Benchmarking is a great way to gain an understanding of how your results compare to other firms, nothing new here. Here’s my point, the typical KPI’s predominantly measure how an accounting firm has performed in the past.
In today’s business climate, firms need to be monitoring leadership, in order to understand how well decisions have been implemented. My Supplementary KPI’s are designed to evolve your current operation methods and ensure that they remain the most effective and efficient.
Most firms don’t monitor how good they are at leading the business nor do they measure activities that will drive growth, profit and effectiveness.
A Note on ‘Effectiveness’ vs. ‘Efficiency’
It’s worth noting the difference between these two terms and how they apply to different outcomes in your business.
Quite simply, efficiency refers to how well a process is done, whereas effectiveness refers to how useful the process is.
For example, we can focus on optimising a process to maximum efficiency, but if the process is flawed and does not deliver useful outcomes, it is not effective.
My own consulting process is designed to be most ‘Profit Effective’ for accountants. When accountants are noticing margins being squeezed in compliance, the focus has to be on more effective processes, rather than trying to improve efficiency within the compliance model.
I have firms who have gone from having Accountants complete entire jobs, to adopting a system that only utilises an Accountant’s expertise for higher problem solving. This has nearly doubled their average hourly rate recovered.
How to use both KPIs together most effectively
It’s important to note that I am not suggesting my KPI’s replace existing reports. They work most effectively in addition, by increasing the overall picture of business successes and strategies.
In short, the supplementary KPI’s help you make better decisions, as they track activities that will grow your practice. The first set of KPI’s are used to measure that success.
Standard Accounting Industry KPI’s
These are the most commonly tracked data points, and are standard across the Accounting industry.
For this article I assume you have standard benchmarking in place. If you don’t or are looking to review your KPI’s, refer to Business Fitness’s Good Bad Ugly report, available here. You can even use the ‘How Does Your Firm Compare’ button to order your industry comparison.
Andrew’s Supplementary KPI’s
(AKA Measures for Effective Implementation of Growth Strategies)
My additional KPI’s are designed to help Accountants make better decisions as they implement growth strategies in their practice.
Each section lists the KPI’s, with an explanation. In some cases I have listed additional questions to ask yourself in order to better measure success in these areas.
a. Work completed – Fee Ratios
- Average fee per client vs last year
- # jobs completed for client
- Average fee per job
b. New work gained – Conversion Rates
- # Clients/prospects approached
- # proposal written
- Packages signed up (recurring work locked in)
- Products sold ( additional work won)
Accountants loathe the concept of sales, yet it is fundamental to growth. I find it astounding that firms, who say they are committed to growth, may not have any formal process for growth, let alone a process of conversion. Most cannot tell me where last year’s growth came from. For process oriented people this doesn’t make sense!
It’s simple. If you want to grow, it is necessary to create a forecasted activity plan and track it’s success.
a. Ability to scope and price
- Package budget vs actual fee
- Product budget vs actual fee
Profitability is based on two key principles, winning the work and making a profit on every job. As an accountant I would tell builders and tradies to track every job for profitability yet didn’t really do it myself.
Questions to answer around Your Ability to Scope & Price:
- How accurate are you at quoting/scoping?
- How good are you at maximising value? – (Pricing)
- What is your most profitable package/product? (Think about retail store here, which products are cash cows, dogs, lions and stars?)
- How successful are you at positioning services, products vs. projects?
3. Ability to Manage Performance
a. hours charged vs actual hours worked
b. write off of hours charged
When looking at Performance management, it is important to note that the problem in our industry is that billable hours promote complacency.
Let me give you an example. We acted for a logging clients who in 1983 were paid $13 per tonne to cut timber. In 2003 I helped a client negotiate a contract based on the same average tonnage rate of $13 per tonne. In twenty years inflation had increased by 233% yet their revenue had not changed. Despite a huge rise in inflation, they were able to stay in business by adopting technology and continually evolving their process.
Let’s say this happened in our industry. Imagine that automation and outsourcing meant compliance fees remained the same for the next twenty years. Firms would be forced into adopting quicker and more effective ways of producing compliance.
Questions to answer around Profitability – Your Ability to Manage Performance:
- Are your people as efficient as they could be?
- Can automation or process simplification reduce time spent on a job?
- What systems need to be crapped and a new methodology applied?
4. System Effectiveness
a. Time on job
- Average years of experience of employee
- Average years employee has been at your firm – retention rate
- Average life of client
- # years employee worked on that client
b. Ratio of clients that use
- bookkeeper vs doing it themselves
- Internal accountant
- you do bookkeeping
One of my firms track how effective employees are at doing work and matching the right people to the right clients. Here is a snippet of what they have implemented from the numbers:
- Only taken on clients who had good bookkeeping skills or engaged the firm to do book keeping.
- Clients with their own accountant were targeted for VAS right from day one.
- Clients with bookkeepers were consistently provided with written feedback and targeted for upselling bookkeeping training products.
- Clients that used the firm for bookkeeping were bedded in for the first 12 months before being targeted for VAS. (They made sure their numbers were right, before selling them VAS!)
- Additionally, setup and implemented a team retention scheme. ie. bonus for length of term.
Questions around System Effectiveness:
- How well do you know your client’s demographics? (and how that affects production…)
- Do you track retention rates? (and use that information?)
a. Strategies agreed on,
b. Time taken to implement each stage,
c. Strategies completed.
Accountants track client work yet most firms don’t track internal development. A planned success is 1000x more effective when written down and ticked off.
Questions around Implementation:
- How well does your firm implement strategies?
- Last minute (after everything else),
- Depends on the time of year, or
- Consistently, throughout the year.
Together with common industry benchmarking reports, these five areas will help you make better decisions as you implement your growth plan.
Get feedback, share your position and Get Help Improving Your Responses
As usual, I’d love to hear your responses to my questions throughout this week’s TA. You can email them to firstname.lastname@example.org for a confidential response, or post the wins that you’re proud to share below.
And if you don’t like your responses to the preceding questions, you should be at Practice Growth Formula, Sydney in May 2015. Find out more HERE (including special offers)…