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Is a Recurring Revenue Business Model Right for Your Accounting Practice?

Do you subscribe to Amazon Prime, Netflix, or Hulu? If so, you’re probably familiar with the recurring revenue business model. Customers pay a flat fee at regular intervals for agreed-upon services. Compared to charging per diem or by the hour, recurring revenue offers your accounting firm a host of advantages, such as predictable cash flow and higher lifetime value per customer.

What Are the Benefits of Recurring Revenue?

The biggest benefit of recurring revenue is its predictability. You know when you’re getting paid and how much. This lets you plan better for upcoming projects, such as expansion or hiring sprees, because you know how much money is expected.

Recurring revenue businesses also make more revenue per customer over the duration of the relationship. Think about how many one-off customers your firm has had, people or businesses who’ve hired you to perform a single service, and then you’ve never heard from them again. By setting them up on a recurring revenue model and performing regular services for them, you develop a profitable long-term relationship.

With recurring revenue, your business is less cyclical. Sure, March and April might still be frenetic, and you might still have some slow periods in the summer. But once you establish long-term, recurring relationships with clients, you can update their files throughout the year rather than having to do everything from scratch during tax season.

Setting Up Recurring Revenue in an Accounting Firm

If, like many firms, your company thrives by booking as many clients as possible during tax season, a recurring revenue model can be a big shift. How do you convince your clients to pay you month after month for the rest of the year?

The answer is to provide value. Individuals and businesses eagerly pay for things when they feel they’re getting more than their money’s worth. As an accounting firm, your company can offer many things of value throughout the year.

Help your customers process their payroll each month. Offer software-as-a-service and help them with their cloud computing needs. Make tax time easier for them by conducting annual, bi-annual, or quarterly audits. Draft a monthly newsletter that keeps your clients apprised of tax law updates. The possibilities are endless.

How to Price Your Recurring Revenue Services

When you charge by the hour or per diem, pricing isn’t so difficult. The local market mostly determines appropriate hourly pricing for an accounting firm. The same is true when pricing specific a la carte services.

Recurring revenue is a little more complicated. You have so many different ways to package services. And with it being a relatively new trend in accounting, not as much of an established market exists to set prices.

One idea is to set up pricing tiers, offering various levels of services at each tier. That way, customers who might be wary at first of paying by the month can start at a low price. Once you wow them with your service, you can upsell them to a higher tier.

Starting the Transition

Transitioning your clients from their current hourly or fee-based pricing to recurring revenue requires some finesse. But again, it’s all about value. Reach out to your customers, letting them know how you can save them money in the long run and make their accounting costs more predictable. If they’re skeptical, start them on a low pricing tier, and then work them up once they’ve bought in to the model.

Recurring revenue gives you stable cash flow and smoothes out peaks and valleys. Implemented correctly, it can take your business to the next level.

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