The Abundant Accountant | Ron Baker | Subscription Business Model

 

Joining us today is the co-author of the book Time’s Up!: The Subscription Business Model for Professional Firms. Ronald J. Baker, the founder of VeraSage Institute, explains how he does not need a scope of work and why you should follow that path. He touches on the power behind transformation and the downside of having billable hours, value pricing, and fixed pricing. Ron also describes the Subscription Model and his Monthly Bookkeeping Text Firm. Join us in our valuable conversation with Ron today.

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Subscription Business Model For Accounting Firms: Why Do You Not Need A Scope Of Work With Ron Baker

We have a very special guest. Our special guest started his CPA career back in 1984. He’s the Founder of VeraSage Institute. It’s the leading think tank dedicated to educating professionals internationally. He also has a radio talk show. He’s the host of VoiceAmerica.com. Our special guest has also authored seven best-selling books. Make sure to check those out on Amazon. Our special guest has toured the world, spreading his value-pricing message to over 275,000 accounting professionals. He has been named Accounting Today’s 2001 to 2007 and 2011 to 2022 Top 100 and Top 10 Most Influential People in the profession.

Before we welcome our special guest to the show, if you are like so many smart, hardworking tax, bookkeeping, and accounting firm owners and you think that the way to get new clients or retain current ones is to keep your fees super low, do some free work, or simply work more hours, it’s not true. We both know that it ends up in burnout and growing resentment for clients and the work that you do for them.

The firm owners that I work with here at The Abundant Accountant charge premium fees. They ethically double or triple their fees. These are two clients. They also are following a much newer and far simpler method that we’ve created here at The Abundant Accountant that allows firm owners to charge higher fees, get paid first and upfront, and double their firm revenue while working less, giving them total financial security, more disposable cash, and the freedom they’ve always wanted in their firm. If you’re ready to make that change and start creating the firm that you’ve always dreamt of when you started your business, book a call with me and my team at TheAbundantCall.com. Let’s welcome our special guest, Ron Baker, to the show.

Welcome, Ron, to the show.

Thanks. It’s glad to be back.

I am super excited to have you back here at the show. It’s always super fun to have you here. I look forward to many more conversations together. I know we had done an episode together on subscription. We’re going to tack onto that. Before we get into why and how you no longer need to deal with the scope of work and move into the subscription model for your accounting, bookkeeping, or tax firm, for those people who don’t know you, why don’t you share 30 seconds to 1 minute of who you are and also your latest book?

I am a recovering CPA who started my life in a Big Eight accounting firm, which is how you carbon date a CPA. They say Big 8, Big 6, Big 5, or Big 4. I started my own firm after I left the Big Eight in 1987 and realized very quickly that the billable hour was a lousy customer experience. I was studying great customer service companies at the time, outfits like Disney, Nordstrom, Lexus, and American Express. I wanted to be like them. I didn’t want to be the average accounting firm, so we started playing with fixed prices and value pricing. There was nobody on the circuit talking about it. There were no books on it. There were no educational courses. There were no consultants, at least in the professional world.

We made every mistake under the sun, but we stuck with it because we learned fast that the customers loved it. We got better at it as we did it more. It allowed us to stop billing by the hour. It allowed us to get rid of our time sheets. I started teaching it. I wrote a book about it. The book sold 40,000 copies around the world. It put me on the map. In 2000, I sold my portion of the firm to my partner who still runs it. I’ve been teaching and writing books ever since and consulting.

I’m very happy that you’ve transitioned into that because you’re a great speaker, a great author, and super fun to do shows with. You are very entertaining and engaging. Thank you. You are very smart and knowledgeable, too. We’ll have that in there. We’ve talked about the subscription model and moving towards that and how the value pricing, picking your three different prices, offering those three, and having them choose is going to be a thing of the past. I’m very excited to talk about this.

More so, we’re going to have a conversation. If you have a yellow notepad or a white one, you might want to grab it and take notes because Ron always has golden nuggets. Why and how do you not need to even have a scope of work anymore? This isn’t a fee-for-service. We are going on with what we spoke about in our previous episode on subscription. Why don’t we start with why do you not need a scope of work?

This isn’t a fee-for-service business model like hourly billing and, dare I say it, even value pricing. The way it’s been implemented by firms is still based on fee-for-service. We’re trading dollars in return for the services that we provide. Professionals are so much more than stacking bricks, laying bricks, and piling up bricks by bricks or services by services. That’s not where our value lies. The services ultimately are a means to an end.

My favorite definition of a business model is that a business model describes where revenue would be earned once services are provided for free. That’s a very challenging definition because it does make you think, “If I gave the bookkeeping, tax, and advisory that everybody’s shifting to all away, what would I monetize?” The logical answer is transformations.

Since we’re in a privileged position as accountants, we can guide our customers from where they are to where they want to be, some desired future state. When you do that and guide transformations, you are changing that customer internally. The customer becomes the product. It’s not about the services anymore. It’s about those transformations. That’s where our focus needs to go because it’s better marketing. It’s a higher value proposition to talk about in terms of transformations than stacking up services brick by brick. Customers don’t value services. They value the outcomes they generate.

When you guide transformations, you change that customer internally, and the customer becomes the product. It's not about the services anymore. It's about those transformations. Click To Tweet

Here at The Abundant Accountant in my 8-week Sales Mastery Training, it’s all transformational work. All I talk about is the outcome. I’ve heard when we were at a conference together in person people hate the word transformation. Can we break that down a little bit and talk about maybe even why if you’ve heard that? I’ve heard it a lot.

One of the biggest things that myself and my team do is help tax accounting and bookkeeping firm owners have transformational results. The life they had when we first met and the life they have 8 weeks after they’re with me are 2 different lives, 2 different experiences, and 2 different outcomes. You said exactly what it is. It’s relating to the outcome. It’s not the service that you’re doing for someone. It’s about the end result they’re going to have. What’s your take on that word, transformation?

It’s a powerful word because If you think about the transformations that we go through in our lives, there are various milestones. You graduate from high school. You graduate from college. You may get your CPA exam. You may get married. We have representations and rituals around these transformations. Some of them are very deep and profound. Others are leaving a legacy, growing your business, retiring sooner, or getting your kid into college and planning for that.

Accountants provide all of these transformations every day. We’re doing this for our customers. This is why we’re valued in the marketplace, and yet, our language doesn’t reflect that. We don’t talk about transformations. We don’t talk about guiding our customers from where they are to some desired future state. We tend to focus on the services, the scope of work, how many bank accounts and transactions you have, and all of that. None of that is what’s important to the customer.

I’ll give you a very simple example. People get hung up and think, “Transformations are far and few between.” They’re not. I have a landscaper who I’m paying three times more than my prior landscaper because his transformation is he is slowly upgrading my yard to the best curbside appeal in the neighborhood because he knows I want to sell it in a couple of years.

That’s a transformation. I don’t care how he does it. I don’t care about the scope of work. I don’t care when he does it. I don’t care about any of that. I care about when I’m ready to sell and put the house on the market that I have the best curbside appeal. That’s valuable. That is why I’m paying him three times more than all of the other landscapers I’ve ever hired.

It’s so true. It’s the desired future state. Your desired future state is, “I want to sell my house as probably quickly as possible. I don’t want it to sit on the market for more than a day or two. I want to get the highest offer.” That is where you want to go. In order to get that outcome, this landscaper said, “I know exactly what to do. I’ll do whatever it takes. I’m going to make it look beautiful, energy efficient, water efficient, etc.,” and that’s the outcome that you’re going to get. You don’t need to know what hours he’s working or how many hours he’s working because none of that matters. It’s about what it looks like at the end. If it takes them twenty times longer than any other landscaper, that’s on them.

This guy knows what he’s doing. He’s working on it and I can see the progress, but I don’t care about that. I care about when I’m ready to sell that it’s done. This goes back to another powerful thing about transformations. This goes back to what it means to be a professional. A professional is someone who’s responsible for achieving a result rather than performing a task.

The Abundant Accountant | Ron Baker | Subscription Business Model

Subscription Business Model: A professional is someone responsible for achieving a result rather than performing a task.

 

The problem with the billable hour and, even to some extent, fixed pricing and value pricing is we’re putting everything into tasks. We’re like, “Here’s this service and that service.” We’re stacking services like brick layers. It takes our attention away from the result that we, as professionals, are responsible for providing. When I go to my eye doctor, I want the best clinical perfect eyesight I can get. That’s the result. How he gets me there doesn’t interest me as much as the outcome.

We need to get back to our roots of being a professional. Since we’re in such a privileged position to be able to guide these transformations, we’re not using our full capacity as professionals to explain to our customers what we’re capable of doing. I can go to Starbucks and get a great experience. If you go to Starbucks Reserve, maybe you visited them when you were in Seattle, Starbucks Reserves are cool. They’re like the Willy Wonka of coffee as Howard Schultz said, but it’s still an experience. It’s not transforming me as an individual. It’s cool and I can have a good time, but I’m not going to be changed.

You’re not going to get a higher price for your house. You’re not going to become a firm owner that can command premium fees, get paid your worth, and never have AR.

It’s not going to make me healthier, wealthier, and wiser. That’s what we’re capable of doing as professionals. That’s why we need to latch onto this transformative language because that’s what it’s all about. I’m not talking about using the language. I’m talking about guiding those transformations because there’s a whole process there, too, that’s important to take the customers through. This is the new language of the new model that we’re talking about.

We need to latch on to this transformative language because that's what it's all about. Click To Tweet

I would agree with that. We are transitioning into the new model, subscription. I’m going to play devil’s advocate because I’m sure people have asked you this. What’s the difference between subscription versus my monthly bookkeeping clients that I have on recurring payments?

In a subscription model, your customers know they subscribe. That’s the first asset test. Does the customer know they subscribe to your firm and not that they’re paying for services? In other words, it’s not a transactional relationship. It’s a real relationship. We all know we subscribe to Amazon Prime, Hulu, Disney+, and all the other subscriptions that we have.

Psychologically, there’s something very different about subscribing to a business rather than buying from a business. That subscription is more of a relational one. The other thing I would ask is, “Do your customers know that they can cancel at any time?” There’s no lock-in. There are no two-year minimums. There’s no set-up price. There’s none of that. It’s a pure subscription. You should be able to cancel it at any time.

The other thing that makes a subscription different is innovation is constantly baked in. You’re constantly plus-ing the offering. It’s what Walt Disney used to call plus-ing the park, making it a better guest experience with new attractions and new features that surprise and delight the customer like Amazon Prime does. They’re constantly putting out new benefits and new ways of adding value. We need to do the same thing. It doesn’t have any effect on the price.

When Amazon drops a new episode of whatever you’re binge-watching, the price doesn’t change. They’re going to raise the price every couple of years or whatever as they did, but when they do that, they’re going to be able to point to all the value that they’ve added to the relationship over the last couple of years. We need to do that as well.

We need to disengage the cognitive load that we dump on the customer every year. When we give them a new fixed-price agreement to sign for the next twelve months, we’re putting the entire cognitive load on the customer all over again because it’s more transactional. Whereas once they subscribe to you, if you can keep them for one year, you have a 95% chance of keeping them for life. That’s amazing. It’s a relational model. It’s not a transactional model. That’s what makes it so powerful.

The Abundant Accountant | Ron Baker | Subscription Business Model

Subscription Business Model: If you can keep your customers for one year, you have a 95% chance of keeping them for life.

 

Someone’s trying to switch. Let’s say they have a bookkeeping firm. They’re doing mostly bookkeeping already. What do you think would be the first step for them to transition to this where they don’t have that cognitive load, which is what you called it? There’s no scope of work, so how is that eliminated? What do they sign?

We don’t have to talk about the conversation part, or you can mention it if you’d like. The changing of that work, you can cancel at any time. You’re opting in. If I do extra for you, I’m not going to charge you extra. If we’re meeting monthly, most of them are meeting monthly or whatever, and you want to meet one extra time, I’m not going to charge you extra.

What boundaries do you also recommend be put on that? Sometimes, you don’t want to give away the farm. On a subscription model, I have that for my ongoing coaching. It’s a month-to-month. You can let me know anytime you want to cancel. This one woman came back and she got all of the updated coursework from my program. I sent her the login and password. She’s going to get everything updated because she subscribed to my ongoing coaching. For a monthly bookkeeper, how would it go?

The goal here is to provide the customer with anything they need that your firm does. There’s the ultimate constraint. It’s what you do. People equate this to an all-you-can-eat buffet, but it’s all-you-can-eat at the type of food that you serve. This is why positioning and strategy are so important. Your firm is defined by the services that you don’t offer and the customers that you don’t have.

Think about how a general physician is positioned differently from a surgeon. A general physician is not going to perform surgery. They’re not going to do oncology. They’re only going to do very specific things. If those other things need to be done, then they’re going to call in a specialist. It’s the same thing here. When a bookkeeper accepts a customer, then that customer’s going to be covered for the bookkeeping aspects of that customer. Anything that the customer needs in terms of bookkeeping is covered.

If the business grows and there are more transactions and all of that, it’s all-inclusive. It doesn’t matter because we’re not trying to monetize the transactions and the time that we spend on the transactions. We’re taking care of the customer. The services become a means to that end, but that doesn’t mean that you can’t have a different tier and say, “We also do taxes. If you want us to do your taxes, now you have to step up to the tax tier. It’s a different price.” That means they’re in your tax tier as well. That means that they’re covered for anything they need that you do with taxes. If you get audited or get letters from different states because you file in multiple states, you’re covered. That gives the customer peace of mind. It surfaces simplicity. It’s convenient.

There’s no department of paperwork when there’s a change order and all that cognitive load that we dump on the customer. This is a relationship. We know we’re in it for the long haul. It’s like a marriage. That means there are going to be trade-offs. The customer sometimes is going to be demanding and they’re going to need certain things, but that’s okay because we have fewer customers and we always have capacity. If we choose our customers right, we have the capacity then for our best customers.

Let’s talk about choosing the customers right. That’s what we talked about briefly earlier about strategy and positioning because that is what’s going to drive the pricing.

Strategy is incredibly important. A lot of people think strategy, they think plan. A strategy is not a plan because a plan can be controlled. It’s predictive. A strategy is more like a theory. It’s out of your control. You’re not sure if it’s going to work. The great thing about strategy is we can always recognize its brilliance in hindsight.

The Abundant Accountant | Ron Baker | Subscription Business Model

Subscription Business Model: The great thing about strategy is we can always recognize it in hindsight.

 

Think of Elon Musk when he started SpaceX. The crux of his problem was being able to reuse the rocket because he came up with a real, incredible insight that nobody had ever thought of before that fuel was cheaper than rockets. He was like, “Rather than losing the rocket every time we launch one like NASA did, why can’t we reuse them? I’ll spend the money on fuel and now it will be a lot cheaper than building a new rocket. “ That’s a brilliant strategy in hindsight.

Southwest is a brilliant strategy in hindsight. They’re like, “We’re not going to fly a hub-and-spoke system. We’re going to fly into secondary and tertiary cities. We’re going to use the same aircraft for all of our flights. We’re not going to fly internationally. We’re not even going to look at the other airlines’ prices because that’s not our positioning in the market. We’re positioning against you driving yourself to the destination or taking the bus.” That threw off a completely different pricing strategy. That pricing strategy is driven by the firm’s overall strategy and its positioning in the marketplace.

Morton’s The Steakhouse has a different positioning in the market and that drives a different pricing strategy than McDonald’s. They both sell beef for crying out loud, but they have completely different positioning and target markets that they’re going after. This is why it’s so important to define your strategy and your positioning.

In essence, firms, before they think about their business model, I want them to formulate a strategy. A strategy is not a plan. It’s where is your firm going to play and how you are going to win. How are you going to flourish? That means we have to go to the market, hopefully, with an uncommon offering. It doesn’t necessarily have to be superior to our competition. It has to be different.

You then have to figure out your positioning. Positioning is at the crosshairs of you’ve got to be something for someone. We can’t be all things to all people. Whether you call this focus or a niche, you can’t say to the market, “I’m both a veterinarian and a taxidermist.” That way, you are able to say that either way, you get your cat back. That doesn’t work. It’s all about trade-offs. You have to make choices.

Firms are defined by the customers they don’t have and the services they don’t provide. Once you have a clear strategy and positioning, then you can work on your pricing and decide whether or not you want to be a high-end boutique type firm that charges premium prices, you want to be maybe more in the middle, or you want to be at the low end to grow market share. Those are all viable, different pricing strategies but they are dictated by your firm’s overall strategy.

There’s no one answer to this. It’s going to vary by firm and the type of firm that you’re trying to create. What’s important is we need to put the relationship back to the center of our firms and get back to what it means to be a professional. That is to take responsibility for creating outcomes and transformations rather than selling services in a transactional environment. That’s not why we became professionals. We became professionals to help people. The subscription model enables us to return to that purpose.

Take responsibility for creating outcomes and transformations rather than just selling services in a transactional environment. Click To Tweet

I love it. Thank you so much for sharing that. Do you want to be high-end like Morton’s The Steakhouse or do you want to be low-end like McDonald’s? You get to choose. Ultimately, we have to take responsibility and choose the model and the type of clients we want to have and run with it. It is always so fun to have you here and an honor to continue this conversation about subscription, the differences between having an annual monthly reoccurring contractor engagement versus someone that can opt-out at any time, and being able to move away from AKA a scope of work and diving into having their own Amazon Prime offerings in your accounting tax or bookkeeping firm. Thank you again so much for being here with us on the show. It’s always a pleasure and honor to have you.

Thanks for having me back. I look forward to our next chat.

Thank you all so much for joining Ron and I here at the show. This is another awesome episode here talking about subscriptions and how to provide more value and transformation to the clients versus the things of how you’re going to do it by focusing on the outcome. The biggest thing to take away is what is going to be your strategy or plan. How are you going to win? That’s what I want you to think about. How are you going to position yourself? You can’t be all things to all people.

Here at The Abundant Accountant, I only work with accounting, tax, and bookkeeping firm owners, CFO fractional, CFO firms, business advisory firms, etc. That’s it. I don’t work with financial people. I don’t work with lawyers. You can call it a niche, but you can’t be all things to all people nor do you probably want to be.

Who do you want to be for your clients? That is going to be the biggest choice that you’re going to have to make. Do you want to be high-end or do you want to be low-end and appeal to the masses like McDonald’s? Do you want to be like Morton’s The Steakhouse? That’s your choice. Here at The Abundant Accountant, we are like Morton’s The Steakhouse on steroids. That’s what I chose. What do you want to choose? That’s the biggest thing.

If you’re an accounting, tax, or bookkeeping firm owner and want to double your revenue but you are trying things like, “I’m going to get some more clients,” or, “I’m going to send out more quotes and proposals and not ask for payments up front,” or, “I’m going to negotiate on my fees,” or, “I’m going to price myself at what competitors are,” remember. Ron was talking about how we don’t do that. We price ourselves based on the outcome that the client needs. Worse, maybe you want to work a ton more hours. You need to stop all that because it doesn’t work. It leaves you burnt out with an empty bank account or maybe even making enough to get by.

The simple fact is the clients I’ve worked with use the proven process to raise their fees, double their firm revenue, get paid upfront, and never have accounts receivable. If they have it, it goes down to 0 and stays at 0. They also work fewer hours. If you want me to show you exactly how to do this, then go to TheAbundantCall.com. Book a call with my team. We can show you how to implement a subscription with your model. Your homework is to figure out your plan. What is going to be your strategy? For those of you who want support, head on over to TheAbundantCall.com. We’ll see you in the next episode.

 

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About Ron Baker

The Abundant Accountant | Ron Baker | Subscription Business ModelRonald 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.

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