Remember, your Revenue Stream will also be dependent on your Revenue Model, which makes it a Tactical choice, as well as a Strategic choice.
A revenue model describes how your practice generates revenues from your services. It is one of the key components of your Business Model. If you are expanding to new areas or adjusting to new competitors, you should carefully consider your revenue model.Remember, your Revenue Stream will also be dependent on your Revenue Model, which makes it a Tactical choice, as… Click To Tweet
There are many models for revenue generation, and even in the world of accounting, the possibilities are expanding.
On the Revenue Model worksheet, I divided the revenue models into nine major categories:
A. Writeup & Other Recurring Services
B. Consulting and Audit
C. Software & Licensing
D. Competitive Bids (Gov’t. Work)
E. Financial Product Sales
F. IT Services
G. Education & Training
H. Referral Fees & Commissions
I. Asset Management
Writeup & Other Recurring Services are similar to a manufacturing process, in that the revenue stream continues as long as the customer or client is satisfied with the service and engages you.
Monthly services have been the mainstay of the accounting industry for decades, or as long as “Clerks” have existed; in modern times, other services have been offered also.
This model has existed as an outsourcing service primarily since the inception of regulatory reporting requirements, first from the SEC, and then from the IRS.
Some providers offer flat rate services, while others bill on a per unit (hourly) basis, Still others have implemented a new model called “Value Pricing,” which is essentially a negotiated flat rate pricing model.
Adding extra components to basic writeup services (e.g. payroll, A/R & A/P entry, data backup, online software maintenance) offers the opportunity to increase revenues, and build dependence.
This model bonds the client more tightly. (classic examples: writeup and payroll, online data entry and software maintenance)
Consulting and Audit are “project work” or “job shop” revenue models, where revenue is only generated for a fixed period of time or project duration.
The audit revenue stream has existed for as long as outside investors (such as banks and regulators) have need of assurances. The consulting revenue stream has been in existence since a short time before the McKinsey firm.
These models can be enhanced or extended through upsells and add‑ons. In the case of audit work, additional billable hours may be charged when unforeseen discoveries warrant additional work. In the case of consulting work, engagement extensions may be negotiated if additional needs are discovered.
Each type of project also offers the opportunity to present alternative services.
For example, either a consultant or an auditor may suggest continuous monitoring, which could provide a monthly income stream, or they could suggest an operational audit, or a marketing audit, or a cost segregation study.
Software & Licensing used to be a common revenue model for the “Big 4.” However, with the emerging trend of Software As A Service, licensing has become less attractive, and many providers are moving to the subscriptions model.
Competitive Bids (Gov’t. Work) are similar to auctions, where the winner is the low price bidder. Lately, there is a trend towards “Preferred Providers,” bypassing the bidding system.
Competitive bidding is project work, and the same upsell opportunities exist here as exist in the audit and consulting space.
Competitive bidding projects can be priced at fixed cost, variable cost (hourly) or cost plus (actual expenses plus a pre-determined profit).
Financial Product Sales are not new, and require additional licensing, usually by either the state or the SEC, depending upon the product and its level of regulation.
Additionally, there are disclosure requirements that you must meet in order to comply with the IRS restrictions.
The Internet and other technological and social developments have hurt many intermediaries, and the future of financial services middlemen is questionable. However, middlemen still have some important roles in connecting parties. (Fees are usually calculated by percentage of the transaction, but there is sometimes also a minimum payment.)
IT Services have been a common area expansion for many accounting firms. The accounting industry was among the early adopters of computers, as far back as the early days of the original computing machines.
IT services commonly include software system maintenance, database management, data backup and data storage. IT Services are sold both on a project basis (as in the case of system restoration and maintenance) or on a subscription basis (as in the case of database maintenance, backup and storage).
Education and Training is sold as single unit sales of courses and training modules, or on a subscription basis for staff libraries and webinar series. It is also sold through third-party vendors, such as the Small Business Development Centers at local universities and colleges. Third-party sales usually earn lower staff or instructor salary rates than in-house programs.
Education and training programs have the added benefit of positioning you as a topic expert, and enhances your reputation.
Referral Fees & Commissions are rare, outside of the sale of financial products, however they can be negotiated on a personal basis with local providers such as banks and finance companies (most notably, Factors), insurance agents and equipment dealers.
Asset management fees can be earned from managing investments for clients on a fee basis. You could be paid on a percentage of the overall client’s assets being managed, a percentage of new money transfers by the client to the money manager or a percentage of the returns (also known as carried interest) that some investment professional generate in excess of an agreed upon hurdle rate.
As you go through the worksheet, evaluate the fee structures you use, the income from each type of service or product, and the contribution each provides to your firm.Your Revenue Model is only limited by your imagination and regulation. Click To Tweet
Evaluate your income types and compare them to the billing and collection models you wish to maximize in your practice. Do you want to focus on repetitive billings (subscription model), single bill projects (audits, consulting), progress billing projects (hourly, percentage of completion, etc.), or transactional (payroll, A/P or A/R).
Your Revenue Model is only limited by your imagination and regulation. Your Revenue Streams are a product of your Revenue Model. Put your ideas into Box #8 of the Rainmaker’s Canvas.
Once you your generalized model laid out, you can create a normal cash flow type spreadsheet in Excel (or OpenOffice Calc) and build yourself some “what if” projections.
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