There’s no escaping recurring revenue as a KPI for any business—accountancy practices included—but in our modern world the insight with which you measure it must be significantly deeper than most practices might be used to.
Traditionally practices might measure revenue as simply number of clients multiplied by fees, perhaps using a median average of fees if they’re generally similar, or bracketing fee ranges into averages. However, using existing data you hold about clients and services can create far more useful metrics.
Client management and service measures
Which client services bring in the most revenue? Avoid assuming an answer here based on instinct, because you might be surprised. Instead, ensure measures are put in place to accurately measure services. Yes, your practice might undertake a lot of tax and compliance work, but it might be that the outlier services provided for just a handful of clients actually produce more revenue.
Measuring revenue in terms of service means you learn the strengths of your business, and either look for realistic areas into which you can expand, or look to make up for inefficiencies in your overall service offering. If each service type is correctly coded within your accounting systems then discovering this vital data should be easy. A review might be required if incorrect coding is used (or if no coding is used at all).
Types of client
Related to measuring service MRR is gauging the types of client your practice services. Client types as a metric is a little more abstract compared to services because a client may require two or more types of service from you. However, clients can still be broadly categorized according to the nature of their business, and therefore how frequently they require the aforementioned services.
While a regular business might look to new customer acquisition (NCA) as a method for growth, it’s perfectly valid for accountancy practices to look to expanding their service offerings to upsell to existing clients. Therefore, the measure of MRR against client type can be invaluable. How can lower-revenue clients be improved? How can higher-revenue clients be optimized even further?
Digging deeper into the client list
Of course, a prerequisite for digging deeper into a client list is ensuring it’s usefully collated and organized. You might do this via some kind of database or a spreadsheet. Perhaps a “list” as such doesn’t even exist outside of your head, or entries in the accounts receivable ledger from invoices issued for work you’ve done.
However, using a dedicated practice management solution to organize your client list can transform your practice by letting you measure the following:
Gain/loss per client
Using clients as a core metric creates a lens through which other measures can be considered. For example, the resources a client consumes in terms of employee time (or even assets like stationery) can be more accurately measured alongside other metrics looking at staff efficiencies and skills. But measuring the gain or loss per client needs is a central statistic when it comes to creating efficiencies.
Although a classic performance measure within practices, client churn needs to be more than simply a net figure within a given period. With the data provided by measuring gain and loss per active clients, the churn list can be further filtered into clients on whom marketing resources could be spent in order to win back, while customers who presented little or even no profit (or even who represent a net revenue loss) can be left out of any win-back plans.
Measuring client responses
Measuring customer responses can be key to any plan to improve a business. Here are some metrics you might like to focus on:
Are your clients happy with what you provide? This can be hard to discern because people are typically unwilling to articulate grievances when directly asked. However, this is such a valuable metric that practices have found ways around this reluctance, such as asking people a single question about how likely they are to recommend your business to others.
This forms the basis of the widely-used Net Promoter Score (NPS) system, which measures the extent to which your clients would recommend your business to others.
The value of the NPS system lies in the follow-up with those who provide a low score, and subsequent attempts to improve it. In short, it’s not enough to make up for deficiencies with a client. You need to go further to create a customer actively prepared to promote your business.
Expectations, demands and services provided
NPS is a reactive measure. It’s also necessary to anticipate the needs to clients so that they aren’t disappointed if your practice is unable to meet their demands. For example, taking on a client within an unusual industry might involve the practitioner undertaking a modicum of research into that business, and particularly into any accounting or finance needs that arise. Often that can be done via your certification body, or even via online forums where professionals congregate. Performance metrics applied to employees and attached to their client’s expectations, demands and required services formalizes the above processes and ensures they occur.
The selection of metrics and focus areas presented here have one thing in common, which is the way they seek to penetrate and provide true insight.
But informing best practices for growth and efficiency is not just about identifying useful performance indicators. It’s necessary to create a strategy to:
- Ensure measurements are regular and operate with the range they require
- The business makes effective use of what’s discovered.
It’s not necessary to use all of these metrics, and indeed an overabundance of performance indicators can create a stifling bureaucracy. But knowing which KPIs to measure to achieve your goals is essential for both growth and ironing out inefficiencies.
The Practice of Now 2020
We surveyed 3,000 accountants worldwide to reveal how the accounting landscape is changing. Discover how your fellow accountants are preparing for the next decade and learn what you can do now to keep your practice successful.