Jun 2016

Lessons for accountants from the mattress industry

By: Odyssey Publication
Tags: 300% markups, Destablisation, huge profits, Offshoring tax returns, online

Just last week there was a news article that spoke about the indignation of some customers hearing that mattress companies had 300% markups, huge profits, and hundreds of near identical mattresses sold under different names and prices.

The mattress article above mentioned beds that retail for $10,000 are being made for as little as $1,500 overseas. That is, the manufacture cost is around 15% of the eventual retail price.

What was interesting was that the same publisher had only recently highlighted Australian accountants are using offshore outsourcing, which we mentioned in a recent blog.

We can’t but imagine that in the same way that it is easy to determine wholesale prices for mattresses, we wonder how long it will be until someone obtains wholesale prices for Australian tax returns when sourced offshore.

At the same time as the mattress industry mentions you’d be a sucker if you bought a full price bed, Australian accountants are invited to “value price” which is to sell their compliance work at a price based on the clients value.

Putting that “value pricing” into perspective, there are certainly more recent articles suggesting that Uber riders are willing to pay up to 9.9X the surge pricing if their phone battery is low. Fortunately the articles around this issue mention Uber promises not to use this information against you.

Could “Value pricing” be easily exchanged online with the words “Price Gouging”.

Back to more recent pushbacks about sending work overseas, we’ve seen a couple of Australian accountants say they won’t send their work overseas, while at the same time offering SMSF returns at $4,000. With the wholesale rates amongst accountants somewhere between $1,200 to $1,500, and the price of an SMSF ex an offshore provider around $300 to $350, we can’t help but wonder if there is some degree of self interest in maintaining a stance of refusing to use offshore labour.

However, just like many of our now defunct manufacturing industries, we expect that market pressure will certainly push a change in their stance. It’s not hard to imagine the answer to this question: Would you be ok if we made 100% on your SMSF tax return and charge you $600, or would you like to continue to pay $4,000?

In fact, why isn’t the cost of overseas offshore tax returns charged like say any other incidentals e.g. (couriers, postage). Arrange for the client and charge 10% markup?

Back to mattresses, there are a group of “upstarts” destablising the mattress industry. For example, Greywing have a $1,195 offer, and Ecosa have a $1,350 offer. And OzMattress, an online mattress has a top of the range mattress for $2,100 which OzMattress says competes on quality with beds sold for $10,000.

We can’t imagine it will be long before some clever accounting firm comes to market with a quality SMSF return for $600, having made a 100% markup on the outsourced cost. Certainly the “upstarts” in the mattress industry are showing that “bricks and mortar” are no hindrance to quickly taking market share, and with the 2015 Accountants research report showing Changing client loyalties one of the top 3 issues facing accountants, this has to be a worry.