Low Fee Rates Doesn't Mean Unprofitable
I hear from accountants and consultants that they won’t work for any client that can’t or won’t pay at least £500 per day and it’s a theme promoted by the gurus as a virtue.
So that’s 94% of the business population ruled out as clients… i.e. those with 9 or fewer employees.
These are the ones that struggle to make a few £thousand profit annually and would see it all wiped out if they started spending that sort of money on advice. So, they put up with their problems instead of getting them fixed before things go wrong.
Now, in the case of accountants, the problem is mitigated for compliance work through automation software which means the work has been reduced to a couple of hours annually, charged at £100 per month to spread the cashflow. And extra tax strategy work can be immediately funded by the savings achieved.
In the case of consultants, they don’t have software that would reduce the many hours needed for analysis, research, interviewing, benchmarking, reporting, planning and implementing solutions, as they endeavour to take the client into a hopefully improved future. Neither do they have any quick fix weapons to cover their costs with cash refunds. So, their services, if delivered competently and usefully, will cost well in excess of one year’s profits for the client, a risk that very few small businesses will take.
Nevertheless, very small businesses do spend money on consultancy. In fact, 69% of them as reported in the biennial government survey spend a median amount of £2000+ pa on it, and at £170 per month, more than they spend with their accountant. Mostly, it’s spent on emergency work, ie after something has gone wrong, and which the owner judges to be an existential threat if not fixed.
Most small businesses retain an outside accountant, although that is dwindling, but none have a retained consultant. They may, however, be in the hands of a mentor / coach type who charges them £100 per month to be a shoulder to cry on.
So, small businesses are stuck. They can’t improve their performance and value any time soon without the professional help that they can’t afford. They are obliged to solve problems by attending networking events (where they meet mentor / coach types), or asking their accountant who doesn’t feel comfortable giving future advice, or chatting to mates in the pub and Googling through the 1.6 billion pages of ‘business advice’.
This is a broken market that is spending £8bn+ pa on quick business advice that isn’t helping them to raise their performance, productivity or value, because sustained advice is unaffordable.
Can we fix this terrible waste and profit from it?
Let’s try…
If we assume that a small business needs at least one day per month of professional advice for at least a year to make a positive difference. That’s £6000 pa at the minimum acceptable fee rate of £500. So, 300% over budget.
We could ask the consultants to accept £167 per day. But given they have fixed costs of £200 per day and they only sell half their days, they need £400 per sold day to breakeven and £500 to make a profit. A non-starter other than as a ‘freemium’ to get a client on board and then up the rate once engaged (which they do, usually bringing the project to an end).
We could ask consultants to work 300% faster, but that will mean cutting corners and risking bad results.
So, it was indeed this very conundrum that confronted me in 2010 when the government suddenly stopped the 70% subsidy that had enabled the sustained use of consultants by small businesses, over 22 years.
That immense level of support reached one million of them and contributed mightily to the raising of UK small business international competitiveness from 21st to 7th place.
They had become used to paying £150 per day for £500 of value and got very good results. But at the full rate it became instantly unaffordable and stopped immediately.
What would it take to get client cost below £150 per day yet making £100 per day profit for the consultant?
The theoretical answer is that the consultant cost mustn’t exceed £50 per day, per client, which means working with 4 clients at once to cover the £200 per day survival cost. And that would bring in a very acceptable £600 per day.
Could such a theory become practice?
The only way is automation. Yet as an experienced consultant I was quite sure that all my work was original brainpower stuff, with every client different, needing special thought. But faced with my own existential threat I decided to test that.
Taking the training modules that I had developed over 22 years for the many new consultants I had onboarded, I broke it down, step by little step until I had a massive spreadsheet. And standing back from it I had to admit that 90% of what I had been doing for 20 years was repetitive.
And what is repetitive can be automated.
I made a manual version tested it with 50 small businesses, mostly tolerant past clients, and found that I could achieve with them in half a day what had previously taken me a week. And they liked it a lot better than before as it took up much less of their time and delivered instant answers they could implement sustainably.
That revelation was my inspiration to sell personal assets, upset my family, and spend £1m developing automation software for use online by business owners.
After much development work and market testing with 1000 small businesses online paying £5-£10 per day, it became clear that whilst very keen they don’t possess enough business knowledge to get past the assessment and valuation stage of the technology.
Therefore, a professional advisor network would be necessary to distribute the service.
We tried consultants, but they don’t like small businesses. They said the Runagood® approach threatened their day rate driven, onsite habits, working at an easy pace with medium / large businesses. They freely admitted that there was a shortage of such pleasant work but in reality, their sights were set on finding another salaried position amongst the odd client, rather than the commitment of developing a long term client base.
We then looked at accountants, which seemed promising given the 10,000 widely distributed UK practices, each within easy reach of 600 small businesses around them.
But would accountants adapt to business consultancy work? Would they even wish to?
Looking at the industry journals, the pronouncements of the gurus, ruminations of the professional institutes and trumpeting of the accountancy software vendors, the overwhelming messages were / are around the demise of compliance work and the need to diversify into business advisory.
An open door?
Well, let’s say ajar!
In 2019 we trained 100 accountants to use our technology, and 20 of them are doing so successfully.
And we had a pipeline of 400 interested accountants (or a fence more like)
Not the result we wanted!
So, more research and market feedback with all 500 of them discovered the following:
Unclear on what business advice is and the skills needed
Not skilled in marketing so may be unable to sell it
Not sure how to open/sustain a business advisory discussion with Clients or Prospects
Worried about working with lots of (hated) small businesses for low fees
Not sure how to charge for ‘whole business’ advice
Concern that as a new concept it may not suit, so waiting to see if it takes off
And in the Lockdown, we solved the lot. Click here to see how.
By Duncan Collins
Founder of Runagood.com Ltd