ClearBooks is finding out the hard way that price competition alone in the cloud accounting space is not the way to go. Once a very cheap offering, ClearBooks is now bringing its prices in line with what it perceives as its competition. Details here. Existing customers are not subject to the price hike.
Here is the ‘before’ price rise page:
Here is the ‘after’ price hike page:
While the company did not provide any information as to why it is imposing these increases I will make the following (reasonably) educated guesses. The last update on the company’s site says it has ‘more than 4,000′ customers. Note this is not qualified as to paying customers. However, the data provided is out of date. Working on an average ARPU for (say) 5,000 paying customers, at the median pre-price hike price of £10 but somewhat discounted to £8 for people using the lowest priced option (and that’s being generous) gives an annualised revenue number somewhere around £500,000.
Given that operational costs will be somewhere in the 5-10% range but that salaries form by far the biggest cost, you can be certain that ClearBooks is leaking cash. That takes into account a significant number of named employees who are serving as interns or on university related work experience. In the UK, seasoned programmers capable of building world class applications are in short supply and are comparatively expensive. According to ITJobsWatch for example, the average salary for a web developer is £35K. Add in social security costs and other on cost goodies and you are looking at least £40K pa. Senior developers are much more expensive. If you want to attract the best talent then you often have to pay much more than the average. It is not unusual to hear of fully costed coders coming in at £60-70K pa.
Going forward, ClearBooks will require a much slower customers acquisition rate in order to achieve the same levels of revenue. If for example it can get much closer to its new pricing (again discounted) for the next 5,000 paying customers then it could easily be looking at total revenue of around £1.4 million. That would provide it with much more flexibility in hiring and marketing. The question though is how does it get there given its relatively small user base.
By resetting the price bar, ClearBooks now has to compete with the likes of KashFlow, FreeAgent and Xero on what is effectively a near level pricing field. This will not be easy given that the other three already command significant market mind share and are very well funded.
This is now a much tougher sell via existing channels. Professionals who recommend ClearBooks will not be happy that new customers are paying a hefty premium compared to those who are already on board. Why? Because clients talk to one another and right now, ClearBooks has not provided any rationale behind the price hike. What’s worse, they gave no notice of the change, choosing instead to post during a week when many people are still on vacation. That is a serious marketing mistake but then this is not the first time that ClearBooks has tripped up.
Pricing is always a black art. Vendors that get it wrong in the early days almost always have a problem going forward. Some in the cloud accounting market have chosen to play based upon direct price comparisons but I believe that is fundamentally wrong. If you offer genuine differentiation that drives obvious value then it is OK to charge a premium. When prices become reasonably aligned then it is easier to make comparisons because it is possible to objectively evaluate based upon functional criteria without the headache of wondering whether the cost differences are materially relevant. Even then I would argue that you should always choose the right solution for your circumstances. Cost is only one factor.
Where to now for ClearBooks? That is difficult to predict with any certainty. In bringing themselves on terms with the leaders, they should be thinking more about go to market. But that is not something that comes free. My sense is they need to spend more now – even if that is a strain – to get the benefits they anticipate from the price hike. The trouble is that could be a Catch-22 at exactly the time when they need growth.