Value Pricing and CAS

The faster that time-based billing goes away, the better we will all be. If you saved a client $10,000 during just a 15-minute conversation, because of your expertise, does that mean that your advice was worth only a quarter of an hourly rate? Of course not, and not to your clients, either. Firms know this and have been looking for alternatives for years. Initially, years ago, many firms just started applying a flat fee based to common services based on the amount of time they thought the work would take. Then the term “value pricing” started to emerge, but in its earliest stages it was still just changing from time-based billing to set-fee pricing across more services. Which was still limited by the number of hours in a workday, and also notions that a professional’s time can be measured in minutes.

True value pricing had to differentiate itself, and as more firms considered the concept, started offering more services, and implemented more remote technologies, a more comprehensive strategy emerged: The Combo Meal, which would become the origin of Client Accounting Services (CAS). A little humor, but it’s the same concept used by Flo at Progressive, too: Firms are providing bundles of services that increase the value perceived by clients, while also making it easier to upsell those clients and increase revenues. It can also help diversify the firm’s services and revenue channels.

Value Pricing Basics

Virtually no tax firm has charged by the hour to do easy-to-moderate individual returns for decades. Or even most complex returns. Instead, firms long ago started offering a base price, plus a set fee for additional forms. Likewise with other service offerings, such as general business consulting, monthly reconciliations, payroll services, etc. This was the flat-fee concept.

When value pricing first set in, most firms tried to bundle specific sets of related services. For instance, if the firm prepared business taxes for a client, it would also provide the owners’ individual tax returns for either a discount or for free. While on its face this may seem like giving a service for free, it is for the purpose of gaining the more lucrative business return engagement. After all, preparation of individual tax returns has become so commoditized that it takes a high volume to make it profitable. Also, once the firm has all of a client’s business data, it makes preparing the individual returns less work. Similarly, a business could be given free consulting if they also used the firm for write-up or payroll services. This would allow the firm to have additional opportunities to upsell their clients. Eventually, “menus” of firm services were developed, allowing clients to select the items they wanted.

Bundles Grow into Subscriptions

Firms soon saw the benefits of a providing more services to their existing clients: More consistent revenue streams through the year, and less reliance on only one or two client services. As firms embraced this model more, additional bundles emerged crossing from taxes to payroll, from write-up to outsourced CFO, to sales taxes, financial management, advisory, succession planning and more.

Firms now provide multiple client services throughout the year for a singular contract. The client and firm determine which services will be provided, as well as what level of service, support, how frequent the engagements, etc, and determine the price plan. And then, one of the greatest firm pricing evolutions occurred: These services were turned into a subscription model. Just as streaming and cable tv, websites, apps, gyms, and even old magazines and newspapers have done for years, clients were encouraged and eventually required to “join” the firm’s services via a contract (often annualized) that evened out payments for the client, which also had convenience for firms.

Firm engagement letters often encourage or require subscriptions to be paid via automatic ACH or recurring credit payment methods. As a result, subscription billing can virtually eliminate the hassles of AR and collections.

Client Accounting Services

CAS new refers generally to bundled pricing across multiple client services, particularly core small business accounting functions, such as managing vendor payments, receiving invoice payments, posting expenses, managing financials, check-writing, bill pay, reconciliation and day-to-day management functions. With modern cloud accounting systems on both the client and firm side, these processes can now be performed so much more efficiently than before and at a lower cost to clients (compared to hiring an in-house bookkeeper).

Depending on the levels of service the firm has decided to offer, these functions can range from periodic assistance to full remote CFO service options, as well as the bundled with other functions, such as advisory, payroll and taxes, all for an automatically paid monthly fee.

While hourly billing may still be viable for some services, particularly those with extensive research requirements, unknown data entry and functions like audits, forensic accounting, and litigation support, the client accounting services model offers far greater benefit for the business and the firm, especially when implemented using AI-infused cloud systems that streamline the workflow process.