Subscriptions are the catalysts of transformative business models, unlocking unlimited potential and propelling entrepreneurs into the future of sustainable success. In this episode, Ron Baker, Founder of the VeraSage Institute, discusses the transformative power of subscriptions. Ron provides practical strategies and innovative ideas to fully utilize subscription-based models and navigate the future of entrepreneurship. He also provides an exclusive sneak peek into his book, Time’s Up!: The Subscription Business Model for Professional Firms, which promises to be a guide to unlocking sustainable success through subscriptions. Tune in to learn about the game-changing business model and its potential to revolutionize business!
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The Transformative Power Of Subscriptions For Business Success With Ron Baker
Our special guest started his career in 1984 with KPMG’s Private Business Advisory in San Francisco. Now, he is the Founder of VeraSage Institute, which is leading the think tank dedicated to educating professionals internationally. He also is the host of a radio talk show on VoiceAmerica.com called The Soul of Enterprise: Business in the Knowledge Economy.
Our special guest has authored seven best-selling books, including The Firm Of The Future, Pricing On Purpose, Measure What Matters To Customers, and many more. He also has a new book that you’re going to hear about in just a moment. Before we welcome our special guest, I know that everyone is telling you the best way to increase your revenue is to simply work harder. Maybe discount fees and get as many clients as possible.
That only works if you want to increase your firm revenue at a snail’s pace, be totally overwhelmed and feel like you want to close your business down, and maybe go get a job, feel burnt out, and resent all the work you do for your clients. We teach you newer, far simpler methods for accounting and tax professionals that allow them to charge premium fees, double their annual revenue, get paid first and upfront, and eliminate AR forever. If you want to see how we’re doing this, you can register for my free masterclass at TheAbundantAccountant.com/Masterclass. It’s an investment of twenty minutes. That’s it. Have a pen and paper to change the financial future of your firm forever. Now let’s welcome our special guest to the show. Welcome Ron to the show.
Thanks for having me.
It’s great to have you here. I know we’ve emailed back and forth for quite a while now, but I’m looking forward to our conversation. Before we get started, could you share with everyone what it is that you do? I know that you have a new book. Do you want to share that?
Since around 2000, when I sold the interest in my firm to my then-partner, I founded a think tank called VeraSage Institute. Our mission is literally to kill the billable hour and the timesheet across all professions, not just my profession of accounting but law and advertising, consulting IT firms, and any professional firm who bills by the hour that’s been in our crosshairs to change their business model. By and large, we’ve been quite successful with that, so now I believe the future of firms is going to be in a subscription. That’s what my latest book is about, which is called Times Up.
What we’re going to be talking about is the subscription-based business model for an accounting tax bookkeeping firm. How is that completely different than the norm? How does the one who is used to hourly able to make that change? Maybe you can share some case studies with us. I’m very excited to have you here.
One of the nice things is when we were teaching how to make the translation from hourly to value pricing, a lot of people got hung up on that. It took a long time, but I think now, you can move right from hourly to subscription. You can leapfrog over value pricing even though there are going to be some value pricing principles that are still going to apply, but you can learn those and you don’t have to move the value pricing. You can move right to the subscription.
What we’re seeing is that people are so used to the subscription economy because they subscribe to so many things, whether it’s software in their business or various apps like Hulu and Disney+. Everybody is an Amazon Prime member. We know the convenience, the peace of mind, and the simplicity of this business model. We like it because it’s very convenient. Now everything is being compared to Amazon Prime. With one click, it’s ordered and shows up on your doorstep. Sometimes in some cities, the same day. That’s who we’re being compared with. Your digital online experience is not being compared to other accounting firms. It’s being compared to Amazon. Our profession needs to up its game.
If you think about it from a firm owner who has been either charging hourly or do compliance work, they’re charging low fees. Even the thought of going to value pricing was completely terrifying, scary, and overwhelming the least. What are the first steps to making a transition into this different model entirely and going to a subscription-based business model for an accounting tax or bookkeeping firm? What are some of the steps that one would need to take? I know we were sharing this in an email when if someone is trying to sell their firm in the future, it does make it more valuable. It makes it more sticky.
It makes it much more valuable. We’re seeing multiples of 5 to 15 of gross revenue as opposed to one-time for professional firms. That needs to be factored into the calculus. The first thing people have to realize is that this is a business model change. We’re not just talking about a pricing change. The pricing is always driven by the business model, but the business model is the senior partner.
A lot of firms will tell us, “We do subscriptions. Our customers pay us monthly. We take their annual price and divide it by twelve for the bookkeeping and the tax or whatever.” That’s not a subscription. That’s a financial arrangement and payment term. Subscription requires us to plus our offering, meaning to go to the market with an offering that is uncommon because if you go to the market with a common offering, if you do what everybody else is out there doing, which is CAS and tax services, then you’re going to command a common price.
If you want to command an uncommon price, you’ve got to go to the market with an uncommon offering. The subscription businesses that you see have plus their offering. Disney gives us everything in their catalog pretty much. They constantly come out with new things. I can subscribe to a Porsche and people say, “How’s that different from leasing it or buying it?” It’s because it’s not a car. It’s a fleet of vehicles I subscribe to. I have access to seven Porsches and can trade out as much as I want. I could call them up and say, “I want an SUV. I got guests coming. They want to go wine tasting.” They will white glove me out of an SUV and white glove away my convertible.If you want to command an uncommon price, you've got to go to the market with an uncommon offering. Click To Tweet
They’ve plus the offering. It’s no longer about the transaction or the service. It’s about the relationship. I now have a one-to-one relationship with Porsche. That’s different than just buying a car or being involved in a transaction. Moving from transactional to relational is what the subscription model is all about. That requires a different business model and mindset in terms of the profit formula that you’re looking at because with subscription, what you’re doing is you’re building lifetime customer value.
That becomes the guiding metric. You are no longer looking at the math of the moment. You’re not worried about how much are we making on this job, at this hour, or on this customer? You are computing customer lifetime value. To boil it down, the subscription model is basically you’re building lifetime annuities that are worth far greater than the cost to acquire them. That’s the new profit formula. It also got a different revenue model, which we can talk about if you’d like.
It would be cool if we could give some tangible examples of what one would maybe need to start thinking about. I love your Porsche subscription, where you get access to seven cars and they’re bringing whatever car you want when you ask and they swap them out. What would a firm owner do in their firm to increase the plus offering where it’s not the common offering where they can charge an uncommon price, as you said, which I like, and be able to move into the subscription model?
What are some of those services that you’ve seen work well and create the uniqueness of creating that one-to-one relationship for the firm owner and their clients? They probably already think they have a good relationship with their clients, but this is on the next level. What would be some tangible examples that firm owners tuning in, be it if they do bookkeeping, if they do accounting, if they do tax, tax planning, or tax resolution? It doesn’t matter what offerings or services they provide, or they might just do all of them, and they have CFO services and profit first. What are some ways to bundle this and increase the plus offering?
The first thing that you have to realize with a subscription is we’re moving away from services. It’s not about stacking up services brick by brick because that’s not what the customer is buying. Services are simply a means to an end. I believe there’s a new end that customers are buying in subscription, which is a transformation.
If you think about humans and why they consult all different types of professionals, including doctors, lawyers, accountants, and CPAs, all of that is because they’re trying to be healthy, wealthier, and wise. Doctors keep us healthy and we can keep our customers wise and wealthy. What we’re doing for our customers at the highest value point is not services. It’s guiding transformations. It’s helping the customer move from where they are to some desired future state. For example, we can help them grow their business to make it more valuable, retire sooner, or plan for their kid to get into college, at least financially, maybe not educationally.
We can help plan their legacy or leave their legacy. If you do estate and tax planning, those are all transformations because what you’re doing there is you’re guiding the customer from where they are to some desired future state. You’re touching their lives or their souls. It’s not about the services to get them there. I’m choosing to use the term transformation as opposed to outcome because it’s a more powerful term because when you transform somebody, you change them forever. It’s like the historian Heraclitus said, “You can’t step in the same river twice because not only has the river changed, but you’ve changed.”When you transform somebody, you change them forever. Click To Tweet
Think about the transformations we have in our lives and the things that we do to commemorate them. Wedding anniversaries, wedding rings, ribbons from the military service, diplomas on the wall, and your CPA certificate on the wall make us different people. We, as professionals, have the power to transform our customers. That is the apogee of value. Porsche can help me through my midlife crisis and make my neighbors envious, but they’re not transforming me because Porsche, unfortunately, is tied to a physical object. We’re not.
We work with our minds. We’re knowledge workers. We can guide our customers through many transformations. We need to stop thinking about selling services. It’s not about the services. Those are a means to an end. Even my landscaper is providing me with a transformation because they’re taking my yard and converting it over time to the best curbside appeal.
That’s a transformation. It’s certainly going to show the impact when I sell the property. We need to talk, communicate, and message about transformations. I’ll give you a very tangible example because this is my North Star for how I think CPA or accounting firms can do this. It’s already been done in another profession. We’ve got many years of experience with this model. It’s been empirically proven. We’re laggards in this. It’s the concierge medicine model and their baby cousins, the direct primary care doctors. These are general physicians that you subscribe to as a patient. A concierge doctor is probably going to pay a couple of grand a month. They go after the top 10% of income earners and wealth holders in the country, people with more money than time, like CEOs and things like that.
Direct primary care doctors serve at a much lower price point. They go after the middle class or the lower middle class. They can be as cheap as $50 a month or high as $250 a month. When you subscribe to their medical practice, you are covered for anything you need that they do. There’s the constraint. You’re not going to go to a general physician for heart surgery, get your knee replaced, or get cancer treatments. They’re going to give you basic medical, but that’s usually 80% of what we need. You have total access to them 24/7, 365. They text you and email you. You have access to your medical records.
They’ll come to your home or office. How can they do this? The average doctor in the United States has a panel of patients of about 2,400. Direct primary care doctors limit themselves between 500 and 600. They’ve cut the number of patients by a huge amount because they always want to have the capacity for all of their customers to take care of them and do what they join the profession to do, which is help people. When I ask accountants, “Why did you pick this profession?” You get all sorts of interesting answers. But the predominant one is to help people.
You can’t help people if you have 1,000 customers. I’m sorry, you’re kidding yourself. Relationships do not scale. You have to have capacity, be able to spend time with people, and have conversations with them about their future plans. It’s not just about solving problems. It’s about advancing the customer. Because if all we’re doing for the customer is solving their problems, we’re just reverting them back to the status quo. We’re not advancing them. I think we have the capability to advance them and transform them. There is no higher point in the value curve than that.
This is all spot on. I love the comparison to the concierge medicine doctor model. That’s a good comparison to think about. If you’re a firm owner, you’re like, “This is exactly what I needed to do,” then they’re thinking, “How do I do that? I am that person. I have 1,040 clients. I only have maybe 100 business clients. How do I make this transition?” What do they do with the compliance work? That doesn’t fit this model. You can’t make a 1,040 best curbside appeal per se. What would you recommend for that firm owner who might be reading and not have those business clients where they can focus on transformation and outcome?
If you’re in a large compliance firm, like 1,000 tax returns with or without the bookkeeping customers, you can still do a subscription. What you can offer besides just transformations is you can offer convenience, peace of mind, and you can surface simplicity. You’re not sending them out 200-page tax organizers. That’s customer abuse to send out these tax organizers that if the customer knew how to fill that out, they wouldn’t need to hire us. I don’t know why we continue to do this but also peace of mind. Basically, as a tax practitioner, you’re telling your customers, “Anything you need that we’re capable of doing, you’re covered. If you need a 1031 exchange, you get audited, or states are auditing you, you’re going to be covered.”
That’s going to be reflected in your price, but because you’re telling the customer, “Anything that we’re capable of doing, you’re going to be covered by us.” If it becomes an all-inclusive package, then I believe the customers will feel peace of mind. They’ll know it’s convenient, like Amazon One Click and Prime. They’ll pay a premium for that. Nowadays, I think the biggest sin firms commit is we waste our customer’s time.
If all you’re doing is counting the services, scoping out the services, and then every time the customer needs something that isn’t in scope, they have to go to the Department of Paperwork, get a change order, and get an extra bill. That blows up in subscription. It’s all-inclusive. You want to make it simple, convenient and give them peace of mind. I believe you can get a premium for that even if you’re not so much focused on the transformations. Although I do believe there are things that a compliant shop can do to transform customers.
For one thing, tax projection to keep them wealthy to save as much as they legally can on their taxes, maybe set up retirement accounts and help them retire sooner. Help them get their kids into college and estate planning if you do that. These are all things that transform our customers’ lives that we have a big impact upon.
Those are great ideas. That brings you to the outcome because those are more transformational in someone’s life. It’s not like, “Fill out this 50-page organizer and get it back to me by a certain day. We’ll let you know.” It’s planning slightly for the future for someone, even if they have a W-2 per se.
It’s not about the services where we get so wrapped around the axle about the services like the DPC doctors and the concierge doctors have figured out. It’s not about the services. It’s about what you need on demand.
If there’s an emergency, you are a priority. You are on the first line.
When your kid is screaming in the middle of the night, you text your doctor and get a response within a minute or two saying, “Don’t worry about this. Do this and this.” You stay out of the ER because of that. That doctor is worth his weight and gold. We need to do the same thing, but we can’t do that if we have 1,000 customers.
If you have 1,000 customers, it’s a transactional firm. There’s no relationship of value that could even be built at that point.
There’s no annual recurring revenue. One of the amazing things about subscription, and we know this because of all the empirical evidence that’s out there on this. If you have a customer subscribe to your firm and you keep them for 12 months, you have a 90% or higher probability of keeping them for life. That’s why when you go to sell that firm, it’s going to be worth a heck of a lot more than just one times gross revenue. It could be anywhere from 3 to 15.
It is a highly sticky factor. Penetration is very low.
There’s a difference between recurring revenue and reoccurring revenue. A lot of accounting firms will say, “We have recurring revenue,” but what they mean is they have reoccurring revenue because reoccurring comes every year. We have a tax return and got to do the books every year. We know all that. Reoccurring revenue still has a lot of one-and-done in there. It’s like a rash. You never know if it’s coming back. It’s not as predictable. If you have reoccurring revenue, they’ve signed a subscription agreement. It’s cancelable at any point in time. This is another thing that freaks people about the subscription model, but the customer, you’ve got to make it easy for them to cancel. At every touchpoint with the customer, they have a cancel button. They can cancel.
Counterintuitively, when you do that, they’re less likely to cancel. Now they’re focused on convenience and simplicity. They want you in their lives just like you want that DPC doctor in your life. Not because you’re going to go see him every day, but because when you need him, he’s there. I had to get a new glass prescription and my old one that expired. I called my eye surgeon in the first week of October. He can’t see me until the end of January.
Now you tell me how much time he wasted for me. I had to go find another doctor, go over here for this and that, and get the glasses here. When I saw him at the end of January, because I love the guy, I said, “Doc, I’m not happy that you wasted a bunch of my time. Why don’t you offer a subscription plan that will put me at the front of the line? I will pay for that.”
That happened to me at the Apple store. The Genius Bar doesn’t have a subscription model. It’s a different line or like clear at the airport.
AppleCare doesn’t get you in the front of the line when you call, but maybe not at the Genius Bar.
I had to leave my laptop for five days just to change out a battery. There’s no one else that can do it. They don’t want to make it harder for someone that might not have the money to pay a premium to get into the front of the line.
We’ve been asking for many years, “When are we going to be able to subscribe to Apple across the board?” They could do it. They could have a road warrior and home office or a family package where you get a new laptop every three years and a new iPad or iPhone every year. Their soul is hung up on selling SKUs. It’s not about selling the services.
They’re about reoccurring revenue, not recurring.
They need to build customer loyalty. They’ve already got fanatical customer loyalty, but just lock that in and expand. It would be wonderful for them. There are rumors that they’re going to move to a subscription even for their hardware, but we’ll see.
I’ll sign up in a heartbeat. What else off the top of your head? I know there’s so much that we could talk about, but I think you’re giving some great ideas to implement and make these changes because this is a business model change, as you said. What’s the next step in this process? I’m sure it’s in your latest book Times Up, which you should all purchase. They can get it here on Amazon. Go to Amazon and make sure to leave them a great review after you read it.
Going from this different model totally, entirely in their business of this subscription model and thinking about recurring revenue versus reoccurring revenue, which is a great distinction. What would be the next thing that they would need to make a shift not only in their mindset and how they think about it, but in action steps? I’m all about taking action. This is the Abundant Accountant Show and is always about increasing revenue, profitability, and ways to increase the client relationship because that is everything when it comes to increasing revenue. Also, if you have a story, even if it’s Porsche or what you’ve heard that Apple might be doing, what would be the next step for the firm owner for this year to make this shift in their business model that they would need to do?
We have a lot of experience as we saw firms move from hourly billing to value pricing. That’s also a business model that changes the completely different business model. One of the things that almost always happened with almost every firm that did that is they reevaluated their strategy and their positioning. The way I explain this is you can be at Morton’s, McDonald’s, or a vegan restaurant, but if you try and be all three, you’ll be terrible at every one of them. You’ve got to pick and choose what you want to be and who’s your ideal customer. That could be broken down by industry specialization or demographic. You could say we specialize in gig workers, Uber drivers, Lyft drivers, people who sell on eBay and Etsy, and things like that.
You got to focus. You can’t be all things to all people nowadays. What we find is small firms up to large firms in way too many different industries. They have different tech stacks and keep up with all this stuff in different industries. You can’t do it all. You simply can’t be an expert. This is why medical people specialized back in the ‘40s because you go to an oncologist for cancer or a cardiac surgeon for surgery on your heart. It’s all specialized. I think we need to do that. This model will force you to do that because this is a relationship-based model.
This model puts the customer at the center of the firm. Nothing else matters but that relationship, which means you have to have spare capacity at all times to nurture that relationship, be there when your customer calls you at 2:00 AM on Saturday, and be able to handle things that need a quick turnaround. The first thing is you’ve got to position your firm to where its strengths are. One of the best ways to do that is to ask yourself this.
About every line of business that you’re in, whether that’s tax, bookkeeping, or different industries, ask yourself, “If you weren’t already in a particular business, would you enter it today?” Let’s say you have a dozen restaurants and you know what it’s like to work with restaurants. Would you enter that now or do you want to get out of there? What are you going to do about it? is the next question.
Run the other way.
I hate to say that riches are in the niches, but the empirical evidence is overwhelming. I’ve been at this since 1984. We’re talking about buying away seven-figure profit firms. All have one thing in common around the world and across all professions. They’re specialized.
It’s not any different than the concierge medical doctor model. They’re specialized clientele, the top 5% to 10% earners. My guess is the age group is between 40, 50, 60, 70, or 80 years old. Their niche is far down. I think to have a successful subscription firm model, the more niche you are, the more specialized you are, and the more value add you can bring in transformational results because you start to learn all the ins and outs. You become the most knowledgeable person, if it’s for construction workers or Uber drivers. You will learn exactly how to service them to get to their outcome quicker and faster than anybody else.
I have a friend that does nothing but dentists. He can handle a dentist from womb to tomb literally. Once they emerge from dental school, he can help them, set up a practice, buy into a practice, whatever it is. He’s seen it a million times now. People say, “That sounds boring.” I came into public accounting because I wanted to work with different industries and businesses. That’s wonderful for your intellectual curiosity. In fact, I did the same thing. It’s crappy as a business model because it’s too diffuse. There’s a complexity tax that you pay for that. It comes right off your bottom line. That would be the first thing I would want firms to consider is their strategy and positioning because I believe firms are defined by the customers they don’t have and the services they don’t offer.
Strategy is all about not what you’re going to do. It’s about what you’re not going to do and narrow that focus. The second area I would work on is, “How are we going to pivot from where we are to subscription, whether you’re hourly billing or maybe value pricing or even fixed pricing?” I’m going to say something that’s probably going to scare some people, but here’s the best evidence that we have that’s out there from firms that have made this pivot. Start a new entity and build it from the ground up based on subscription plus the offering.
Provide that convenience, simplicity, and that peace of mind. Up your price by a factor of 2 or 4 times and put it in a different business. Start a new business and new brand name, maybe. That’s your highest probability of success because with subscription, like with any business model change, your KPIs are going to be totally different. Your income statement looks different. I don’t know if you’ve ever seen a subscription business model income statement, but it starts with the beginning ARR and ends with the ending ARR.
When people tell me, “We do subscription,” I have an asset test for firms that tell me that they do subscription. I say, “Do your customers know they subscribe? Do your customers know they can cancel at any time like I do with Prime, Hulu, Netflix, and Disney+? What are your most recent financial statements ending ARR balance, and what’s your customer lifetime value?” If people can answer those questions, then they’re doing a subscription. The mindset is so different that you have a higher probability of success if you spin out a new entity.
I’m sure that sounds overwhelming for everybody that’s reading, but it’s a good clean slate for your new business model, which makes sense. If you’re looking to sell your firm in the future, this is probably the cleanest way to do it. Thank you for sharing and being here. Is there anything else that you think, and I know you probably have so much to share, you’re biting your tongue that you want to say about the subscription model and transformational outcome-driven approach in making these changes for these firm owners? Is there anything else that you’d like to lead them with?
The reason I’m passionate about this, like the reason I’m so passionate about value pricing, was because we entered this profession to help people. I want to get back to our roots. We need to help people. We can have a profound impact more so than any other business. Starbucks is starting these things called Starbucks Reserve. Howard Schultz described it as the Willy Wonka of coffee. It’s these 4 or 5-story buildings that every floor has got a different bar in it. You could probably spend up to $40 on a cup of coffee at the top floor. It’s got live music and all of that kind of stuff. Think about it. It’s a cool experience, but it’s not a transformation. We have the ability to transform our customers’ lives. That’s a sacred bond and relationship.
I want to nurture that. I want to have a deep, meaningful impact on the customers I serve. That means I have to have fewer customers, but I can charge them a higher price because I’m doing more transformations for them. That’s what gets us back to our route because, after all, what it means to be a professional is we take responsibility for producing an outcome, not doing a series of tasks. Right now, whether you’re an hourly billing or value pricing, your business model and its economics are pricing services. We need to move away from that and start guiding transformations. We will become a more valuable and more impactful professional and profession.What it means to be a professional is we take responsibility for producing an outcome, not doing a series of tasks. Click To Tweet
Baking and helping people transform their life is priceless. Thank you so much for being here with us. There are so many gems.
Thanks for having me.
Readers, you might want to reread, have your pen and paper out, and take some copious notes. This can change your game. Make sure to go get his book Times Up on Amazon and leave a review only if you like it. It’s been an honor to have you here, and I hope you have a beautiful day.
You, too, Michelle. Thank you.
Thank you all so much for joining Ron and I for another amazing episode. It’s always an honor to be here and always with special amazing guests. The subscription model and thinking about how can you be the concierge tax doctor, accounting doctor, or bookkeeping doctor for your clients, what are some transformational outcomes that you could create for your ideal client? Not for everybody, but if you were to start a new entity, who would you want your patients to be? Who would you want to respond to within a 24-hour period? Who would you want to serve and help at a level you’ve never done before and be able to charge a premium recurring dollar amount every single month and have the opportunity to maybe sell your firm in the future for 5 to 15 multiple?
That’s what I think. You should spend 5 to 15 minutes jotting down those ideas that came up for you from this episode. For those of you that want to learn a far simpler method that firm owners are using to charge premium fees, double their revenue, get paid upfront, and have no ARR, then make sure to head on over to my free masterclass at TheAbundantAccountant.com/Masterclass. It’s an investment of twenty minutes where you will want a pen and paper, but it will change the financial future of your firm forever. I hope to see some of you there. Have a beautiful day and I’ll see you on the next episode.
- VeraSage Institute
- The Soul of Enterprise: Business in the Knowledge Economy
- The Firm Of The Future
- Pricing On Purpose
- Measure What Matters To Customers
- Times Up
About Ron Baker
Ronald J. Baker started his CPA career in 1984 with KPMG’s Private Business Advisory Services in San Francisco. Today, he is the founder of VeraSage Institute—the leading think tank dedicated to educating professionals internationally—a radio talk-show host on the www.VoiceAmerica.com show: The Soul of Enterprise: Business in the Knowledge Economy.
Ron has authored seven best-selling books, including: The Firm of the Future; Pricing on Purpose; Measure What Matters to Customers; and Implementing Value Pricing. His latest book, co-authored with Paul Dunn, Time’s Up!: The Subscription Business Model for Professional Firms, was published in November 2022.
Ron has toured the world, spreading his value-pricing message to over 275,000 professionals. He has been named on Accounting Today’s 2001-2007, and 2011-2022 Top 100 and Top 10 Most Influential People in the profession; and inducted into the CPA Practice Advisor Hall of Fame in 2018. He is a faculty member of the Professional Pricing Society. He presently resides in Petaluma, California.