A version of this post appeared in Accountancy Daily in May 2024.
Artificial intelligence (AI) is creeping in everywhere. It’s being used almost across the board in accountancy, from data analysis and financial reporting to compliance and fraud detection, making processes faster, easier, and cheaper to complete, while increasing accuracy.
But while this is undoubtedly good news for both your business and your clients, it does raise one sticky question: what should you do about pricing?
Why AI means accountancy pricing has to change
When you bill by the hour and half of your billable tasks are being completed in moments by AI, it stands to reason that your pricing has to change to reflect that reduction of time.
However, no business worth its salt will significantly cut its prices when its service level remains the same, let alone if work standards are improving. So, what to do?
Accountants like most other professional services firms will face this conundrum within the next five years. Yet the Simon-Kucher Institute states that no firms have a plan for AI’s impact on their revenue model.
Time/effort-based pricing has become the established norm across the professional services sector. But it isn’t fit for purpose in a world where AI can gather, process, and analyse data, produce predictive modelling and forecasting, expedite decision making, and enhance results.
With AI, you can do so much more for your accountancy clients, but you can do it in a fraction of the time, which is why you need to shift your pricing focus onto pricing by deliverable.
Building pricing around the services you deliver
Time/effort-based pricing is easy to quantify. You charge for the time that it takes to get a job done. Whether it’s audit completion or preparing and filing a tax return, you bill by the hour and everyone knows where they stand.
But with AI accelerating processes, enabling the completion of tasks that may have taken days to happen within a couple of minutes, complications arise.
So, do you lie and pretend that AI wasn’t used? Do you cut your fees to a level that may make the continuance of your business untenable?
Or do you change your pricing structure, building your fees around what you are actually able to do for your clients? The latter option is the theory behind deliverable-based pricing.
With deliverable-based pricing – sometimes referred to as output- or asset-based pricing – you change your customer offering. You’re no longer selling your clients your time.
You are selling them invaluable services – account analysis, financial statement review, routine or annual audits, tax returns, cost and efficiency reports and advice, risk analysis, or forecasting.
These services mean so much more to them than the time you previously offered them. It doesn’t matter how you complete these tasks, whether you use AI or take a more traditional, manual approach. It doesn’t matter how much time you’ve spent on them.
All that is relevant is whether or not you delivered the agreed services to the agreed standard within the agreed timeframe. Everything else is immaterial.
Making the change
It can feel daunting to change a pricing model that you have relied on for years. But the reality is that this change is going to happen, and with the right tools – whether that’s configure, price and quote (CPQ) software or something else – it’s a lot simpler than you might think.
The sooner you start, the easier it will be because right now, there’s still plenty of time to make the transition.
Better now rather than trying to rush the process in five years’ time, when everyone else in your sector has already made the move.
So, start by getting to grips with your past performance, create a framework to categorise your services (which is where dedicated software can be invaluable), and use that information to work out how to price each deliverable fairly.
Hourly pricing is outdated. The time you spend on a task means absolutely nothing to your clients, when all they need to know is that you can get the job done to the best possible standards. They have no idea how fast you can work or what you can achieve within a billable period.
Deliverable-based pricing is easier to understand. It removes the opacity from accountancy billing, and that makes it so much more appealing to your clients, while freeing you from the AI pricing conundrum.
