Is Subscription Pricing Killing Your Firm?

Hey 👋 - Brandon here.

Happy Saturday to 1,629 growth-minded accountants.

Here’s one growth tip for you and your firm.

Today’s issue takes less than 5 minutes to read.

Subscription pricing is all the rage.

There’s nothing like that sweet, sweet monthly recurring revenue (MRR).

But have you ever wondered how monthly subscriptions impact your client retention?

I was listening to a recent Hormozi podcast where he discussed monthly vs. quarterly vs. annual subscriptions.

He found that annual subscriptions increase retention and customer lifetime value.

The reasoning is simple:

On a monthly subscription, the customer reviews the past 30 days to evaluate whether the service is worth continuing. An annual subscription expands the review window to 12 months making it more likely the customer will associate the subscription with consumption of value.

You are more likely to demonstrate significant value over a 12 month period than a 30 day period.

I was curious about this so explored further:

Is there any data on the topic?

INMA, a national media association, reviewed a 2024 study of Piano’s clients. At the end of the first year, 70% of annual subscribers were retained where only 34% of monthly subscribers were retained. The gap widens as time goes on.

I then went to Paino’s website.

Piano compared performance in a 2021 review over the first year of a subscription and found that, at the median, only 45% of monthly subscribers are left at the end of that year, while 75% of annual subscribers remain.

Statistica seems to echo this retention trend with mobile apps. 28% of mobile app users are retained after one year when the billing is annual versus 12% when the billing is monthly.

FTStrategies wrote an article suggesting the survival rate of annual subscriptions is roughly 11x that of monthly subscribers after one year.

Clearly, annual subscriptions result in higher retention compared to monthly.

But are professional services any different?

I think professional services are stickier.

The switching costs of a SAAS product or Piano digital membership is significantly lower than switching your accountant.

But if you zoom out, it’s likely similar patterns exist among professional service firms.

During 2016-2018 I offered advisory, tax prep, and monthly accounting on an annual subscription.

One monthly price for all service needs.

The problem I experienced was, outside of monthly accounting services, the client’s consumption of value did not align with the timing of their payments.

For example, we’d split tax prep and planning into 12 payments, but clients did not consume compliance and advisory value monthly.

Instead, they’d receive the return and later wonder why they are still paying for it. Or they’d want to cancel before the back half of our advisory services were delivered.

You may be wondering how much of our retention issues had to do with fulfillment versus billing frequency.

It’s a fair question.

We made improvements to our fulfillment processes but by 2018 I decided to nix the monthly billing because it was a consistent customer service issue.

To a degree, monthly billing handicapped our ability to fulfill work at a high level.

“I lock clients in for 12 months, they can’t break the contract”

Yes they can.

Your terms don’t really matter.

What matters is whether either party is willing to take the serious step of initiating a lawsuit.

If you are unwilling to take a client to court, then your contract terms are largely meaningless.

Sophisticated clients know this.

I don’t price tax returns and tax planning, I just have a price for “all access”

This is rooted in the idea of delivering concierge access to clients, a concept I really like.

But you still have to understand your costs to fulfill the service.

If you don’t, you’ll handicap your ability to drive higher margins and grow.

And once you understand your fulfillment costs, you’ll start pricing individual services to come up with your concierge service price.

If you don’t do this, I’d argue you don’t have a grasp on your firm’s economics and will struggle to scale.

Keep it simple

As I’ve grown my firm, I have learned to keep it simple.

If hourly billing works for you, go for it.

Subscriptions? Great.

Fixed prices? Cool.

The key with the pricing discussion is to figure out the highest price the market is willing to pay for the scope of services you are going to deliver.

This will leave you with a healthy margin to re-invest into your firm.

The pricing model, in my opinion, is less important.

That's all for this Sunday. See you next week.

Cheers,

Brandon