Ian Brodie

Ian Brodie teaches consultants, coaches and other professionals to attract and win their ideal clients by becoming seen as authorities in their field.

Tagswitching providers


Reducing Switching Costs: A Key Strategy for Accounting and Other "Ongoing Service" Providers

Posted on 28th July 2010.

I exchanged a few emails last week with Direct marketing legend Drayton Bird (how's that for a name drop!).

I helped Drayton out with a little bit of advice when he wrote his huge book on Direct Marketing for Lawyers, and we were discussing the differences in business development for lawyers vs accountants.

Apart from the differences in stereotypical personalities (words vs numbers, for example) one of the key differences is that typically legal services are purchased as a one-off whereas accountants are hired as an ongoing service.

The typical challenge for accountants (or anyone providing these sorts of ongoing service like outsourcers, secretarial or managed services) when trying to win new business is that of unseating the incumbent.

It's often felt to be so difficult that many accountants focus their efforts on identifying “new blood”. New companies without an existing accountant, or companies who've outgrown their current service provider.

While there are some strategies to unseat an incumbent – such as entering in an uncovered niche and expanding, or leveraging a change in management – there's one aspect of this competitive situation that's often overlooked: that of the switching costs.

The sad truth is that most people stick with their current service provider not because they're delivering a fantastic service – but because the thought of switching seems so painful and risky.

It's actually quite difficult to be hugely different or better when providing basic accountancy services, for example. So often, even though an alternative provider might be a bit better than the incumbent, clients are unwilling to switch because the benefit is outweighed by the potential pain. They'd have to teach the new provider all about their business – all the little nuances their current provider has learned over the years. And if they get things wrong, the costs of incorrect tax submissions or an inaccurate report on the state of cashflow, for example, could be very costly.

So we generally stick with our current provider – even if we can see better alternatives.

The typical strategy in these situations is to try to persuade the potential client of just how wonderful and just how much better your services would be.

But in many ways, that's the wrong way to come at it.

A better strategy is often not to try to increase the perception of benefit (which is difficult to prove anyway) – but to decrease the perception of the costs and risks of switching.

Offer a dedicated switching team to take over the account and make sure everything happens smoothly. Show the client your detailed process for the switch which will make sure nothing goes wrong. Offer a guarantee to meet the costs of any errors caused by the switch. And show testimonials – not just of how great your services are – but of how easy and painless it was to switch to you.

That will usually have a far bigger impact that trying to make yet more claims about how great you are.

What could you do in your business to decreease the fear of switching? Drop me your comments below.