The price of accounting services has been growing at an estimated annualized rate of 1.6% in the three years to 2017. An increase in office space rental, which has gone up in line with higher demand for office space and surging real estate values, has prompted suppliers to raise rates for services in order to protect their profit margins.
However, rising demand for services has been the primary driver of price growth in the past three years. The number of businesses determines the size of the pool of companies in need of accounting services and has risen as companies have gained cheaper access to capital. This has, in turn, compelled suppliers to commence operations in increasing numbers. Additionally, aggregate private investment has increased in concert with growth in both consumer and business confidence. Greater private investment has allowed businesses and individuals to accumulate wealth, fueling demand for accounting services in order to comply with various government regulations. Overall, rising demand for accounting services has supported growth in rates for services because suppliers have been able to raise prices without risking significant losses in business, hurting buyer power.
Nonetheless, a strong degree of competition among vendors has worked in buyer favor by tempering the magnitude of growth in the price of accounting services. A large number of suppliers operate in the market due to the low barriers to entry. Thus, these suppliers undercut one another on the basis of price and breadth of services in order to capture a greater share of market revenue.
Price volatility has been low during the past three years, which has strengthened buyer power. Rates for services have not fluctuated substantially year over year, which has allowed buyers to budget accurately for accounting services. However, buyers should not wait too long to make these purchases because prices are expected to continue growing during the next three years.
In the three years to 2020, the price of accounting services is forecast to rise at an average annual rate of 0.6%. IBISWorld estimates that an upturn in suppliers’ costs will continue to motivate price growth. In particular, the cost of office space rental is projected to increase as the value of real estate continues to grow. However, these costs will rise at a slower pace relative to the past three years, which will limit the pace of growth through 2020. Marketing costs are also expected to rise as suppliers transition to providing more advisement services, which will require new branding strategies. Ultimately, this will prompt suppliers to increase rates for services to offset growth in overhead costs.
Even so, growing demand for services will continue to be the primary driver of price growth. As the economy continues to improve and entrepreneurs become more confident, the number of businesses will increase. However, growth is expected to be slower in the next three years as higher interest rates increase the cost of borrowing capital, somewhat curbing the entrance of new businesses. Still, a rising number of businesses will expand the pool of potential buyers of accounting services, allowing suppliers to raise prices. Moreover, corporate profit is anticipated to rebound as domestic companies benefit from an improving global economy. As profit margins increase, spending on discretionary services, including accounting services, will similarly rise. The resulting growth in spending on accounting services will significantly boost market demand, facilitating continued growth in prices.
Although prices will continue to grow during the next three years, price volatility will remain at a low level. As a result, buyers will be able to make more deliberate purchasing decisions and more easily budget for future expenses. However, buyers should consider purchasing accounting services sooner rather than later in order to obtain the lowest possible price.