Every credible business needs to measure what matters. In this blog, Founder and CEO of Spotlight Reporting, Richard Francis shares with BOMA, his valuable insights on establishing key performance indicators for your accounting firm.
“If you don’t have meaningful Key Performance Indicators (KPIs) and a set monitoring and reaction regime, your measure of success becomes a stab in the dark”
There are three essential areas of essential KPIs for Accounting firms: Engagement, Revenue and Team.
1. Engagement KPIs: client satisfaction and community engagement
Net Promoter Score (NPS)
It’s dangerous not to engage on satisfaction. Accountants who don’t proactively ask for feedback are missing out on useful analysis and suggestions for improvement, as well as revenue opportunities.
At Spotlight Reporting, we survey and follow up customer satisfaction. We use the feedback to course-correct with clients, develop new offerings and to spark conversations that often lead to additional work. Net Promoter Score (NPS) apps like Ask Nicely and customer support tools like Zendesk make this process easy and immediate.
This is another facet of your practice that’s important to monitor and react to. A battery of marketing metrics can be tracked using BOMA’s easy-to-use digital marketing platform provides an at-a-glance dashboard with performance analytics across all your channels (social and email), so you can see what is working, and where it’s having the most influence and engagement.
You should ensure this discretionary activity and investment (to engage prospects and existing clients) converts them into more satisfied customers, creates new revenue, longer retention and lower churn rates. If not, your methods of engagement are probably misfiring. And remember, nothing beats talking to your clients to get their feedback.
Churn (client revenue exiting your business) can be a measure of dissatisfaction and/or lack of engagement and is best measured as the value of fees lost. A single departure of $50,000 p.a. will resonate more painfully than two small churns of, say, $5,000 each – we believe a certain level of churn is not only acceptable but desirable.
Every practice has uneconomic clients: bad payers, time-wasters and those who give us sleepless nights. It’s hard to imagine, but these types of clients SHOULD be fired. Churn for most practices is very low, largely through client apathy and a begrudging acceptance of the work as a necessary evil.
If you look to exit approximately 5% of your fee base each year, while growing the ‘top end’ desirable fees from existing clients and great new additions, you’ll get the mix about right.
2. Revenue KPIs – tracking the fee level and balance of your clients and services
Average Revenue Per Customer (ARPC)
Many accountants, counter-intuitively, associate higher fees with grumpy clients. I’ve found the opposite to be true, but on the critical proviso that you deliver value consistently and communicate transparently. ARPC is a great indicator of relationship depth and nuance, your ability to offer, sell and deploy a range of services. It’s the ability to grow your fees faster than the absolute growth in client numbers.
Value-Add Service Mix
This 80:20 percentage measure of Value Add (or Advisory) Fees vs. Compliance fees is a mission-critical indicator to stay true to your business model and dream of being a trusted advisor. It is a sure-fire measure of accepting the right clients – not just any old referrals, but being proactive about it (i.e. taking the time and effort to upsell and satisfaction).
Clients, staff and owners all seemed to occupy a happier place when we had our eye on adding value.
3. Team KPIs – resourcing, delivery and satisfaction
If you expect your staff to have frequent face-to-face (or online) interactions with clients, my belief is that your employees will not only be happier and more engaged, but your clients will want additional services from you too. Even though Human Contact is a staff KPI (e.g. ten client meetings per month), it should positively ripple across the other KPIs noted here.
Revenue per Employee
This is a solid KPI that, for me, has more resonance than utilisation. You should be less concerned with ensuring that every hour was billable at a set rate. But I did want a feel for how client-facing the team had been. And whether the higher mix of value-add work had (as it should) created revenue leverage without blowing out head-count.
Report and React
Once you’ve selected your KPIs, regularly report and analyse them for insight and accountability. Program in your KPI monitoring and reaction regime and make it a non-negotiable business process.
Every firm should have its own robust KPI reporting in place before it deploys a similar approach to clients. And with software like Spotlight Reporting doing the heavy lifting for you, it’s easier than ever to ‘walk the talk’.
Increasingly we’re seeing ‘smart growth KPIs’ becoming more prevalent. Some are borrowed from other industries (like software-as-a-service) but essential KPIs for the modern advisory firm take a more multi-faceted view.
To find out how to implement reporting KPIs, download a free copy of Spotlight Reporting's white paper.
Richard Francis is a Chartered Accountant, CEO of Spotlight Reporting, ex-GM of Workpapers for Xero, and a Trusted Advisor with over 20 years of advisory experience.
As the director of a ‘boutique’ professional practice in Wellington, New Zealand, Richard saw a need to improve analysis and forecasting for his clients. This led to the development of Spotlight Reporting and creating an award-winning suite of management reporting and three-way forecasting tools for progressive accounting firms and businesses around the globe.
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