A project is not the annual fee with a client. Annual accounting is a project. A business plan is a project. A finance proposal is a project. A tax return is a project.

What is your average project value? It’s simple to work out. All you need to do is divide the number of invoices sent into your revenue for the year. If you have multiple invoices for one project then that should be classed as one invoice.

Your average project value multiplied by the number of projects per client per year will equal your revenue per client.

It’s a great way to look at your client base. If you have a very small average project value (but lots of clients) you will have a large administration function just for invoicing. The objective should be to increase the average project value whilst increasing the number of projects that each client buys from you each year.

If your business clients are not spending at least $20,000 with you annually and buying at least 4 projects from you (therefore average project value is around $5,000) then I think you are under-servicing your client base.

I have written an extensive report on Accounting firm performance. You can download the full report here.

Enjoy video # 11.

Most firms have high retention rate per client. That means their clients stay clients of the firm for a long period of time. Somehow the Accounting profession has got most of their clients bluffed that it is hard to change Accountants. It’s actually not.

Partners will argue that clients remain with the firm because of the great relationship they have with their clients. I beg to differ. How can you have a great relationship with someone when you see them once or twice per year?

Imagine what your relationship would be like at home if you only saw your life partner once or twice per year? For some of you reading this it would be better!

I do not think retention rate is high because of great service, relationships, value for money or services offered.

I think retention rate is high because the Accountant knows about the clients financial affairs.

The reason Accountants have high retention rate is because of financial intimacy.

Most people do not speak openly about their financial affairs – it’s a very private matter. And if they only speak to a couple of people about a very private matter a lot of trust is built up. Not relationship – trust.

Your clients trust you to not tell others. So they don’t leave.

However, the real measure is how happy they are to be a client of your firm. I think that metric is based on the number of referrals you receive each year per client. If you divided the number of referrals (enquiries) you get annually into your total client base this will give you a startling reality of how happy your clients actually are.

Now the flip side to that is they want you all for themselves and they do not want to refer! Possibly.

Focussing on building relationships (retention rate strategies) is not about increasing the retention rate number (it’s already high), it’s about making memorable experiences with existing clients so they buy more from you and refer more to you.

You should be aiming for a retention rate of 95% and at least 1 referral per client per year.

I have written an extensive report on Accounting firm performance. You can download the full report here.

Enjoy video # 10.

We teach a 12 step (sales) meeting process to Accountants. If followed to the letter then a conversion rate (enquiry to sale ratio) will be around 80% – in a short time period (say less than 60 days).

Before we teach this tried and tested method we hear things like:

“I had a great meeting – they will definitely be a client”
“I met this potential client and I get the feeling they want to be a client of ours”
“I met the general manager of this business and they want to switch to us”
“I am so pumped – this prospective client is worth at least $50K per year to the firm”
“I met this person at a networking function and they moaned about their current Accountant – they are ready to join us”

It’s all rubbish. Unless you have a proper ‘pipeline management’ system and structured meeting system you are simply going on gut feel. Not good enough for forecasting new revenue!

If you have all the buyers in the meeting, you purposely develop a relationship, you understand the background of the situation, you find out their clear objectives, you attach measurement milestones to achieving them and you understand the value you bring to the table then you might just have a chance of winning the business and accurately projecting your conversion rate.

First you need to monitor what it is now. Based on an enquiry received (by whatever means), what percentage do you close in a reasonable time frame?

If you have a high conversion rate now based on limited sales skills or process then you are probably not charging enough.

If you charge appropriately based on value and you follow our meeting process then you should be at 75% or more.

I have written an extensive report on Accounting firm performance. You can download the full report here.

Enjoy video # 9.

Every business needs new enquiries for new clients. You can get new enquiries either:

1) Reactively or
2) Proactively

Most firms follow option 1 and wait for enquiries to come through by the way of referrals from existing clients. Other than being a very slow path to growth there is nothing wrong with it.

If you are proactive about it then you will adopt marketing techniques that encourage your target market to make an enquiry with you. Most Accountants I know do not want start-up businesses (due to the majority of them having the inability to pay) so that means that the client you want is already serviced by another Accounting firm.

A client will leave their current firm (or join another) because of 2 reasons only:

1) Service – not being proactive, sloppy customer service, limited communication/relationship
2) Services – perceived value for money, looking for more but not offered

For you to encourage new enquiries you have to offer multiple ‘experiences’ with you. Can the prospective client hear you speak at a conference, meet with you, read an article etc.

Some firms need more clients than others. As a rule of thumb you might be losing 10% annually (attrition or letting some go) so you should at least aim for a net 10% increase which means a 20% growth rate in new clients to cover the loss.

If you need 20% new clients and your conversion rate is 50% (not following our system) then you need approximately 3% of your current client count in quality enquiries – each month!

I have written an extensive report on Accounting firm performance. You can download the full report here.

Enjoy video # 8.

Why is it that a firm will engage a client, start working on the project, wait for the client to send in missing information, finally finish the project 60 days later then at the end of the month send an invoice and be paid 30-60 days after that? A 120+ day process!!

It just doesn’t make sense. You have to pay the labour, the insurances, the rent and everything else in that time yet due to your management processes your client treats you like an interest free bank!

Remember this… “Thee who makes the rules – wins the game”

Why do you operate under this model? Just because you always have is not a good enough reason.

If you ask for some money upfront (and make new rules) many of your clients will pay. If you ask for 100% upfront before starting many of your clients will pay. If you give your clients some choices (and not the pay in arrears choice) many of your clients will pay.

Your monthly receivables balance should be less than 6% of annual fees – or 20 days of annual revenue.

Stop being an interest free bank. Today!

I have written an extensive report on Accounting firm performance. You can download the full report here.

Enjoy video # 7.

Work in Progress (WIP) is your inventory. Like any good cash management program you would advise your clients to ‘turn their inventory over’ more frequently to improve cashflow.

There is no difference with an Accounting firm. Your inventory should be invoiced every single month. If you are pricing up front (and I hope you are) then why not ask for some payment up front as well. That’ll help your WIP balance!

If you have done the work then send a bill. If the client is being difficult or the project is taking a long time then send an interim bill.

Your WIP balance at the end of each month should be less than 3% of your annual revenue – or 10 days of revenue.

I have written an extensive report on Accounting firm performance. You can download the full report here.

Enjoy video # 6.

What waste it is to discount before billing. Often called write offs or write downs. It’s measured by the value of the time charged to work in progress (WIP) less a discount applied before billing. So if $2.3M was charged to WIP in the year yet only $2M was billed then the write down was 13%.

In some countries they record it in a more positive light by using a bigger number– “we had an 87% realization rate”. What a complete joke. Trying to put a positive spin on a negative number.

Face up to it – you discounted 13% or $300,000 in work last year! That’s an apartment or a house in some locations. You destroyed a small house. You would have had more fun if you burned the house to the ground and watched it burn whilst having a cold beverage.

Most firms have them and most firms justify them with blame and excuses like “we couldn’t charge the amount on the WIP” or “the client would never pay that much”. My question is HOW DO YOU KNOW?

Writing down work is at the heart of the self-esteem issue with partners of accounting firms. Why do it? You made a decision to write down – so make a decision to stop it.

If you price in arrears then your business model says whatever is on the clock you should charge – not a minute more. Writing up after pricing in arrears goes completely against your business model and is considered fraudulent behaviour. It’s ‘ripping people off’.

If you price up front, you have agreement from the client on price and scope of the project, and then you do the project in the most efficient means possible you’ll have an abundance of write ups. Much more of a positive result!

You should be aiming for a positive result with write ups – no negative numbers or numbers less than 100%.

I have written an extensive report on Accounting firm performance. You can download the full report here with all 12 KPI’s in it.

Tell me what you think of video # 5….

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

It’s very easy to increase profits in an Accounting firm. Simply have the most senior people (partners) charge more time. The partners generally have the highest charge rates and theoretically the most experience.

Yes you will increase profits but for the short term only.

David Maister, author of many outstanding professional services firms’ books said it best:

“What you do with your billable time will determine your income.
What you do with your non-billable time will determine your future”

Assuming that the partners of the firm are partners for the right reasons (not a glorified / expensive senior Accountant with the title of Partner) then the partners should only be doing 3 things:

1)     High end advisory work for a small percentage of time <30% of time. 2)     Nurturing existing clients making sure each client has every service they need to satisfy their goals in life. 3)     Acting in a leadership position – driving performance, winning new clients & innovation. If Partners spend 2 hours analyzing phone bills and scrutinising the colour of the receptionists new chair - not a good use of partner time. If Partners spend 2 hours doing compliance work for $200 per hour. Hmmm - not a good use of time. If Partners can spend 2 hours in a client meeting and bring back a $10,000 project with a 75% margin then I would consider that a good use of partner time! Enjoy video no. 3