Yesterday I was chatting with an SMSF Trustee who was considering migrating their Fund to Mclowd.
With a very basic portfolio he had been doing almost everything himself via a spreadsheet, and was looking around for a more scalable solution without changing his cost structure.
While we discussed the relative merits of Mclowd and other software packages, this wasn’t the key take-away from the conversation.
Instead the key message was the role played by opportunity cost in the market for professional services.
The Role of Opportunity Cost
For someone who is working, the opportunity cost of their time can be high (particularly given family and other commitments).
However as someone moves into retirement, the opportunity cost of their time falls, and the incentive to do some of the work themselves increases, particularly given the high hourly rates being charged by traditional professional services firms.
The following diagram illustrates this phenomenon, and explains in part the rapid growth of self-managed superannuation.
Opportunity Cost and the Mclowd Revenue Model
But what would happen if the rate for SMSF accounting support were to fall by 90%?
Overnight a large proportion of the SMSF administration work currently undertaken by individual Trustees would migrate to these lower cost professional service providers.
This is precisely what has happened in the Mclowd Marketplace, where US$20 per hour is the going rate for general SMSF accounting support, and this is precisely why Mclowd focused its revenue model on the Marketplace.
In effect Mclowd only makes money if we have already saved Trustees up to 90% on their SMSF administration costs (including free SMSF accounting software).
There are now a range of service providers on the Marketplace that can help you with administration and in the end the Trustee I spoke to decided to post a Task to get the Crowd to help them with their migration.