Since I started advising Accounting firms 24 years ago I have been fascinated with the financial metrics and the benchmarking of firms. What fascinates me is why one firm outpaces another for performance when they have essentially the same people and doing essentially the same type of work.

I have written countless articles on what a firm needs to do and how they should go about implementing the strategy to improve. In this article I want on focus on the absolute key metrics to monitor and grow.

There are many metrics to monitor. Some are less important (like realization %) than others, some (like productivity / utilization %) promote the wrong behaviour of your team and some are totally redundant when process changes are made (like WIP and receivables days).

After coaching hundreds of firms (adding >$850 in profit to them) here are (in my view) the top 6 metrics:

Average hourly rate (AHR) – for all hours worked

Why is it so important? It’s a measure of just about everything. Your top line pricing, your administration mix, your AHR for client hours, your efficiency, your write ups, and your value-added work.

What’s the equation?  Revenue / (Fulltime equivalent people X all hours worked) = AHR

Example:

$1.4M / (10 FTE X 2,000hrs worked each) = $70

What’s the ideal benchmark? Most firms start with $75 – $100 AHR. Or another way to look at it is $150K – $200K revenue per full time equivalent person (assuming 2,000 worked hours per year). I like to help firms get up to $250 AHR or around $500K revenue per full time equivalent person.

Time under budget (TUB)

Why is it so important? It’s a measure of your efficiency.

What’s the equation? Actual time taken / budgeted time = TUB %

Example: If you budgeted $200K revenue for the month and 750 hours to complete the work but your team did the work in 500 hours then hooray – 500 / 750 = 66%. That means 34% more efficient then planned or 34% more capacity or 34% write ups. It’s all good!

What’s the ideal benchmark? As much as possible. As in as much time under budget as possible.

New clients – of the type you want

Why is it so important? It shows marketing / sales ability and vibrancy of your firm.

What’s the equation? Number of new clients engaged.

What’s the ideal benchmark? As many of the right type of clients as you desire.

Average fee per client

Why is it so important? It’s a measure of your ultimate purpose – providing all services that help your clients achieve their goals. And pricing those services properly.

What’s the equation? Revenue / number of clients

What’s the ideal benchmark? As much as possible.

Revenue – billed

Why is it so important? It’s a measure of continued innovation and growth.

What’s the equation? Revenue billed

What’s the ideal benchmark? As much as possible without adding your current labor ratio.

Profit – before partner salaries

Why is it so important? Self-explanatory. I believe Partners of Accounting firms should be making at least $1M profit while partner chargeable time is below 500 hours per year.

What’s the equation? Revenue – all costs

What’s the ideal benchmark? Most firms operate under silly 1/3, 1/3, 1/3 business model. With good execution of strategy, cost efficiency and proper utilization of labor it is not that hard to get it to 55% – 60% while Partner chargeable time is below 500 hours.

To dramatically improve each one of these there is a 3-step process I coach every firm on.

  1. Fix what is happening today – the current business
  2. Minimize time – get super-efficient and automate as much as possible
  3. Scale to whatever size you want.

It is pointless scaling a business if the current business does not work so well in the first place. You will get more profit if you minimize the time taken.