- Apples to apples comparisons are very difficult, Xero says
- Auto super payments and online document storage were highly valuable features
- Accounting industry struggling to sell on value, not price
In an exclusive in interview with BoxFreeIT, Xero rejected claims that it was the most expensive cloud accounting software for small business and that in a fair comparison of features, Xero was the best value.
The cloud accounting company had conducted independent research to rate its software against competitive products based on the value of features to small businesses to ensure it was priced fairly, Xero said.
“It’s hard to put a value in terms of what Xero offers to the market. Some people say Xero doesn’t have sales quotes or inventory – that’s absolutely right,” said Chris Ridd, Xero’s managing director for Australia. “But we are blurring the lines between what the accountant and the client is doing. With features like tax coming the accountant is way more efficient and that flows through in terms of benefits to clients.”
While Ridd tracked competitors’ pricing it had become increasingly difficult to value Xero’s cloud-based features against the standard set of accounting tools.
“The apples for apples (comparison) is a really hard one. First and foremost, we’ve never been the cheapest product,” Ridd said. “But as we started to think about the pricing plans we were getting increasingly concerned whether we had an objective view of all the features out there and how we stack up.”
The company hired a data analyst who tracked the fast-moving consumer goods market to create a weighted system of features versus price. The analyst found there was a stark difference in the range of features and how they were packaged.
Xero sat towards the lower end of the range in price once additional services were added to competing vendors’ programs, Ridd said.
Xero was highly competitive once automated superannuation payments included in its Premium plans were taken into account. In Australia, Xero’s Premium 10 plan for up to 10 employees cost $60 per month and its Premium 100 plan for up to 100 employees cost $90. The Standard plan, without auto super payments, cost $50 per month.
By comparison, dedicated payroll apps could cost $4 per employee per month in addition to the cost of accounting software. MYOB’s M-powered Superannuation service cost $1 per employee per month and was only available for its desktop accounting programs.
“People think payroll is payroll. But since we’re in the cloud we can do employee portals and a payroll app (for smartphones and tablets). There’s a whole lot of innovations that you can’t compare to what’s in the market,” Ridd said.
Despite the fact that Medicare offered a free service for paying super to up to 20 staff, Xero’s inclusion had struck a chord, Ridd said.
“It’s become really popular. Partners were saying that even though we can get a free service, the fact that we have a uniform way of managing payment to various funds is enormously convenient,” Ridd said.
The introduction of plans with auto super payments was partly driven by legislation due to come into effect in June 2014. Any business with more than 20 employees was required to use an automatic super payment service. All small businesses had to comply with the ruling by June 2015.
“This whole super reform is another reason for us as they will require electronic payment for super funds. Bundling auto super makes a lot of sense because you’re compliant from day one,” Ridd said.
Ridd acknowledged that the company had work to do in educating the market about automated super payments. Xero users are saying ‘no, we don’t want it’ but we’re saying, ‘You will love it.’
“Our partners who are using it love it. (Gold Xero partner) Paul Meissner says it’s a game changer and we agree,” Ridd said.
Another unique innovation that was difficult to value was online document storage built into the accounting app. Xero Files attached contracts, Excel spreadsheets, Word documents, PDFs and images directly to expenses, bills and purchase orders.
“There’s definitely value attached to that, and the fact that it’s delivered through the accounting experience. The next release will let you email those documents and automatically load them. Just the savings in the workflow is phenomenal,” Ridd said.
Xero Files and the auto super payments were features users would love “but we have a cost to serve that business”, Ridd said. Xero’s competitors offered separate services that had to be bought separately, he added.
Selling on Value
Xero was trying to educate accountants and bookkeepers to sell their services and accounting software based on the value it could provide to business owners. However, many accounting professionals were struggling to move away from selling products based on price, Ridd said.
“We saw some comments on the blog that price was our selling point and I thought ‘Man, I hope not.’ If you’re selling on price you’re having the wrong conversation,” Ridd said.
“Clearly there’s a lot of accountants selling on price and they’re the ones that are struggling (to deal with the price rise). The ones doing well are those selling on value. What’s interesting is I don’t think the market is as price sensitive as many people believe.”
Xero hadn’t been modelled on how to create the best accounting program. It had been modelled on how a small business works which drove a different level of thinking, Ridd said. Bank feeds were a good example of this.
“All these features are more about understanding the workflow of business than the debits and credits of accounting,” Ridd said. “Effectively Xero is becoming this operating system for small business, for interacting not just with accountants but with the banks and the ATO (taxation office).
“There are a few comments out there that indicate the industry is still coming to terms with the changes. They’re still thinking compliance and the old way of accounting,” Ridd said.
“As accountants uncover some of the productivity gains in the software it’s a completely different conversation with business owners.”
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