If you are like most firms you will have a range of charge rates in your firm. Normally charge rates range from $100 – $350 per person depending on salary & experience level. If this is the case then your Average hourly rate (AHR) or net firm billing rate for client hours will be around $150-$200.
It’s pretty pathetic to think that is all you believe you are worth! This is such a silly system for pricing.
I think you are worth much more but you have to believe it and you have to change the way you price projects.
There are 2 measures of Average Hourly Rate.
1) AHR – client hours. Take your revenue (let’s say $2M) and divide by client hours billed (let’s say 10,000). In this case it is $200.
2) AHR – hours worked entire team. Take your entire team (incl. partners, admin & professionals) and multiply by the working hours in a year to get total hours worked (say 12 people X 1750 hours each = 21,000 worked hours). Now divide revenue ($2M) by total hours worked (21,000). In this case it is $95.
It’s important to look at both of them. You can have a fantastic AHR for client hours (>$400) yet very poor on all hours worked (<$150) because of the productivity, people mix & administration process. The ultimate measure is to be focussed on AHR – hours worked entire team. It’s this one that will ultimately drive your profit before partner salaries.
If you are pricing projects up front then there are only 4 ways you can dramatically increase your AHR.
1) Charge more for the same project – straight price rise
2) Be more efficient and have less time on each project
3) Sell higher value projects based on value created
4) Change your administration mix and get more out what you have got
Your AHR should be improving every single month. If it is then that is a reflection on your pricing / sales prowess and your efficiency of throughput.
If it’s not improving (or going backwards) make sure you mention this to our coaching team when they do your Business Performance Review.
I have written an extensive report on Accounting firm performance. You can download the full report here with all 12 KPI’s in it.
Enjoy video # 4