/a> |\u00a0<a href=\"\/\/www.g005e.com\/2022\/09\/21\/hector-garcia-how-niche-knowledge-drives-success\/\">hector garcia: success strategies of a quickbooks youtube superstar<\/a> | <a href=\"\/\/www.g005e.com\/2022\/04\/19\/disruptors-blake-oliver-liz-farr\/\">blake oliver: why tax work yearns to be free<\/a>|\u00a0<a href=\"\/\/www.g005e.com\/2022\/04\/08\/watch-martin-bissett-urges-accountants-to-go-commercial\/\">private equity explodes in u.k.<\/a>\u00a0|\u00a0<a href=\"\/\/www.g005e.com\/2022\/04\/04\/stop-accepting-the-status-quo\/\">brannon poe: the status quo must go<\/a> \u00a0| <a href=\"\/\/www.g005e.com\/2022\/03\/28\/accounting-nerds-tap-into-your-secret-super-powers\/\">accounting nerds, unlock your super powers<\/a> \u00a0| <a href=\"\/\/www.g005e.com\/2022\/09\/02\/disruptor-jason-staats-shakes-up-the-status-quo\/\">disruptor: jason statts shakes up the status quo<\/a> | <a href=\"\/\/www.g005e.com\/2022\/03\/09\/matt-wilkinson-think-small-to-think-big\/\">think small to think big with matt wilkinson<\/a> |\u00a0<a href=\"\/\/www.g005e.com\/2022\/03\/06\/the-disruptors-corey-schmidt-on-re-inventing-your-firm\/\">when financial statements go extinct with corey schmidt<\/a> |\u00a0<a href=\"\/\/www.g005e.com\/2022\/02\/14\/geraldine-carter-can-she-save-accountants-from-themselves\/\">can geraldine carter save accountants from themselves?<\/a> |\u00a0<a href=\"\/\/www.g005e.com\/2022\/01\/27\/disruptors-tyler-anderson\/\">re-inventing accounting with tyler anderson<\/a><\/p>\n<p><span style=\"color: #c9990a;\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/cpatwpe.s3.amazonaws.com\/cpatrendlines\/wp-content\/uploads\/2016\/08\/yellow_key_clip_art-e1375897299811-36p-hi-1-e1603911598474.jpg\" alt=\"goprocpa.com\" width=\"39\" height=\"16\" \/>\u00a0exclusively for pro members.\u00a0<a style=\"color: #c9990a;\" href=\"\/\/www.g005e.com\/wp-login.php?redirect_to=\/\/www.g005e.com\/2021\/02\/05\/22-predictions-for-2021\/\">log in here<\/a>\u00a0or\u00a0<a class=\"external\" style=\"color: #c9990a;\" href=\"http:\/\/goprocpa.com\/\" target=\"_blank\" rel=\"noopener noreferrer\">2022世界杯足球排名 today<\/a>.<\/span><\/p><\/blockquote>\n<p>this book began from ron\u2019s obsession with the question \u201cwhat would happen if disney started cpa firms?\u201d accounting wouldn\u2019t be a grudge purchase with low prices, but disney \u201cwould enhance the experience and you would pay a fortune and you would be delighted to do so.\u201d in today\u2019s world, your customers are no longer comparing your firm to the other cpa firms, but to \u201cany organization that has the capacity of raising our customer\u2019s expectations,\u201d such as nordstrom or amazon. baker said, \u201cwe need to up our game as a profession.\u201d<\/p>\n<p><!--more--><\/p>\n<p>under the subscription model, accountants provide their customers with whatever services the firm provides. \u201cthere&#8217;s no more scope creep under this model because there&#8217;s no more scope. we do whatever the customer needs, when they need it, on-demand, and because we have fewer customers, we always have capacity,\u201d baker said.<\/p>\n<p>this allows firms to better align with why many became accountants in the first place \u2013 to help people by guiding customers through transformations, which can be as simple as helping finance college for their kids or as complex as estate planning.<\/p>\n<p><strong>more takeaways from ron baker<\/strong><\/p>\n<ol>\n<li>the subscription model isn\u2019t just a pricing change. it\u2019s not taking the annual fee and dividing it by 12 to get a monthly rate. it means providing a more convenient, frictionless experience, providing peace of mind, and to \u201cplus\u201d the offering.<\/li>\n<li>\u201cplussing\u201d the offering means an enhanced offering compared to the competition and continually adding new services without increasing the price. this de-commoditizes our services right out of the gate.<\/li>\n<li>concierge doctors and direct primary care physicians are two models of subscription service businesses. these doctors don\u2019t accept insurance. instead, they have a close relationship with their patients. anything that they can do in their offices is included in the monthly membership fee.<\/li>\n<li>the subscription model has a different profit formula. you\u2019re not piling on additional services to increase revenue but rather building streams of recurring revenue, not merely <em>reoccurring<\/em> revenue, which is valued higher when it\u2019s time to sell.<\/li>\n<li>recurring revenue is repeatable and predictable once you have a track record to tell you how many customers you lose on average. reoccurring revenue may include lots of one-and-done projects and is less predictable.<\/li>\n<li>the revenue model requires us to consider what it is that we want our clients to pay for. with the subscription model, the goal is the transformation of the customer. services are a means to that outcome. the highest point of value is when you guide customers through transformations.<\/li>\n<li>instead of optimizing for price per transaction as you do with value pricing, the subscription model optimizes lifetime customer value.<\/li>\n<li>transformation isn\u2019t always about providing better services. sometimes it\u2019s about asking better questions.<\/li>\n<li>if a customer signs up for a subscription and stays for a year, there\u2019s a more than 90% probability they will stay for life.<\/li>\n<li>one possible model for an accounting firm is to have separate tiers of service:\n<ol>\n<li>cas only<\/li>\n<li>cas + tax<\/li>\n<li>cas + tax + advisory<\/li>\n<\/ol>\n<\/li>\n<li>onboarding and customer selection are crucial to ensure that you sign up the right kinds of customers. customers who cancel quickly after just a month or two are doing you a favor because they have self-identified as bad customers. if this happens repeatedly, you have a client selection problem.<\/li>\n<li>the most successful way to transition to this model is to spin out a new firm that uses the subscription model. over time, the new firm will grow and cannibalize the legacy firm.<\/li>\n<li>customer relationships matter most in this model, but relationships don\u2019t scale. at a certain point, you can\u2019t have meaningful relationships with more customers. it\u2019s not about getting a tech stack that allows you to minimize your interactions with a customer to get more capacity, but it\u2019s about having the spare capacity for the people you\u2019re privileged to serve.<\/li>\n<\/ol>\n<p><strong>more about ron baker<br \/>\n<\/strong><\/p>\n<p>ronald j. baker started his cpa career in 1984 with kpmg\u2019s private business advisory services in san francisco. today, he is the founder of verasage institute\u2014the leading think tank dedicated to educating professionals internationally\u2014and radio talk show host on the <a href=\"http:\/\/www.voiceamerica.com\/\">www.voiceamerica.com <\/a>show: <em><a href=\"http:\/\/www.thesoulofenterprise.com\/\">the soul of enterprise: business in the knowledge economy<\/a><\/em>.<\/p>\n<p>as a frequent speaker, writer, and educator, his work takes him around the world. he has been an instructor with the california cpa education foundation since 1995 and has authored over twenty courses for them, including <em>you are what you charge for: success in today\u2019s emerging experience economy (with daniel morris);<\/em> <em>alternatives to the federal income tax<\/em>; <em>trashing the timesheet: a declaration of independence<\/em>; <em>everyday economics<\/em>; <em>everyday ethics: doing well by doing good<\/em>; and <em>the best business books you should read<\/em>.<\/p>\n<p>he is the author of seven best-selling books, including<em>\u00a0professional\u2019s guide to value pricing<\/em>; <em>the firm of the future: a guide for accountants, lawyers, and other professional services<\/em>, co-authored with paul dunn; <em>pricing on purpose: creating and capturing value<\/em>; <em>measure what matters to customers: using key predictive indicators<\/em>; <em>mind over matter: why intellectual capital is the chief source of wealth<\/em>; <em>implementing value pricing: a radical business model for professional firms<\/em>; <em>the soul of enterprise: dialogues on business in the knowledge economy<\/em>, co-authored with ed kless. his latest book, written with paul dunn, <em>time\u2019s up!: the subscription business model for professional firms<\/em>, was published in november 2022.<\/p>\n<p>ron has toured the world, spreading his value-pricing message to over 250,000 professionals. he has been named on <em>accounting today\u2019s<\/em> 2001 to 2007 and 2011 to 2022 top 100 most influential people in the profession; voted among the top ten most influential people in the profession in 2012\u20142022; selected as one of linkedin\u2019s influencers; inducted into the cpa practice advisor hall of fame in 2018; and received the 2003 award for instructor excellence from the california cpa education foundation. he graduated in 1984 from san francisco state university with a bachelor of science in accounting and a minor in economics. he is a graduate of disney university and cato university and is a faculty member of the professional pricing society. he presently resides in petaluma, california.<\/p>\n<p><strong>transcript<br \/>\n<\/strong><em>(transcripts are made available as soon as possible. they are not fully edited for grammar or spelling.)<\/em><\/p>\n<p><strong>liz farr\u00a0 <\/strong>00:04<\/p>\n<p>welcome to accounting disrupter conversations. i&#8217;m your host, liz farr from cpa trend lines, and we have a treat for you today. my guest today is ron baker, founder of verasage institute, co host of the soul of enterprise podcast, and author of the firm of the future, implementing value pricing measure what matters in a new book. time&#8217;s up the subscription business model for professional firms. how are you today? ron?<\/p>\n<p><strong>ron baker\u00a0 <\/strong>00:37<br \/>\ni&#8217;m great. liz. so great to be here. thanks for having me.<\/p>\n<p><strong>liz farr\u00a0 <\/strong>00:41<br \/>\noh, no problem, you know, and i gotta say, ron, that that your work has really been has had a big impact on me. it was really a ray of hope for me when i was trapped in a cubicle and it didn&#8217;t occur accounting firm. and it was the ray of light that showed me that there are ways out of the billable hour hell that we have created.<\/p>\n<p><strong>ron baker\u00a0 <\/strong>01:06<br \/>\nthat&#8217;s awesome, because i feel the same way the journey. that&#8217;s what started the journey. i was also trying to get out of that. that darkness that we were all in under the old model, because i&#8217;ve been doing timesheets since i&#8217;ve been in high school when i had my own accounting firm and was doing taxes and you know, people&#8217;s books, and it was it&#8217;s crazy. so it was it was a lot a lot of unlearning.<\/p>\n<p><strong>liz farr\u00a0 <\/strong>01:30<br \/>\nyeah. yeah. well, in today&#8217;s show, instead of going over the usual questions that i asked everyone, we&#8217;re going to switch gears, and we&#8217;re going to talk about ron&#8217;s new book times up. now, this new book presents a new business model for accounting firms. the subscription model, can you briefly explain what this is?<\/p>\n<p><strong>ron baker\u00a0 <\/strong>01:56<br \/>\nyeah, you know, it&#8217;s called by tien tzuo, the founder of zuora, ceo and founder of zuora, which is a software platform that runs subscription businesses. he&#8217;s coined the term subscription economy, which i kind of like. and it&#8217;s projected to grow to one and a half trillion by 2025. just to put that in context, it&#8217;s about 650 billion in 2020. so we&#8217;ve been trying to keep track on our radio show how many things we can subscribe to, and i can&#8217;t keep track of it anymore. i&#8217;ve lost track now i can subscribed to a home, i can subscribe to a boat from brunswick. and you can subscribe to porsche. in fact, the fleet of porsches porsche drive, and i just see this tsunami out there in the economy, that all these businesses are offering subscription. and it&#8217;s really a way to service simplicity, for your customer to provide a more convenient, frictionless experience, to provide peace of mind to plus the offering you can&#8217;t with subscription, this is what makes it a business model change, not just a pricing change is you have to go to the market with a plus offering an enhanced offering. because after all, if we just go to the market with the same offering as everybody else, we&#8217;re going to command common prices. but if we go to the market with an uncommon offering, then we have some room for some pricing power and uncommon pricing. so it&#8217;s an i think that&#8217;s really exciting. and there&#8217;s no doubt in my mind that this is going to be the new model for the firm of the future. and that&#8217;s kind of how we came to write this book, because the publisher asked us if we wanted to do a 20 year update on the firm of the future that paul and i have done and i who we wrote that book together, was published in 2003. and we published this book in 2023, even though it came out in november. so it&#8217;s kind of an i said, no, i don&#8217;t want to update the old book, i want to write a new book. when i proposed this model, they loved it. so i&#8217;m really excited about it, because i think this is the new frontier for our profession.<\/p>\n<p><strong>liz farr\u00a0 <\/strong>04:04<br \/>\ni agree and i have heard of lots of accounting firms who were at least dipping their toe in the water of trying this out. so i think that this is going to be a lot of big changes for the profession. i really do.<\/p>\n<p><strong>ron baker\u00a0 <\/strong>04:23<br \/>\ni do too. and you know, kind of started from my obsession with two questions, basically, one was what would happen if disney started cpa firms? and when you when you pose that question to people, you say, would they treat it like a commodity? would they treat it like a grudge purchase? would they would they price it low? because it&#8217;s a grudge purchase and it&#8217;s a commodity now, they would enhance the experience and you would pay a fortune and you would be delighted to do so. but liz, why do we have to wait for disney to start cpa firms? why don&#8217;t we up the game ourselves and stop stop looking at one another and benchmarking one. and i don&#8217;t want to benchmark my my peers. i want to go out and benchmark disney, and nordstrom and fedex and lexus and find out what these companies are doing in the amazon to up their game. and i think that&#8217;s what this model forces you to do.<\/p>\n<p><strong>liz farr\u00a0 <\/strong>05:18<br \/>\nyeah, i agree. no, no. are there other profession who were using this model successfully?<\/p>\n<p><strong>ron baker\u00a0 <\/strong>05:29<br \/>\nyes, this has got an incredible empirical track record. and this was my north star, writing the book was it concierge doctors. the first concierge doctor was started by a guy named howard moran, who was the seattle sonics basketball team, doctor, and he was a general physician. and he said, you know, hey, when one of my players gets hurt on the court game, i can go out there. and i know everything about these guys. i know their medical history, i know what drugs they take, i know what they&#8217;re allergic to blah, blah, blah, blah. he knows everything about him. i can get them back in the game real quick. i can only do that with my patients. and that was his question. but all don&#8217;t all great things start with a question. without a good question. there&#8217;s no place for an answer to go. and he started md squared, which today is the largest concierge medical practice in the country with multiple, lots of different offices across the country. it was even international at one point. but they scaled back i guess, because different countries have different medical system. anyway, he started this and the philosophy was, we&#8217;ve got one doctor, handle 50 families. and that&#8217;s it. and the average general physician, just to put that, in context, has a panel of patients of 2400 patients. so this is why we get to spend five minutes with our doctor, and half that time there staring in front of their, you know, laptop to type into your electronic health records. well, the concierge doctors don&#8217;t do any of that. they don&#8217;t take insurance. they don&#8217;t have medical book billers and coders. they&#8217;ve eliminated all the bureaucracy you subscribe to them directly. now concierge doctors go after the top 5% top 10% of income earners and they&#8217;re going after ceos, people that basically have more money than time, his initial price was something like 24 grand a year for a couple. and it was like four grand per kid. and again, they max out at 50 families. but that means they would do home visits, they would do office visits. if you got sick overseas, sometimes they fly to you and coordinate your care overseas or bring you back. the there was no waiting. there&#8217;s no waiting rooms in these doctors offices because they have capacity to always handle emergencies. and when was md squared founded in 1996. wow. and i wrote about this in the book and i said we didn&#8217;t even have a good vocabulary to explain this type of medicine. you know what i called? i wrote a book called pricing on purpose in 2004, or five or something. because i had run across md squared in 2000. so i was four years behind when it started when i learned about it. and then in 2005 i called it well this is retainer based medicine. talking about you know how we how we tend to describe the new by going back to the old you know the automobile, the horseless carriage, bitcoin, the digital wallet, there&#8217;s no wallet and bitcoin. but you know, that&#8217;s what we do. we don&#8217;t even have an adequate vocabulary for this model. but it&#8217;s not a retainer, because they&#8217;re not working on anything. in fact, i met the bookkeeper who set up nd square on quickbooks basically. and she said, i used to go to the controller with a check, you know, five $3,000, check whatever the monthly amount was, and say, where do i code this? what did we do for this patient? and the guy said, we did whatever the patient required, i don&#8217;t know what we did. that&#8217;s not why he&#8217;s paying us the three grand he&#8217;s paying three grand for access to us when he needs us. right? and i thought, oh, geez, this is a completely different model. so after the concierge, doctors came out, and some physicians transferred to that, then the dpc doctors, the direct primary care doctors started to hit the market, and they&#8217;re at a different price point. so they go down even below middle class that we interviewed one guy, and he deals in detroit. he&#8217;s in detroit, and he&#8217;s $100 a month. and he&#8217;s a gp, which means i can handle 60 80% your health needs. and the reason i spent so much time in the book, i have a chapter on both concierge but more on dpc is because people who entered the medical profession became a doctor did so to help people. lose you can help people if you have 2400 patients i don&#8217;t care how good you are, you&#8217;re not helping people, you may be helping them get well, you know, from what they present with when they come in to seat, but you&#8217;re not keeping them healthy. you&#8217;re not doing all you could, but you can have deep transformative experiences with them. and this is part of what i love about this model is even dpc, doc&#8217;s limit themselves to 600 patients. and i think we need to do the same thing, because when i asked cpas, why did you join this profession to help people, you can&#8217;t help people, if you have 1000 customers, i don&#8217;t care how good you are. you&#8217;re not helping anybody you&#8217;re complying, you&#8217;re helping them complot. but you&#8217;re not doing all the things that we could be doing for them. so i think this gets us back to our roots of why did we join this profession, i didn&#8217;t join this profession to do the most tax returns to build the most hours, to have the most clients, i didn&#8217;t do any, i don&#8217;t want any of that. i want to have deep meaningful impacts and deep meaningful relationships with the customers i&#8217;m privileged to serve. and i can&#8217;t do that if i have too many of them.<\/p>\n<p><strong>liz farr\u00a0 <\/strong>11:05<br \/>\ni completely agree. there were so many times when i was still practicing, that i saw, there was some still more so much more than we could have done for some of our clients. but we just didn&#8217;t have the time or the bandwidth. we just didn&#8217;t know that.<\/p>\n<p><strong>ron baker\u00a0 <\/strong>11:27<br \/>\nand that&#8217;s because we take on every customer, we try and be all things to all people. and we try and be morton&#8217;s and mcdonald&#8217;s and a vegan restaurant all in one user, we don&#8217;t want to turn anybody away. and you can&#8217;t do that. we can&#8217;t please everybody, we&#8217;re not tequila, we have to pick up we have to focus and really bear down on what we can do. because i think from a strategic perspective, cpa firms, in fact, i&#8217;d say all businesses are defined by the customers they don&#8217;t have, and the services they don&#8217;t perform. so these doctors are general physicians, which means they are not going to do cardiac surgery, they&#8217;re not going to replace your hip, they&#8217;re not going to cure your cancer, but what they will do is they will bring you to an oncologist or a heart surgeon, and they will sit in that appointment with you. and they will make sure that sure that that care is coordinated, just like cpas do when they meet with the attorney and the financial advisor and the insurance guy and you know, down the line, well, that&#8217;s what they do. and that&#8217;s what we could be doing. doctors keep us physically healthy. cpas should be keeping their customers financially healthy. because both our health and our wealth are worth investing in. it&#8217;s not a commodity, the farthest thing from a commodity i can think of is your health and your wealth, healthy, wealthy and wise. now wise is education and all of that, but we can do something about the wealth and that\u00a0 decommoditizes us right out of the gate.\u00a0 yeah, yeah. now one of my favorite quotes in your book has to do with with time, because you know, when i first started public accounting, what i was told is we still taught, we still ours, that is what we sell. that was what i was told. and one of my favorite quotes in here is about time, it&#8217;s on page 185, we also need to stop thinking about time is somehow equated to value or even cost. it&#8217;s not time is a constraint. you cannot sell it, store it, hoard it, trade it or buy more of it. all businesses, indeed all living things are constrained by time, your business model should not be. now how does this relate to the subscription model? well, what&#8217;s great about subscription model and i think why we call the book time&#8217;s up is this is this is it for time this if this doesn&#8217;t get firms to move away from the billable hour thinking am the timesheet recording, which i&#8217;ve always been against even with value pricing than nothing well, because subscriptions a different business model. and when you change your business model, two things change at least if not more, but at least these two things always change and i mean radically change. one is your pricing strategy. so we go from buying a $20 cds, to buying $1 a song putting it on our ipod, and now we&#8217;re all streaming music. yeah, so different pricing strategy. and i can go that we can go down the list we can talk about uber surge pricing versus taxi cab, we can talk about airbnb and their pricing is different. the other thing that changes and most consultants and change agents don&#8217;t don&#8217;t understand this and i&#8217;ve never understood why. but when you change as your business model, your kpis change, everything you look at internally changes your dashboard is, i promise you airbnbs dashboard does not look like hilton&#8217;s. and arab and ubers does not look like a taxicab company. and then subscription. one of the great things about it, because there&#8217;s so many businesses out there that are subscription based. and in fact, most unicorns are subscription based, we have an incredible amount of empirical evidence on what metrics and kpis make sense or subscription. andreessen horowitz is got two reports that are absolutely amazing. because they, they, they pull open the kimono, and they say, this is the met, these are the metrics that we look at to evaluate, invest in and purchase subscription based businesses, and they&#8217;re phenomenal, every kpi you could ever dream of is in there. and not one of them has anything to do with time.<\/p>\n<p><strong>liz farr\u00a0 <\/strong>16:01<br \/>\nright, they all have to do with, with the customer value. now i write for a couple of accounting tech companies, and they&#8217;re all subscription base. so they&#8217;re talking about cac, and, you know, lifetime, lifetime customer value, lcv and recurring revenue, and churn and all of those things. and so i had to learn what all those things were so that i could understand what they were talking about what was important to them.<\/p>\n<p><strong>ron baker\u00a0 <\/strong>16:39<br \/>\nyep, the income statement is starts with beginning ar ar annual recurring revenue. and it backs out churn. and then it classifies expenses, expenses differently, because it&#8217;s no longer about matching lids. when you have a fetish in as accountants about matching, it&#8217;s not about matching. even if apple were to go to fully subscription. they couldn&#8217;t match iphones compute, they couldn&#8217;t match the sku to the subscriber, because it&#8217;s not about that. it&#8217;s about growing the lifetime value of the subscriber, not about piling on services or products, brick by brick by brick, thinking we&#8217;re going to make more profit, that we&#8217;ve got a different profit formula with the subscription business model. it&#8217;s completely different. and so when people we get pushback on this all the time, as you can imagine, well, what about the one off? what about this project? what about that, now, it&#8217;s kind of different profit formula. your your build, what you&#8217;re doing was subscription is you&#8217;re building lifetime annuities that are worth far more than the cost to acquire them. and that&#8217;s the new profit formula. and that bakes into that profit formula, by the way, that when you have a firm to sell, when you&#8217;re ready to sell or exit, your firm is going to be valued higher, if it&#8217;s got annual recurring revenue, as opposed to just reoccurring revenue. there&#8217;s a huge difference between reoccurring and annual recurring revenue. one is definitely repeatable. it&#8217;s more predictable, especially if you have a track record of churn you know, you know how many customers on average, you&#8217;re losing. reoccurring revenue. that&#8217;s kind of like a rash. you never know when it&#8217;s going to come back. we do a lot of one and done projects that we probably shouldn&#8217;t do. by the way. last thing i want to hear from my heart surgeon as well look at that. i&#8217;ve never seen that before. i think that&#8217;s a violation of due care. by the way, forget, forget how you price a project that doesn&#8217;t fit into normally what we do. my question is, should we be doing it at all? are you a gp trying to do heart surgery, you&#8217;re not you&#8217;re not doing yourself any favors, but you&#8217;re certainly not doing your customer any favors if you step outside of your area of expertise. plus, it&#8217;s unprofessional, look up due care. that&#8217;s why i quote the aicpa due care principle in the book in its totality? because it&#8217;s so forceful about if you don&#8217;t have experience doing this, you shouldn&#8217;t do it. i&#8217;m sure violation of your professional duty is one of the core six principles of the aicpa code of code of ethics principles. and we i think we we do that a lot is because we don&#8217;t want to say no to anything. no, and it would be like a, you know, gp doing heart surgery, it just wouldn&#8217;t be right. so anyway, yeah, it&#8217;s a different profit formula. it&#8217;s also a different revenue model. and the revenue model question is really interesting, because the revenue model question asks, i think an incredibly important question that we tend not to focus on, is what do we want our customers to pay us for? now, if you look at hourly billing, even if you look at value pricing, what are our customers paying us for? basically a scope of work? even if we value price it even if we offer three options? it&#8217;s those options are differentiated based. done scope of work. so it could be size of business could be number of employees, you know all these things. and that leads us to believe that we, the more services, we stack up brick by brick by brick, the more value that we&#8217;re adding. and that&#8217;s not the case at all, because the surfaces are just a means to an end to end is the outcome, or what we call in the book of transformation. and that&#8217;s where you&#8217;re at the highest point of value is when you guide your customers through transformations. and we can do that as cpas serially, we can do it over and over and over again, from womb to tomb, you know, from college planning to estate planning, literally. and we don&#8217;t use this language, we don&#8217;t communicate our value this way. we talked about efforts and services and scope of work on all of your out of scope. if the scope changes, we have to go to the department of paperwork and get a change request and then get a change order signed off. but i mean, let&#8217;s stop this, we need to up our game, we need to up the customer experience. and stop putting our customers through this paperwork morass. i mean, it&#8217;d be sending them 200\u00a0 page organizers, and making them do change requests and having a value conversation every year. so you can price them now separate the cognitive load of the pricing decision from the work that we do. once they make a decision to subscribe to us, then they&#8217;re covered for whatever we can do. just like the concierge doc&#8217;s. and that gives them convenience, it gives them peace of mind, they know they&#8217;ll will be there when they need us for whatever we can do. that&#8217;s the scope limitation, what we can do professionally, our due care. i&#8217;ll give you a real quick example of this. i called my eye surgeon back in october, because i needed a new eye exam because my prescription had had lapse, you know, they expire after two years. and i needed a new pair of glasses. and i called them october 1, he couldn&#8217;t see me until january 29. now that make and i love this doctor, he&#8217;s an eye surgeon, he&#8217;s brilliant, i love him. if he told me to play in the traffic, i would but here&#8217;s the thing. if he&#8217;s going to do that to me, then he now has become expendable in my life. he hasn&#8217;t become indispensable, he&#8217;s become expendable. i&#8217;m gonna give him one more shot, i&#8217;m gonna go see him in january. and i&#8217;m gonna read them the riot act, i&#8217;m gonna say doc, you have too many patients. and it unless you give me an option to subscribe to you, right can cut in front of the line and see you within 24 hours. i&#8217;m out of here. i&#8217;m out of here, you are wasting my time. and today in today&#8217;s world, the largest sin that we commit any business commits, is to waste their customers time. if we are going to track time in this profession, there&#8217;s two things we should track. we should track the time that our customers spend with us. and we should track the time that we saved them. yes. because if we can do that, then you can name your price.<\/p>\n<p><strong>liz farr\u00a0 <\/strong>23:10<br \/>\nyeah, i think so to know, now for years, you&#8217;ve been preaching the glories of value pricing, and how is the subscription model better than value pricing?<\/p>\n<p><strong>ron baker\u00a0 <\/strong>23:27<br \/>\nwell, again, it&#8217;s got a different profit formula. and people that teach value pricing get all hung up on this. oh, no, you&#8217;ve got to maximize the transaction. and you&#8217;ve got to maximize the price that you&#8217;re gonna optimize the price that you&#8217;re getting all you know, very sustainable business models, all quite rational. but the subscription models got a different profit formula. so what we&#8217;re trying to do here is grow lifetime customer value, which means we&#8217;re constantly plussing our offering. we&#8217;re constantly innovating just like amazon prime, and netflix are constantly giving us new content. notice how the price doesn&#8217;t change when they do that. there&#8217;s no correlation anymore between the work and the price we&#8217;re disconnecting that and we&#8217;re trying to grow lifetime customer value. so that&#8217;s different. there&#8217;s no more scope creep under this model because there&#8217;s no more scope we do whatever the customer needs when they need it on demand and because we have fewer customers, we always have capacity. you know the last thing you want to hear from your eye surgeon or your dentist it with a bad toothache is no i&#8217;ll see you in two weeks ron. i want you to better be able to fit me in within an hour or you have become dispensable period. i to me this is a no brainer. if you&#8217;re wasting the customer&#8217;s time like that just shows you have no you have no respect for your customers time. and a lot of people is have more money than time especially customers of cpas. when they need something they want it. and the reason they can&#8217;t get it on demand is because we have too many customers.<\/p>\n<p><strong>liz farr\u00a0 <\/strong>25:12<br \/>\nwe definitely do. you know, i remember, you know, i started out at h&amp;r block, and we would do a tax return every 20 minutes. so i think in one year, i signed 600 tax returns, just me all my mind, lonesome. it&#8217;s so sad. yeah.<\/p>\n<p><strong>ron baker\u00a0 <\/strong>25:33<br \/>\nand then we wonder why this profession eats its young, and why we can attract talent, because we&#8217;re giving them rote work. that is not challenging. we&#8217;re giving them stuff that you don&#8217;t need a cpa to do. i&#8217;m not going to mention specifics. but you can imagine, i mean, the biggest sin you can do on the side of a professional firm is to have a surgeon piercing ears. and there are a lot of surgeons piercing years at cpa firms. and i that&#8217;s not why i joined this profession. i joined this profession to help people. and when you structure a firm around subscription, and you&#8217;re offering or i should say guiding, when you&#8217;re guiding these transformations, when you&#8217;re taking the customer from where they are to where they want to be some desired future state. that&#8217;s a transformation. now we can only guide those, we can&#8217;t coerce a customer to transform into something they don&#8217;t want to do. they have to select it, we just guide the process. so it could be as some and it sounds grandiose i know. but it doesn&#8217;t have to be it could be as simple as we&#8217;re going to plan to get your kid into college. now, not academically, but financially we can help with, we&#8217;re going to help you retire sooner, we&#8217;re going to help you grow your business. so you can buy a second home or, or have more money or more time with your family all we can help plan your legacy. for those who do estate. i mean, does mark zuckerberg and warren buffett and bill gates do they put some time and thought and money into their legacy? share? imagine the billions they spend on lawyers and cpas to help them plan for when they leave this mortal coil. we do that. but how do we talk about it in terms of outputs? oh, we&#8217;ll do the trust agreement, we&#8217;ll do the trust. no, those are means to an end. the end is transformation. it&#8217;s touching the customer&#8217;s soul. so here&#8217;s the cool thing about transformations. when you when you guide the transformation, the customers the product. yeah, it&#8217;s no it&#8217;s transformation as a service. it&#8217;s tasks. that&#8217;s really what we&#8217;re doing. it&#8217;s not about stacking up services brick by your own, the more scope and blah, blah, blah, no, none of that&#8217;s valuable to the customer. so just as it&#8217;s bad, i think to be on hours for dollars treadmill, i think being on a service for dollars, treadmill is just as bad. now we can really do what we were born to do as cpas, which is to guide people to a desired future state. is there anything more powerful than that? that&#8217;s the that&#8217;s the apotheosis of value, that it doesn&#8217;t get any higher here. you know, porsche can&#8217;t do that. yeah, they can sell me a car, i can subscribe to a porsche. and yes, that can get me over my midlife crisis. and it can, you know, make my neighbors jealous. but it&#8217;s not going to have the same transformative impact that cpas can provide. because we&#8217;re not restricted by a product. we&#8217;re mine, we work with our minds, we can guide our customers. it&#8217;s not about doing services selling our hands. it&#8217;s sometimes just about asking better questions. and it doesn&#8217;t always require us to do service. i think if we scaled back on the services that we provided, we&#8217;d probably be more valuable to our customers, i think some of the stuff we do for them is if they don&#8217;t see any value in it, but it&#8217;s something we can count and measure and you know, scope out so we can, but that&#8217;s not how we should be pricing.<\/p>\n<p><strong>liz farr\u00a0 <\/strong>29:08<br \/>\ni completely agree with that. because i think back to a couple of clients, i worked with a couple of customers who had some kind of exit plan for their business on the horizon. but because helping them get to that desired state wasn&#8217;t really in the scope of work. we couldn&#8217;t really find it on our list of services. it wasn&#8217;t in the tax return. we were kind of helpless to do that. and and it really kind of haunts me that there are these people who we really kind of missed the boat with that, that really needed more than we could do. if that met the time,<\/p>\n<p><strong>ron baker\u00a0 <\/strong>30:01<br \/>\nhow many times do we hear that this profession is relationship based? i hear constantly, we want to be your trusted advisor, we want to be, you know, whatever terms we use. but when you look at our business model, what are we monetizing, or monetizing the services in the scope of work, we are so much more than the sum of our scope of work. and we have to get over this idea that it&#8217;s about piling on services brick by brick, i want to monetize the relationship, not the transaction, i want to stop looking at the math the moment and focus on the long term customer value, lifetime customer value, because once a customer signs up to a subscription, and they stay for one year, you&#8217;ve got a 90% plus probability of keeping them for life. those are the types of customers i want, because i can have deep meaningful relationships with them, just like that team doctor did with his nba players. and just like these, these doctors do with their patients.<\/p>\n<p><strong>liz farr\u00a0 <\/strong>31:07<br \/>\nnow, and we&#8217;ve talked about why transformation is more valuable than providing services. and now i want to switch gears a little bit and look at what would an accounting firm that uses the subscription model, what would one of these look like?<\/p>\n<p><strong>ron baker\u00a0 <\/strong>31:29<br \/>\nwell, in my model, again, as the direct primary care doctors or the concierge doctors, there would be constant innovation. now, i don&#8217;t mean, you know, you&#8217;re going to come out with a new ipad or a new service, or 10 new services every year, but you would plus the offering. so for example, a lot of these dpc, doc&#8217;s will add things like, they&#8217;ll say, oh, now we offer 23 and me analysis, you know, dna type thing. or we have a nutritionist that we work with to help you with your diet, or we have a chiropractor who can do treatments, or we&#8217;ve opened up the pharmacy. so now you can get your prescriptions fulfilled here with with us. and all of these things never change the price, they add these things. that way, when they do increase their price, whether that&#8217;s annually, or every couple years, whatever, just like amazon sent out an email to their prime members this year, when they increase their prime subscription price. they didn&#8217;t blame it on inflation. they didn&#8217;t blame it on raising costs, or higher labor costs or minimum wages or supply chain problems. they said, we&#8217;ve added value in the following ways. and they gave you like 10 bullet points, we&#8217;ve added more same cities of same day delivery, no 90 some odd cities. now, even if you&#8217;re not in one of those cities, you&#8217;re going oh, well, that&#8217;s going to come to me. and we&#8217;ve added thursday night football, and we&#8217;ve added these kindle benefits and magazines and music and new shows and blah, even if i don&#8217;t even if i don&#8217;t access any of it. it&#8217;s still growing halo over the entire value proposition of staying subscribed to amazon. and that&#8217;s one of the ways it looks different because it&#8217;s constantly innovating, which also gives the team members a chance to innovate and use their brains. rather than just wrote the following checklists and doing the same work over and over. they can actually say, hey, i learned about this killer app or this read this incredible business book. why don&#8217;t we bring this to our customers and start a conversation? we don&#8217;t do stuff like that, why? one we&#8217;re too busy. to them. like you said, there&#8217;s no code on the timesheet for it. there&#8217;s, you know, we don&#8217;t sell the service, or where do i code? well, we&#8217;re not selling a service, we&#8217;re selling access and knowledge and ideas. and i think that would be it would restore us to living our purpose of why we entered this profession. so i see it as a more dynamic firm, because the talent you&#8217;re attracting, that&#8217;s what they want to do. i don&#8217;t want to do the same thing for five years over and over. i want to kind of have diversity of helping my clients get to a preferred future. because the other thing about this that i find fascinating is we talk a lot in this profession about solving problems. and we are great problem solvers. we got tax issues and get the irs off your back, you know, we can catch up on your compliance all of these things. it&#8217;s always going to be a part of what we do no doubt about it. the problem is, if all we&#8217;re doing for our customers is solving problems, we&#8217;re just reverting back to the status quo. we are not progressing them in the future isn&#8217;t progressing the customer, not just solving their problems. it&#8217;s helping them transform into a new person because when you offer a transformation, they become a new person. like the historian heraclitus said, you can&#8217;t step in the same river twice because not only is the river changed but you&#8217;ve changed. that&#8217;s what a transformation is. and boy, is that not a commodity. that&#8217;s, that doesn&#8217;t get any higher value than that.<\/p>\n<p><strong>liz farr\u00a0 <\/strong>35:11<br \/>\nyeah, no, i&#8217;ve heard of a couple of firms who are saying, well, we&#8217;re doing it by subscriptions. so the price that we charge you for your tax return, let&#8217;s say is $1,200. so, so you pay us 100 bucks a month, and we&#8217;ll do your tax return. and oh, and if you need other stuff, well, we may need to add something to the agreement, or we may have to charge for that on an hourly basis. so i think there&#8217;s a lot of confusion out there about what it really means to follow this subscription based model.<\/p>\n<p><strong>ron baker\u00a0 <\/strong>35:54<br \/>\nyou&#8217;re so right, i can&#8217;t tell you how many firms say to me, oh, we do subscription, take the annual price and divide by 12. that&#8217;s a pricing, payment term relationship. it&#8217;s a financial, it&#8217;s not a business model, change. the business model change requires you to go plus your offering go to the market with an uncommon offering. but if you&#8217;re not providing peace of mind, frictionless relationship, simplicity, and convenience, then you&#8217;re not offering subscription. but the real acid test is this. do the customers know, they are subscribing to you, you and i know we are subscribers to prime, we know we subscribe to netflix, disney plus hulu. you know, if i parked a porsche drive, i know i&#8217;m in a subscription relationship, not with their cars. but with porsche. it&#8217;s a different psychological relationship when you subscribe to a company. and so so no, i don&#8217;t think a lot of firms that say they&#8217;re doing subscription are doing it not certainly not the way we are talking about. because if they ever mentioned scope, they&#8217;re not doing subscription. now, i&#8217;m not saying you couldn&#8217;t have tiers, you can still offer choices. i&#8217;m not convinced it needs to be three by the way, which is another thing of value pricing that this blows apart. there are some tenets of value pricing, this subscription blows apart, i&#8217;ve had to unlearn. and one of them is, i don&#8217;t think you need three choices. now. that&#8217;s absolute heresy, in value pricing, you always have to offer at least three if not four, if you&#8217;re more advanced, but you can never offer two well, i think you can offer to in subscription, i think you can even get away with one. if you&#8217;re narrowly focused, and you stay in your lane, and you&#8217;re not doing all these one off projects that are way out of the scope and probably your level of expertise, then, of course, you can have one or just two options. but it&#8217;s more about what&#8217;s covered, not covered. so i&#8217;ll give you a quick example of this. if you&#8217;re a cpa firm, and you do cas work, and you do tax work, and you do advisory work, then you could have an option, say we&#8217;ll do everything for cas that you need. now that includes everything, there is no scope within that within that parameter. if they need a report, if they want some cash flow projections, anything that you do within that parameter is covered when they need it. if they want us to do their taxes, they have to step up to the tax tier. and that includes everything that we do for tax we handle notices if we do that. we handle irs audits. if we do that, we go to tax court. and you need that we&#8217;ll do that as well. whatever it is that we do in tax and multistate whatever nexus international even then if you do advisory, they can step up to advisory and they can get they can start getting some transformations. now maybe they only want to do one transformation a year because usually transformations are involved and they take a while. fine, let them subscribe. once the transformation is over. they want to slide back to the tax or the cas option. let them slide back. it has to be completely frictionless. and by the way, they have to be able to cancel at any time. there&#8217;s no lock in there&#8217;s no upfront price to get started. nope, that that that violates the spirit of subscription subscription is you sign up you try it if you don&#8217;t like it cancel, that&#8217;s why netflix and amazon put the cancel button everywhere when they interact with us. in fact, netflix went a step further. netflix says we have about 400,000 subscribers who pay pay us every month and they haven&#8217;t logged in for six months. nine months. i think it was we&#8217;re gonna cancel you people. now a cost accountant would tell you that&#8217;s insane. these people are paying and they never access you. that&#8217;s that&#8217;s golden. what&#8217;s better than that. that&#8217;s terrible for your subscription business. right? want people to rely on you you want people to value you and and and go to you when they need you? and you can&#8217;t do that if they&#8217;re not doing that, then you&#8217;re not then how can you guide a transformation? and netflix cancelled them. cancelled 400,000 subscribers, this was a couple years ago. that&#8217;s amazing. no business would do that. but they did it because they have a different mindset. if they&#8217;re not using our product, they&#8217;re not going to be good lifetime long customers. we&#8217;re not building that, that that customer relationship value. that&#8217;s so essential and subscription.<\/p>\n<p><strong>liz farr\u00a0 <\/strong>40:34<br \/>\nyeah, no, no, one thing you that, that the cancel anytime button brings up is, is pricing. you know, i can see cpa saying, well, you know, we did their tax return, you know, they subscribe to us in february, when they got us all their documents, we got their tax return out in april. so that was, what four months of payments they gave us or three months of payments they gave us. and then may 1 they cancel us. yeah, that&#8217;s yeah. so they&#8217;re getting twelve\u00a0 hundred dollars or a year&#8217;s worth of service for just three payments. so so how, how do we price this?<\/p>\n<p><strong>ron baker\u00a0 <\/strong>41:28<br \/>\nright? it i love it because cpas love to go to the worst case scenario, that and that&#8217;s not the worst case scenario i heard. i&#8217;ll give you another one. but here&#8217;s my answer to that. this isn&#8217;t a pricing issue. this is a strategy issue. and an onboarding issue. there&#8217;s no way to value price the wrong client, there&#8217;s no way to put the wrong client into a subscription relationship, the relationship is even more premier in subscription. and if you have any doubts about this client, because basically lists all we&#8217;ve done is you know, i&#8217;m a big proponent of the value guarantee. and that exposes you for a whole year if the customer says you know what, i think i only got $500 of value from you this year, and i paid you five, so i want 4500 back under my value guarantee, you&#8217;d have to give it to him. now, the new value guarantee in subscription is that cancel button. and that makes sense the customer to cancel. so you&#8217;re going to learn about problems probably faster. but you got to trust your value, you got to you&#8217;ve got to make an assessment about the customer, if they&#8217;re the type of customer that you think is going to cancel after three months after you&#8217;ve done this upfront project, or it&#8217;s some cleanup work or, you know, seven years of prior taxes or just indeed one year&#8217;s tax return, then don&#8217;t take them on say no. and if they do cancel you after four months, okay, they did you a huge favor, they self identified as a pain in the butt let them go, chances are, you&#8217;re not going to make that same mistake again, that&#8217;s gonna make you a little bit gun shy before you start taking on clients. and because you&#8217;re taking on fewer clients, there&#8217;s fewer probabilities, there&#8217;s less probability of that happening to begin with, because you&#8217;ve got fewer customers, the ones that get in and feel special, it&#8217;s a clot to membership membership has privileges. so i don&#8217;t see that is a big issue. if if that if that happens over and over, you&#8217;ve got a client selection problem, you&#8217;re going after the wrong customers.<\/p>\n<p><strong>liz farr\u00a0 <\/strong>43:28<br \/>\nthat&#8217;s true. that&#8217;s true. yeah. and what about pricing models? you know, how, how does that work? in a subscription model? you know, in value in value pricing, you look at the value delivered, but for subscription, what what is it?<\/p>\n<p><strong>ron baker\u00a0 <\/strong>43:45<br \/>\nyou&#8217;re while you&#8217;re, again, this different profit formula. so you&#8217;re looking at customer lifetime value. so you&#8217;re modeling that that&#8217;s a model. it&#8217;s also a very complicated model, by the way, because the sprite thing that&#8217;s not as settled as the kpis because it&#8217;s a model. and you know, there&#8217;s some subjectivity about what you include in customer lifetime value. if you look at andreessen how the andreessen horowitz calculates it versus say how subscribed institute you know, tien tzuo&#8217;s think tank, calc, there&#8217;s differences. and so, but we&#8217;re cpa, so, you know, we can figure that out. but the point is that we&#8217;re not, we&#8217;re no longer looking at the math of the moment, we&#8217;re considering that lifetime value. so it&#8217;s not about optimizing the price of the job or the profit on the job or the margin in any one given year. our income statement forces us to think about the lifetime value and model that because we&#8217;re backing out churn and we&#8217;re tracking in your recurring revenue. so the pricing, i think, how firms should think about this is once they define their focus, like if they do nothing but dentists or restaurants or contractors or whatever, take a look at the average price that you&#8217;re charging now, for customers. now this gets weird, and this is going to be vary by firm, but you take a small firm to four partner firm, and you look at their revenue spread. have you ever done that? it&#8217;s fascinating. they&#8217;ll have some $500 customers. and they&#8217;ll have $100,000 group $100,000 customer and everything in between. it&#8217;s like, okay, you&#8217;re probably going to have to get rid of one end or the other. because, again, you&#8217;re trying to be morton&#8217;s mcdonald&#8217;s and a vegan rest. and it&#8217;s just not working, that that&#8217;s not a pricing issue. that&#8217;s the strategy issue. and the positioning issue. i can&#8217;t sell rolls royces. and chevy&#8217;s out of the same dealer. and when you have a spread like that, you&#8217;re trying to sell $100,000 engagement to a guy, and this happened to one of my cpa buddies. and the guy looked at him and said, 100,000, he says, don&#8217;t you do my brother in law&#8217;s taxes for 500? well, yeah, that&#8217;s what happens when you go to the market with an incoherent strategy and positioning. so what he did was he took all of his cd customers, we call cutting off the back of the airplane, and he moved it across the street, put a different brand on it, called it express tax, and had a different pricing strategy for those people. and he never had to touch those clients, he put an ea in charge of them. because it didn&#8217;t require a cpa did you did want a surge in piercing veneer. and that freed up capacity in the mothership cpa firm, and allow them to go after those 100,000 because that&#8217;s where he wanted to live. he only had those customers, because when he started out, he took all comers, which is never a good idea. it&#8217;s always going to come back to bite you.<\/p>\n<p><strong>liz farr\u00a0 <\/strong>46:40<br \/>\ni would agree with you there. there&#8217;s so many times when i did client work that i had no idea what i was doing, why we had said yes to this person. and inevitably, some of them did come back and bite us. so yeah, yeah. yeah. now, what are some possible ways that a firm could transition to a subscription model?<\/p>\n<p><strong>ron baker\u00a0 <\/strong>47:12<br \/>\ngreat question. oh, and one more thing on the pricing. the reason i talked about the spread, once you narrow that spread, and say you just get you take a look at your median price, your average price, i think was subscription, because you&#8217;re going to the market with a plus offering an uncommon offering. you multiply it by two, three or four. just this is what howard moran did with me, md squared, how he come up with 24 grand a year. this is 1996. let&#8217;s run that through a real you know, write nominal to real dollars. it&#8217;s a huge number. and he got it, he filled up 50. and he had to hire another doc and he filled him up real and he had to hire and and that&#8217;s how they spread across the entire country. because there was a huge demand for it. and he i don&#8217;t know how he set that price. but my guess is he said, no, that&#8217;s gonna be more than, you know, four or five times what my average patient pays me now. so i think this gives you two to six times the pricing power that you have now, that freaks people out when i say it, but i will tell you, liz, i would have paid my eye surgeon, i&#8217;ll pay him a grand a month, or a you know, grand a year 1200 grand or 12 grand a year, or i&#8217;m sorry, 1200 a year, say or 2400 a year, just to know i can get into him when i need him. i just signed up for an h vac subscription for 20 bucks a month. because to get one of those guys out took me took me it was like 10 week lead time. now that i&#8217;m a subscriber 24 hour guaranteed, they will be on my premises. i&#8217;ll pay for that any day, save the customers time, give them convenience, and you will get pricing power. if your average price now is two grand, you could probably get six grand eight grand no problem. especially if you combine it with doing transformations.<\/p>\n<p><strong>liz farr\u00a0 <\/strong>49:06<br \/>\nyeah, yeah, you know, and what i&#8217;m hearing is that these firms that do a lot of those 500 $800 1040s they may lose some of those unless they can demonstrate to these customers, that there is something they can offer that would be worth the extra money. otherwise, those people will believe and frankly, some of them it&#8217;s good. riddens<\/p>\n<p><strong>ron baker\u00a0 <\/strong>49:45<br \/>\nright. right. you know, just one caveat when we taught us to you know, and everybody talks about this, you know, grade your customers a b c d and fire the seas and the ds with one caveat, i would suggest our customers aren&#8217;t going to get better until we do. and maybe the reason your customer only spends 800 or $1,000 a year with you is because you&#8217;ve never brought to them anything else. you&#8217;ve never had deep meaningful discussions about all the things that you could do for them, that don&#8217;t require stacking up services, brick by brick and scope of work and change orders and all of this nonsense, but having just a relationship with them and saying, hey, we can help with that. and maybe they would become a more valuable a customer or b customer, if they knew there was an opportunity to do that. and i put that onus on us before we get rid of them.<\/p>\n<p><strong>liz farr\u00a0 <\/strong>50:39<br \/>\nabsolutely. so back to my question. how are what are some methods for transitioning to this new model?<\/p>\n<p><strong>ron baker\u00a0 <\/strong>50:51<br \/>\nright. and this is a great topic, i have a whole chapter in the book on this. there&#8217;s essentially three models that you can look at, and that we have a lot of empirical evidence, a lot of this comes from tien tzuo and his company zuora because he&#8217;s got 1000s of customers and all different types of industries, they&#8217;re able to, you know, aggregate this data and take a look at it. and they have people helping companies do this, and pivot to subscription because of course, they&#8217;re trying to sell their software. so they have every incentive. but there&#8217;s three models. one is, you start a new firm, you just spin out a new firm, because this is such a different mindset. because it requires a plus offering, because it&#8217;s different pricing, different kpis different accounting, the income statement looks different, because it requires a new mindset. and, and no legacy says, i mean, there is no room here for timesheets, there is no room for tracking time, or measuring things based on time or pricing based on time. and that, by the way, is the most successful model, according to subscribes institute is when you spin out a new firm, because if you think about it, it&#8217;s really hard for a firm or any business to cannibalize itself. and that&#8217;s what you&#8217;re going for here, you&#8217;re going to spin out this new firm, you&#8217;re obviously going to invest more in that than the legacy firm. and over time, the new firms going to grow and cannibalize the old one. that&#8217;s, that&#8217;s the goal. the second model is where you do this, gradually, you stick your toe in the water, say, oh, you know what we&#8217;re going to do subscription and casts. well, then you run into the same problem that you had with value pricing, moving from hourly to value pricing. because value pricing is such a customer centric pricing strategy. what if one side of your firm is billing by the hour and the other side is doing value though, giving a fixed price with payment terms and all that kind of thing. so that&#8217;s not a good idea, either. that&#8217;s a mixed marketing and positioning method to the customer. so when you do a little experiment like that, and said, we&#8217;re going to try this out, maybe with this tranche of customers or in this service line? well, okay, i will agree with you that that&#8217;s a lower risk test. but lower risk means what? lower reward or returns? yes. and you&#8217;re not committed to it. you don&#8217;t have skin in the game as much as the assay. we tried that and it didn&#8217;t work. how many times have you heard that and cpa partner meeting? oh, we tried that during the rutherford b. hayes administration, and it didn&#8217;t work. i mean, sometimes i think partnerships are where good ideas go to die. the third model is what adobe did. and adobe took an enormous risk. and boy, did they upset their investors and shareholders at the time. they said, we&#8217;re not going to sell software in the box anymore. we&#8217;re going to put everything in the cloud. and we&#8217;re not going to support software. we&#8217;re not going to upgrade it. you&#8217;re on your own if you use it. good luck. i guess there&#8217;s it&#8217;s still being sold on ebay that people still buy box software. i did find that fascinating. but anyway, when they did that, it was a risky move. i mean, it was a risky move. they stepped back in 11, or 14, i forget the year. but of course, they&#8217;re thriving enough so or they just bought another company called figma. and this is a great story. $24 billion, they paid for figma, which have annual recurring revenue of 400 million. what&#8217;s the multiple on that? so when we talk about annual recurring revenue coming in at a higher multiple than recurring revenue, because that&#8217;s how an investor is going to look at a firm&#8217;s going to put your revenue into two buckets. and the annual recurring revenue bucket is going to be a hell of a lot more valuable from a multiple standpoint. john, john warlow from canada who he wrote that book built to sell, he&#8217;s got a big database of businesses selling, including a lot of professional firms. he says we&#8217;re seeing 567 11 times multiple business, not one. sometimes we see to add value pricing three, seeing a heck of a lot more, because it&#8217;s predictable revenue, you&#8217;re not starting on the zero yard line everyday like you do with recurring reoccurring revenue, you&#8217;re starting on the 50 yard line. it&#8217;s more predictable, and it&#8217;s more valuable. and people and investors are screaming at the market, we&#8217;re going to pay more for a subscription. that&#8217;s why so many unicorns are subscription based. that&#8217;s how they get those high valuations, they have that annual. that&#8217;s why everybody seeks the holy grail of annual recurring revenue. but we kind of already have it, although it would be classified reoccurring. but if we invested in the relationship more, if we actually aligned our business model with our rhetoric that were relationship business, then i think our exit price would be much higher, and that needs to be factored into the profit formula. we can&#8217;t just look at the bottom line, we have to factor in the growth of the value of the firm as well, because that&#8217;s going to affect your exit.<\/p>\n<p><strong>liz farr\u00a0 <\/strong>55:59<br \/>\nright. and i think that thinking about the exit strategy is really going to be a pain point. now and for the next few years as these older, baby boomer owners are looking to retire and sell. and here they&#8217;ve got a firm that nobody wants to buy,<\/p>\n<p><strong>ron baker\u00a0 <\/strong>56:24<br \/>\nincluding the people who work in it.<br \/>\n<strong><br \/>\nliz farr\u00a0 <\/strong>56:27<br \/>\nyeah, yeah. i didn&#8217;t want to buy the firm that i was working in. i want to buy any of the firms that i was working in, i thought that they were they were terrible businesses.<\/p>\n<p><strong>ron baker\u00a0 <\/strong>56:38<br \/>\nyeah, they&#8217;re a job more than a business. so yeah, the other thing is people push back on this, too, that it&#8217;s not scalable. you can&#8217;t sit? well, look, i think it&#8217;s a challenge to scale a business. under any model, you know, whether your hourly billing or value pricing, value pricing doesn&#8217;t demand or guarantee that you&#8217;re going to be able to scale but i will say this was subscription, like dr. paul thomas from detroit, this direct primary care that we&#8217;ve interviewed four times on our show. when he started, he started right out of residency with dpc, because he never wanted to go for the fee for service treadmill. he said, that&#8217;s not why i became a doctor. so he started up his own little practice. he didn&#8217;t even have a pa liz. he had no but it was just him. he grew to 600. he brought on another doctor, he grew them to 600 brought on and he&#8217;s got three doctors working for him. now. he&#8217;s about to open up a second office and put two more doctors in. so he&#8217;s been able to scale this is in the four years since we&#8217;ve known him for five years. he&#8217;s been able to scale, but it&#8217;s an inorganic piece. you know, he&#8217;s not going out and acquiring other dpc practices, although i guess he could. but because there&#8217;s such a demand for these doctors. why? because it&#8217;s an uncommon offering. because i can get in to see dr. paul tomorrow. and i don&#8217;t have to wait five months, like i do with my surgeon. that&#8217;s why.<\/p>\n<p><strong>liz farr\u00a0 <\/strong>58:08<br \/>\nyeah. well, i think, like you that the accounting profession is ripe for change, and revolution and disruption. now, is there anything else that you would want the listeners of this podcast to know? you know, besides besides going out and buying this book?<\/p>\n<p><strong>ron baker\u00a0 <\/strong>58:33<br \/>\nyeah, i think when i think about and i learned this from studying tqs. and going to disney university, and it kind of immersing myself in, like benchmarking on nordstrom and llp. and all these great companies. the one thing that really stuck with me was we compete against any business, any organization, actually, that has the capacity of raising our customers expectations. so when customers interact with your firm, whether that&#8217;s belly button to belly button, or digitally, through your portal, through your website, on their phone apps that you use, whatever, what they&#8217;re comparing that experience that entire experience to is amazon. i click on amazon, one click, it shows up sometimes same day, i guess i&#8217;m in one of those cities. sometimes the next day, it&#8217;s amazing. and i&#8217;ve never talked to anybody at amazon, by the way, which i also find is very interesting, because talk about relationships. have you ever spoken to anybody at amazon? i mean, maybe the driver you say hi to or what i think i called kindle tech support once and they were great, but i don&#8217;t have a relationship with anybody inside of amazon. and yet, they&#8217;ve raised my expectations. and so we don&#8217;t just compete against other cpa firms, we compete against any entity that has the ability to raise customer expectations. and if your customers subscribe to a dpc doc, talk to anybody who subscribes to their concierge doc or a dpc doc, i promise you, they are a raving lunatic fans. they rave about their doctor, they rave about the experience, i can text him, he replies, within 10 minutes, i can send a picture of my kids rash. and he&#8217;ll tell me what to do about if i should worry about how you can prevent me from going to the er, all of these things. that&#8217;s what we&#8217;re being compared with, we need to up our game as a profession. average net promoter score in the accounting profession 7080, something bmw porsche in the 80s. liz, we need to up our game. we, like our customer experience is awful in this profession. and i think it&#8217;s because we have too many customers. i don&#8217;t care who you are, or how big your firm is, how many people you have working for you. you relation. and here&#8217;s the most heretical thing i&#8217;ll say, relationships don&#8217;t scale. they don&#8217;t scale. it&#8217;s the dunbar number, we can only accommodate so many people. now, i&#8217;m not saying businesses that are based on relationships can&#8217;t scale. that&#8217;s not what i&#8217;m saying, i dr. paul&#8217;s scaling. but dr. paul himself can only handle so many relationships. and maybe at some point, he&#8217;s even got to relinquish those and step back and work on his business rather than just you know, being involved in it. but that choice is, you know, lifestyle firm versus i want to grow to a big firm, whatever. i mean, that&#8217;s going to vary, but relationships don&#8217;t scale, let&#8217;s start to recognize that, let&#8217;s start to recognize that it&#8217;s not about the tech stack. it&#8217;s not about the apps. it&#8217;s it&#8217;s about the relationships, and again, track the time that your customers spend with you. because i think a lot of firms, because of this technology have said well, the less time we have to interact with them, the better off we are, we can just you know, we have more capacity. now it&#8217;s not about getting more capacity. it&#8217;s about having spare capacity for the people you&#8217;re privileged to serve. so i don&#8217;t have to wait five months to see my doctor.<\/p>\n<p><strong>liz farr\u00a0 <\/strong>1:02:12<br \/>\nyeah, and besides being a better customer experience, it also makes it a better employee experience.<\/p>\n<p><strong>ron baker\u00a0 <\/strong>1:02:20<br \/>\nyeah, we&#8217;re not burning out our people. i don&#8217;t think we burn out our people as much as we rust them out. because we&#8217;re not giving them challenging work. again, it&#8217;s that surgeon piercing ears. and i&#8217;ve always been bothered by that. and i still see way too much of it.<\/p>\n<p><strong>liz farr\u00a0 <\/strong>1:02:39<br \/>\nyeah, i would agree with you there. i think that that that was part of what drove me out of public accounting. i was still doing still doing the same things.<\/p>\n<p><strong>ron baker\u00a0 <\/strong>1:02:52<br \/>\nyou&#8217;re sometimes on the same day, right? you&#8217;d open up the file and go, oh, jesus did exactly what i was doing on this day last year. sally.<\/p>\n<p><strong>liz farr\u00a0 <\/strong>1:03:03<br \/>\nexactly, exactly. well, ron, i think we could go on and talk about this forever, because we you and i are on the same page with this. now, if listeners want to connect with you, what&#8217;s the best place to find you? great,<\/p>\n<p><strong>ron baker\u00a0 <\/strong>1:03:23<br \/>\ngreat question. i&#8217;m on twitter. at ronald baker. i have to use ronald j on my books, because it&#8217;s such a common name, right? there&#8217;s so many other authors out there when you search amazon. so but i&#8217;m at ronald baker on twitter. i&#8217;m on linkedin. i&#8217;m one of the linkedin influencers. so i have over 100 posts up there on on topics of pricing and marketing and subscription and dpc, doc&#8217;s and all sorts of other things. the best way to get us is through the soul of enterprise.com, our radio show that is live every friday and then it drops to any podcast player that you may use. and we&#8217;ve interviewed dr. paul on that show four times. we&#8217;ve also interviewed by the way the four top leading authors in subscription and in my mind in that his team&#8217;s out from subscribed, his book subscribed and robbie kellman baxter she wrote the forever transaction and the membership economy. and jan&#8217;s er who wrote services or subscription marketing, and john warrillow, who wrote the automatic customer, and of course, this great book built to sell how to position your firm to sell it. so we have those four leading authors. then we&#8217;ve talked to cpas like jody grundon, from summit cpa, who runs a subscription based business and grew up from 600,000 to 11 million. so he talks about his journey. and we&#8217;ve talked to lawyers who are using subscription. and so and we have a bunch of shows that ed and i have just done on subscription, how it differs from value pricing. by the way, another question we always get is what if i&#8217;m using hourly billing right now? do i have to go through value pricing? or can i just jump right to subscription? i believe you can jump, because going to value pricing first is only going to give you a legacy system that you&#8217;re going to have to unlearn. right. so why why go through the process of learning if you can just jump over just like some countries did, you know, when they they didn&#8217;t have to have a landline, they just jumped jumped from having no phone to cellular. and they didn&#8217;t have to install you know, telephone poles and wires, they just jumped. same thing here, i think you can jump. so the soul of enterprises the best thing to do, and if people want, they can go to the soul of enterprise.com\/ time&#8217;s up. and they can join our community of people who are interested in taking this further and discussing it and sharing information and ideas and, and best practices amongst themselves. so we, we have quite a little community of people that are very interested in this model. and you can find there&#8217;s going then there&#8217;s extra benefits from joining that as well. so you can find out more at the solo enterprise.com\/ time&#8217;s up.<\/p>\n","protected":false},"excerpt":{"rendered":"<p><strong>ron baker: the subscription model optimizes lifetime customer value.<\/strong><br \/>\n<img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-108486\" src=\"\/\/www.g005e.com\/wp-content\/uploads\/2023\/02\/ron-baker_-monetize-the-relationship-not-the-transaction.-low-424x239.gif\" alt=\"\" width=\"250\" height=\"141\" srcset=\"\/\/www.g005e.com\/wp-content\/uploads\/2023\/02\/ron-baker_-monetize-the-relationship-not-the-transaction.-low-424x239.gif 424w, \/\/www.g005e.com\/wp-content\/uploads\/2023\/02\/ron-baker_-monetize-the-relationship-not-the-transaction.-low-300x169.gif 300w, \/\/www.g005e.com\/wp-content\/uploads\/2023\/02\/ron-baker_-monetize-the-relationship-not-the-transaction.-low-600x338.gif 600w\" sizes=\"(max-width: 250px) 100vw, 250px\" \/><br \/>\n<em>the disruptors with liz farr for 卡塔尔世界杯常规比赛时间<\/em><\/p>\n","protected":false},"author":4386,"featured_media":108486,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"","_relevanssi_noindex_reason":"","footnotes":""},"categories":[3184,1362,2254,2327,1908,2734,3120,9,3869,2764],"tags":[2396,721,728],"class_list":["post-108467","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-advisory","category-featured-video","category-growth","category-innovation","category-management","category-podcast","category-pro-member-exclusive","category-strategy","category-the-disruptors","category-video","tag-cas","tag-pricing","tag-value-pricing"],"acf":[],"yoast_head":"<!-- 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