The naked truth behind the most important numbers.
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Disclaimer
The Accountants Benchmark Report is representative of a value-added service to the accounting profession. Whilst every care is taken in the collection and compilation of data, the Accountants Benchmark Report is interpretive and indicative, not conclusive. Therefore, information should be used as a guideline only.
Due to the volume of firms participating, there was no auditing on data entered by survey contributors. Some contributing firms had to be excluded where significant amounts of data was missing or where those firms significantly skewed the result (outliers).
The results displayed are the lower quartile, median, upper quartile and best metric, rather than that column being all one firm.
Welcome
Welcome to the 2024 Accountants Benchmark Report. This report has been compiled from data provided by hundreds of firms across the USA, Canada, and a handful from Australasia, with a total of 323 respondents.
All firms included in this report fall within the $650K to $9M revenue range, with 73% of them reporting revenues between $1M and $6M.
Each year, as we compile this report, it becomes more insightful and meaningful. This year, our focus is on maximizing profitability and reducing working hours, with the goal of achieving more than $1M profit per Partner and each Partner working less than 500 client hours.
Key highlights from this year’s report include 13% of firms earning over $1M profit per Partner and the median profit being a staggering $503,076 – up from $412,299 last year.
As you read the report, you will find commentary and feedback from me. At the end of the report, there is a Metrics Guide with commentary and equations. Some of the metrics in the guide are not covered in this year’s report but are important to know and measure regularly.
My feedback in this report will be a mix of journalistic objectivity, consultancy recommendations and coaching questions.
To get the most out of this report, follow the guide overleaf.
Enjoy it!
Rob Nixon
How to use this report
The first thing to remember – avoid evaluating any one number in isolation. One number may be high or low. A seemingly good number might be skewed by a poor one.
When planning your new numbers, you need to develop your own mix of numbers that are right for you, i.e., 20 clients at $100k each or 200 clients at $10k each. 01 04 02 05 03 06 PS. Let me know what you think of the report and how it has helped
Benchmark your numbers against the rest and see where you need to improve.
The median result represents the midpoint of the data, where the best of the worst meets the worst of the best. Strive for the upper quartile, not just the median.
Share your results with your entire team and then brainstorm an action plan for improvement.
Send me an email: rob@robnixon.com – I personally answer them all.
Put your plans into action!
All data from all firms
This table represents the aggregated data from all the firms in the survey. All of the main Key Performance Indicators (KPIs) are listed.
The numbers in each column are not from a single firm; instead, they represent different firms’ performance. For example, the lower quartile result of a given indicator comes from one firm, the median from another, and the best result is the highest value recorded for that indicator.
As you benchmark yourself against these numbers, remember that you can quickly improve your results by changing what you do and how you do it.
For a full glossary of terms and equations, go to the Metrics Guide at the end of this report.
NOTES 1. The best result for the ‘Administration to Headcount Ratio’ is a high number. Most firms do not hire more non-chargeable administration people because they think they are not ‘chargeable’. However, our evidence indicates that having an administration headcount to total headcount ratio of approximately 40% can lead to a more efficient, profitable, and sustainable firm.
2. I have reversed the ‘Utilization of Partners’ to highlight practices observed in top firms of this size. The goal is not to increase Partner time, but to decrease it. When done correctly, reduced Partner time should equal a higher ‘Average Hourly Rate (AHR)’ and an improved ‘Sustainability Index’ which equals more money and more free time for the Owners.
01Issues & OPPORTUNITIES
In this Benchmark Report, we captured the current key issues and opportunities within the profession. With the volume of responses, it represents a comprehensive health check of the profession.
There were 8 categories, and each firm had the opportunity to rank each one as the No. 1, No. 2, or No. 3 issue. We compiled all the scores and gave a percentage of votes. The total exceeds 100% because there were 3 opportunities to vote on each category.
Key Issues
Ranking
HOURSPARTNERWORKEDTOOMANY
It was no surprise that the number one issue, with 61% of the votes, was the Efficiency of doing the work, or lack thereof. This is a solvable problem.
Reducing the time taken to complete tasks increases capacity, leading to fewer hires needed or more growth opportunities. My question to you is: What are you actively doing to become more efficient? Simply stating, “we need to get more efficient,” is not enough—you must take actionable steps to achieve it.
Is it…
Missing information from the clients – solvable
Technology – solvable
Training – solvable
Not enough administration team – solvable
Too much job pick up and put down – solvable
Clients making a mess of the books – solvable
Lack of documented systems – solvable
Team members doing things they shouldn’t be doing – solvable
KEY ISSUES
All these issues are solvable.
We have an awesome 25 step workflow process (training program with tools) that solves these and more issues. You just need to be intentional about fixing the issue.
The second most important issue, capturing 49% of the votes, was Finding People. The challenge is clear: So much work to do and so few people to do it. I hear this complaint/ excuse all the time. Given the low unemployment rate and the steady influx of new work and clients, I get it—but I don’t.
You see, finding people is a marketing opportunity not a scarcity problem. It’s no different to finding great clients – that too is a marketing opportunity. There are tens of thousands of talented individuals out there – they just happen to be employed elsewhere. All the good people are already employed.
If they are employed, why would they jump shop and work for you? It’s a legitimate question. A high-quality employee, who is reasonably well-paid and works in good conditions, needs a compelling reason to change employers. What is that reason?
When coaching firms, we focus on 20 tactics and strategies to attract great people. However, the strategies for finding candidates come second. The reason why someone would want to work for you comes first.
So, why should anyone (who is already employed) work for you? Is it …
The challenge of new work?
The freshness of the firm?
The working conditions?
The hours expected to work?
The pay and benefits?
The flexibility of working location?
The opportunities for career progression?
The employee profit share plan?
Or something else you’re offering?
Once you answer the reason why, then we can work on the tactics to find them.
The third biggest issue with 47% of the votes, was Not Enough ‘A’ Class Clients. Much like finding great people - it’s a marketing opportunity.
We have 72 methods to generate marketing-qualified leads and 74 methods to convert them. If you identify your ‘A’ class clients and employ some of these methods, I’m sure you will overcome this issue.
If you want to have 100% ‘A’ class clients, then you need to hire marketing people to help you find them.
I love the fact that Workflow Development is seen as a top-ranked opportunity with 66% of first place votes. It’s a huge opportunity and it’s tied directly to the number one issue of Efficiency
Consider this: Let’s say you’re a $2M firm with an Average Hourly Rate (AHR) of the median value $184. That means that you have total productive, charged (or recorded) hours of 10,869. The objective is to improve your workflow management (speed and accuracy of doing the work) so that the hours reduce because you’re more efficient.
You’re able (ideally with our help) to conservatively achieve 20% more efficiency. That means the hours saved are 2,173, resulting in total hours of 8,695 – for the same revenue. The price for what you do has not changed (unless you price in arrears) and now your AHR pops to $230.
You now have a choice of what to do with the 2,173 hours. If you’re like most, you’ll resell the capacity. Let’s say you resell it at a new margin of $300. That’s an extra $651,900 straight to the top line AND straight to the bottom line.
You now have a firm that does $2,651,900 in revenue for the same 10,869 hours. Now your AHR is $243. The team has not worked any extra time and you’ve probably doubled your profit.
It’s the magic of compounding the power of 3
1. You price every job up front.
2. You get more efficient by driving the time down.
3. You resell the capacity at a higher margin.
And you make bongo bucks (technical term) in the process. To get more efficient, follow our 25-step workflow management process. You’ll easily get 20% and sometimes more than 50% more efficient.
Team Development came in at 50% of the votes for second place. This would incorporate team training, career progression and culture.
Again, a big opportunity awaits. And again, I ask the question: what are you intentionally doing to develop your people?
It’s not just about technical training to meet professional requirements. What else can you offer? Consider personal development programs, fun activities, soft skills training, and so on. It’s not just about making better technicians; it’s about helping the team become better people.
It starts with having the right people, then placing the right people in the right seats, and ensuring they have the right tools to succeed. You can never do enough in this area –continuously invest in team development and culture.
The third biggest opportunity, with 33% of the votes, was Marketing. Finally, marketing is on the accountants’ radar!
Many Partners will proudly say, “we don’t do any marketing and we still get new clients – we’re referral-based.” Yes, you will get new clients – but are they 100% ‘A’ class clients? Or are they just anyone who walks through the door?
Marketing is not just about brand building; it’s also about lead generation. This involves proactively targeting prospects who you want as clients and ensuring existing clients are buying everything they need to achieve their goals. If you know WHO your ideal client is, then why not go after them and invite them to be a client of your firm?
There is a significant challenge in marketing for new clients. The good ones are often already served by an accounting firm that has financial intimacy over them. Through effective marketing, you can build trust and break this financial intimacy at the same time.
We have 3 BIG beliefs when it comes to marketing:
There is an abundance of new ‘A’ class clients to be had. You should only have ‘A’ class clients. Every client should be buying everything they need that helps them achieve their goals.
Marketing, marketing, and more marketing will help you achieve these beliefs. It will also help you grow your firm to whatever size you desire.
02Success DRIVERS
Success Drivers
I believe that for how smart you are, for how much value you add, and the risks you take, you do not make enough money and you work waaay too many hours!
You probably agree with that statement. But what to do about it?
The old saying is “if nothing changes, nothing changes.” If you are serious about changing your current situation, then you need to first understand your numbers, be unhappy about them, and then take action to change them!
To change, you need a healthy discontent for the present.
It’s a 4 step process for change:
Understand your current numbers and current reality – own it.
Engage your stakeholders and team members to embrace and implement the change. 01 02 03 04
Engage a coach to guide you on the right strategies and implementation plan.
Set realistic goals for the numbers you need to change and want to achieve.
Getting the balance right between all of your key metrics is crucial to your success, enjoyment, and likely your physical and mental health.
Some realistic numbers to strive for are >$1M profit per Partner (after tax) while the Partners are working less than 500 client delivery hours.
It’s been achieved by so many that we’ve had the privilege to coach over the years. It’s really not that hard to do – but it does take time. Of course, you need more than $1M in revenue to achieve it!
The next table has a whole series of key metrics. Based on 30 years working with Accountants around the world, the ‘Benchmark’ column is what any committed, coachable, and growthoriented firm can achieve.
To work out your numbers, divide or multiply your numbers based on how many Partners you have. E.g.: A 4-Partner firm should 2X all numbers up to and including profit; a sole owner should divide by 2.
The list of ‘Benchmark’ numbers is only a guide. For example, a firm I previously coached does $17M as a sole owner with over 1,000 business clients.
You can make your numbers whatever you want them to be.
The ‘Closest Result In Survey’ column are the complete numbers of one firm in the survey. This firm is highlighted in more detail in the ‘Administration to Partner’ metric later in this report.
You can mix and match your numbers to suit your business model. For example, to achieve your ideal numbers, you could increase the average fee per client and reduce the client count. You could increase the AHR and reduce the hours/headcount. You could set up a team offshore, increase the headcount but reduce the
salary investment. And so on and so forth.
One of the key drivers to AVOID is increasing chargeable time/utilization or billable hours. Pushing that number is a recipe for disaster, especially when it involves more chargeable time from Partners.
However, maybe you’re happy being the practitioner doing the majority of the work. That’s OK as long as you realize you have a business that will have a low ‘Sustainability Index’ score, you’ll be working long hours and your practice (this is not a business) will not be that saleable –unless you go with the sale.
The traditional model is driving time. Effectively turning the business into a labor for hire business. The more labor you have, the more hours they produce, the better it is. No, not quite.
You’re not in the labor for hire business. You don’t sell hours. You sell what you know. You sell your intellectual property.
If you promote and drive billable hours or productive time, then you’re encouraging time padding, job hogging, time wasting, write-offs and overall, an unhealthy long hours culture.
If you operate under a fixed fee model, then you are incentivized to do the same task in the least amount of time possible. Less time on the clock, not more.
Don’t get me wrong, I like a healthy mix of ‘time on the clock’ – around 70% for Accountants and 25% (and reducing) for Partners. That model leaves enough time to grow and develop the business.
Productizing what you do and driving average hourly rate as high as possible (not necessarily with high pricing) while reducing hours is a far better business model for all – including clients!
Million Dollar Profit Model
Profit Per Partner
Profit Per Partner (before Partner benefits) is what you need to be striving for. In a traditional practice, you can increase profit by having the Partners charge more client time. They have the highest charge rate so why not get them to work harder?
You could, however it’s counterproductive. The more Partner client time you have, the more profit you make, but the less time the Partners have to grow and develop your business.
Having a great balance between Partner chargeable time (working IN the business) and time to grow your firm (working ON the business) is crucial to success. When we coach a firm, we get the Partners to initially follow our 30/60/10 rule
I say “initially” because once you get to those numbers, you can concentrate on reducing the 30% to whatever number you desire. Many firms we coach have zero chargeable time as the goal. If Partners have zero chargeable time, they can focus on business development (BD) OR they can hire for the BD roles (sales and marketing) and build a generational asset.
Remember this…
What you do with your billable time will create income for this year. What you do with your non-billable time will create wealth for the future.
What was surprising was the range of ‘Profit Per Partner’ in our survey. The lower quartile was $310,000, the median result was $503,076, and the upper quar tile was $692,459. The best result was $4,016,411! It was amazing to see that 13% of all participants this year were earning more than $1M profit per Partner. Should we reset the target to $2M?
The case study firm is a sole owner +19 FTE firm in Florida, USA. They had revenue of $6,912,894 (25% growth rate) and profit of $4,016,411 (32% increase) or 58% profit margin. Two years ago, the Partner productivity was 100% and this year 25% - yet profit has nearly doubled in the same period. I love the fact that they have 0 days in accounts receivable. They have $0 receivables because 99% of clients are on a fixed monthly fee which is paid in advance and the rest pay before any work starts. Over a 3-year period they were able to grow their AHR from $148 to $226. They have held the highest ‘Profit Per Partner’ for all 3 editions of this report - quite a remarkable result. 2021 - $2,102,000, 2022 - $3,050,896, 2023 - $4,016,411.
How high is high for Profit Per Partner? More than $1M is easily achievable while Partner client time is below 500 hours per year. As a bare minimum, you need to be at the median result of $503,076
CASE
STUDY & YOUR RESULT
Partner Profit: Percentage
It’s easy to increase profits in an accounting practice – just have the Partners charge more client time. They have the highest hourly rate and the new revenue goes straight to the top and the bottom line. That’s great if you want to run a practice that is reliant on the Partners punching the hours out.
If you want to run a more sustainable accounting business then create a firm that has more leverage (people to Partner ratio), has less Partner client time and a higher AHR. It’s not about the hours worked, it’s what you do in the hours worked.
In the case study firm highlighted, it is all the data from a 2 Partner + 1 FTE person (admin) firm in Nashville, Tennessee. It has the highest profit percentage of 83%, but it is propped up by the Partners charging 1,750+ hours each at a high charge rate. The AHR of $428 is also better than upper quartile results because, again, the Partners are doing so much chargeable time. The Partners contributed $1.46M of the $1.5M revenue. There is no profit without the Partners. This is why their Sustainability Index is -18%. This is not a business – it’s a high-paying job. And that’s OK if that’s what they want.
If this firm invested more in people (more leverage) and potentially dropped the profit percentage to around 50 – 55% they could have more time to enjoy a better lifestyle.
You cannot look at Partner profit percentage in isolation, you have to look at all the numbers together. High profit margin doesn’t always equal a great business.
CASE STUDY & YOUR RESULT
Revenue Per Partner
The traditional model is a firm that thinks they need more Partners. Typically around the $1M mark in revenue, you think you need another Partner.
I have met thousands of Partners who are not Partner material in my view. Most were made Partners for retention reasons, not for great business reasons. I meet Partners who cannot or will not sell. I meet Partners who are resistant to change. I meet Partners who don’t want to innovate. I meet Partners who are stuck in the past. I meet Partners who are reactive and not proactive.
On the flip side, many Partners are excellent technicians, but being a great technician does not require Partner status. A Partner who is an excellent technician but not a business developer is, in my view, an overpaid Manager.
Consider the following scenario: Partner A is bringing in loads of new business and pushing 1,000 hours out the door. Partner B is delivering 1,000 hours of work but not bringing in any new business. Tension ensues because Partner A believes they are contributing more than B – and they would be right.
A good Partner is a business developer, a leader, and capable of delivering high-end services.
We have our coaching firms evaluate Partners (current and potential) with the following 20-point checklist.
The ‘ideal’ Partner in an accounting firm is someone who…
Brings something to the table - complements existing Partners.
Is a good communicator at the Partner level. Is a good communicator with team members. Is a good communicator with clients.
Is stable - emotionally and financially. Is profit and growth motivated.
Has a good work ethic.
Is reasonably fit and healthy. Is at the same stage in life mentally.
Shares similar values and ethics.
Has an ability to respect other Partners. Knows what they want – they are goal-oriented. Is supportive of new ideas.
Is flexible in their thoughts and actions. Is fun to be with.
Shares the vision.
Walks the talk, not just talks the talk.
Acts in the best interests of clients and the firm at all times.
Can bring in new business.
How many of these 20 can your current Partners answer favorably? Maybe some Partners that you have are not a fit. Do you need fewer, more or different Partners?
As a result of the volume of current Partners and the (wrong) belief that you need more, the ‘Leverage of People to Partner’ is typically low. As you can see by the table, the median result is 6.7 team members to every Partner.
Our best-case study result is a 1 Partner + 98 FTE person firm in the Toronto, Canada area. They have revenue of $9.8M for a sole owner. To manage $9.8M of revenue, you need a leadership team who are managing people and processes. This firm has many ‘offshore’ team members, which require a different management process. Although they are a 100% fixed fee firm, they have got their pricing completely wrong resulting in an AHR of $67 and profit margin of 21%. No firm is perfect – what this firm does well is manage revenue per Partner with one owner.
If you have a low(ish) revenue per Partner, it means the Partners are doing a lot of the heavy lifting. Why not have fewer Partners, more of a corporate structure, and more revenue per Partner?
CASE STUDY & YOUR RESULT
Revenue Per Full Time Equivalent Person
Most accounting firms are set up as a labor for hire business model. They hire labor, apply an hourly charge rate per person (typically around 3X the person’s hourly salary), then put them to work. They monitor the person’s utilization (charged time) and, as a result, they make a profit.
As you can read in this report, the profit margins vary considerably and so does the revenue per person.
If you have an Accountant who earns $100K ($50 per hour) and you charge an hourly rate of $150, and they are productive for 70% (1,400 hours) of the year, then this person’s revenue is $210,000. This is just over 2X their total salary. Add in the administration team (typically not chargeable), the Partners’ revenue, and you end up with ‘Revenue Per Full-Time Equivalent (FTE) Person’
Most firms operating under this model follow the old (and flawed) 1/3, 1/3, 1/3 business model: 1/3 for labor, 1/3 for overhead, and 1/3 for profit. Ahh oh – wrong strategy!
The numbers of revenue per FTE in our study vary significantly: 1st quartile is $147K, median is $172K, 3rd quartile is $220K, and the best result is $556K per FTE person. This outdated business model is one reason why people in the accounting profession are paid relatively low. It’s not their skills, intelligence, or work ethic that is the problem – it’s the ‘time X rate’ business model.
You actually do not sell time. You sell what you know.
If you had a ‘packaged’ model and you priced it accordingly (not based on time but on value to the client) then your revenue per FTE could be much higher. You could afford to pay higher salaries and/or make higher profit.
The case study firm is a 1 partner + 6 FTE firm in Westerville, Ohio. They have $1.96M in revenue with a 51% profit margin. Their revenue per FTE is $328,301. Although this is a good result, it is propped up by the accounting team being productive 112% of the time. It is based on labor X rate. With only 1 administration person, the accounting team will be doing a lot of administration work associated with the accounting work. If they hired 2 or more extra administration team members (what we call Client Excellence Coordinator, or CEC), they could free up a lot more capacity and actually increase the revenue per FTE.
The first hurdle is $200K per FTE, then $250K, then $300K, and then pushing it beyond $500K per FTE. With different technology, more efficiency, better product packaging, and appropriate pricing, you can achieve more revenue with fewer people.
CASE STUDY & YOUR RESULT
Administration to Headcount Ratio
Why do Partners not hire more administrative team members? No, it’s not the start of a joke—it’s a real issue. Typically, Partners avoid hiring more administrative team members because they believe these roles are not chargeable.
I say “hmmm” to that. You see, our detailed studies have shown that Accountants spend 2-3 hrs per person per day on administration work related to accounting, such as dealings with government agencies, chasing client information, basic data entry and so on. We’ve identified 30 common administrative tasks regularly performed by Accountants.
Consider this equation:
That’s $662,400 of capacity if you hired 2 new administration team members to support the accounting team. We call them a Client Excellence Coordinator or Client Concierge. If some of those 3,600 hours were chargeable then they are still chargeable. By freeing up administration tasks from Accountants, they have more capacity to do higher-level work.
Here are non-chargeable team members, all with the view of freeing up capacity and growing the business:
Business Manager
Marketing Manager/Coordinator
Salespeople
Executive Assistants
Receptionists
Project Specialists
Around 40% of your total headcount should ideally be non-chargeable team members.
The case study firm is a 2 partner + 40 team member firm. When we started coaching them 6 years ago, they were $3.2M in revenue with $740K per Partner profit. Now, they are $8.5M in revenue and $2M per Partner profit. In the same 6 year period, their AHR has grown from $153 to $285 and the average fee per business client has grown from $7,379 to $12,982. The Partners are 6% chargeable and they have grown their administration team percentage from 10% to 40%. They are a model firm with ALL numbers close to perfect – they have done everything I have asked them to do. They could even grow more with the current headcount because the accounting team is only 51% productive. It’s a great example of getting leverage through non-chargeable people so that the rest of the team can do what they do best.
CASE STUDY & YOUR RESULT
YOUR ADMINISTRATION TO HEADCOUNT RATIO % RESULT
Utilization (Productivity) Fee Earning Team
The ‘time X rate’ pricing model was invented in 1919 by lawyer Reginald Herber Smith, and Accountants soon caught on.
It has since expanded to the following pricing model:
Productive Time X Hourly Rate X Realization % = Price
To get to the right price, it assumes the time taken was correct, the hourly rate of the person was correct and realization % (or write down) was correct. Nothing could be further from the truth.
This model (priced in arrears) is a time-based billing model, and it encourages so many bad things:
Job hogging – rewarded on more hours
Too much time taken – rewarded with more revenue
Inefficiencies – the time hit the clock
Price surprise for clients
Pricing for time not value and experience
Salaries go up and so do hourly rates but profit does not
Worklife balance – more hours seem to be a badge of honor
Team members do not want to work here
It does not reward being efficient
Profits are low and time is high!
The model is fundamentally flawed all round. It focuses on hours worked and how many of those hours are chargeable. Why would you operate under a pricing model developed by your great-great-granddaddy?
Now, don’t get me wrong. I am a promoter of healthy utilization or productive time – but not too much of it. I like to see a fee earners time around 1,250 hours for the year. Why not price the project up front, be as efficient as possible, pop the AHR and work 4 days per week?
Our case study firm proves that the model is flawed. They are a sole owner + 18 FTE person firm in Wilmington, North Carolina. They have $2.1M in revenue with a 31% profit margin. They have a fixed fee model with prices promoted on their website (never do that) and they crank the hours out. The fee-earning team are 106% productive, which means they are working 2,200+ hours per year. As a result of focusing too much on time, their AHR is especially low at $59.
To differentiate and attract great people, a model that focuses on less time and more margin is far better for all.
CASE STUDY & YOUR RESULT YOUR UTILIZATION OF
Average Hourly Rate Client Hours
Your Average Hourly Rate (AHR) is not the average of all your charge rates. It is simply revenue billed divided by client time taken.
This number is THE number to drive profitability. Consider these scenarios.
FIRM A
has $2M in revenue with an AHR of $133 or 15,000 client delivery hours. They have 15 total FTE to deliver the $2M.
FIRM B has $2M in revenue with an AHR of $266 or 7,500 client delivery hours. They have 8 FTE to deliver the revenue.
Your AHR is increased by a combination of 3 factors:
01 PRICE
the actual price you charge (upfront, not in arrears)
02 PROCESS
the speed of getting the work done
FIRM B is much more profitable because they have a much higher AHR for the same revenue. They need less people to do the work. It’s pretty obvious when you think about it.
03 PRODUCT
some products yield a higher margin
For firm A, if they increased their AHR by just $5 per month (net increase of $30 for the year) then they would be (assuming same costs and time taken) $450K more profitable.
The range of results for AHR was massive – $139 on the 25th percentile, $184 median, $222 on the 75th percentile and $645 for the best. Every firm in this report is offering very similar services yet some achieve double or triple the margin.
The case study firm is not the highest in AHR but stands out as one of the best examples of an all-round firm with a good AHR. Based in Woodstock, Georgia, they have 1 Partner and 10 FTE team members. Their revenue is $2,391,034, with a profit of $552,123 and an AHR of $392. The solo Partner maintains a personal productivity rate of 2%, allowing him to focus on business growth, which increased by 28% this past year. They have prioritized long-term growth over short-term profits by investing in their team. Their highest-paid person earns circa $250K, and they have both a marketing manager and a salesperson. We helped them increase their AHR by designing an innovative advisory service that requires no partner time for delivery.
When you know your AHR by client, product, person, and period, and then choose to increase it, it becomes a game-changer for profitability, enjoyment, and choices.
CASE STUDY & YOUR RESULT
YOUR AVERAGE HOURLY RATE $ RESULT
Growth Rate
Most firms let revenue growth happen by chance. Typically, a few new clients are accepted via referral, a small price rise is applied, and some new work is generally driven by government rule changes. And they accept circa 10% as an acceptable growth rate.
It’s a very reactive way to grow a business. It is far more rewarding to grow intentionally.
There are only 4 ways to grow an accounting business:
01
Increase the number of clients you serve
02
Increase your retention rate
03
Increase the number of transactions per client per year
04
Increase the value of each transaction
Under these 4 ways, there are methods in lead generation, sales, retention rate, productization, and pricing. In fact, we have a Strategy Map that has 295 separate methods that fall within one of the 4 ways. Our coaching firms use them to intentionally grow revenue whilst increasing profit.
You can download a free copy of our Strategy Map here
If you want to double your revenue every 3 years, then you’ll need a 26% annual growth rate. If you want to double every 2 years, then you’ll need a 42% annual growth rate. There are always outliers who triple revenue in 1 year but they are typically smaller firms.
Our case study is a 5-Partner firm with 50 additional FTEs and $9.4M in revenue. They are located in Vancouver, Canada. There is a misconception that larger firms cannot grow quickly and consistently, yet this firm grew 42% without acquisitions last year. They have a low productivity/utilization rate of the Accounting team at 54%, so they have a lot of capacity to grow. However, this firm’s no. 1 issue was efficiency. If they can become more efficient and refill the capacity, they could easily hit $15M with the same headcount.
Sustaining a healthy growth rate with intentional marketing and sales will help you achieve your desired goals.
CASE STUDY & YOUR RESULT
YOUR GROWTH RATE
% RESULT
Sustainability Index
How profitable would your firm be if the Partners were not doing any client work? How saleable is it if the Partners do not go with the sale? How sustainable is it without the Partners?
We help firms go through 3 levels of development. Practice Owner to Business Owner to Investor. Highlighted by my graph below.
Owner, but not an operator = generational wealth.
More working ON it than IN it = more money and more time.
Grinding it out working too much IN it = ok money and less time.
A good indication of a well-run accounting business would be that the Partners are doing the least amount of client work while the Profit Per Partner is extremely high.
If you can reduce Partner client work to $0, replace remaining Partner roles with a Business Manager, Relationship Managers, a Marketing team, and Salespeople, then the business could run without the Partners’ day-to-day involvement.
If that were the case, the Partners could act as Non-Executive Directors, sit on the Board, and own an asset that continually produces cash. Why would you sell a business like that? Unless you needed a big payday, you’d keep it for as long as you could. It’s a very sustainable business that is not reliant on the Partners.
To measure how far a firm is down the path of Practice/Business/Investor model we call it a ‘Sustainability Index.’
We calculate this by subtracting the revenue contribution of the Partners from the overall firm profit and show it as a percentage.
A low or negative result (16% of cases had a negative result) on the Sustainability Index indicates a business that is not sustainable. If the result is 0%, then the Partner revenue contribution is equal to the entire firm’s profit. If the result is 10%, then the Partner revenue contribution is 90% of the overall profit.
There could be an argument to add in an overhead component to the Partners’ revenue, but the answer remains the same. If you have a low percentage on the Sustainability Index, then there is too much reliance on the Partners, and the Partners are supporting everyone else.
The case study firm has a Sustainability Index of 99%. It’s a 2 Partner + 45 FTE firm in Texas. When we started coaching them 5 years ago, they had a revenue of $990K. It has since climbed to $6.5M. Their profit was $330K and now it is $2.1M. When we met, the Partner’s chargeable time was 1,800 hours. By 2023, this had reduced to just 32 hours. They have used our strategies successfully to increase revenue, profit and reduce Partner chargeable time. It’s a life-changing formula.
Your Sustainability Index is a choice. If you choose to get off the tools and build a more sustainable business then it takes work, discipline and patience.
The effort is worth it. You can change your life with more profit and more time, and you can create generational wealth by moving to the Investor level.
CASE STUDY & YOUR RESULT
YOUR SUSTAINABILITY INDEX
% RESULT
04Accountants METRICS GUIDE
If you are going to develop your Practice into an Business and then into an Investor model, then there are certain fundamentals that you must measure, understand, and improve. This guide highlights the key metrics, equations and suggested benchmarks to aim for.
Revenue Invoiced sales
Gross Margin
Revenue minus all labor costs
Profit – BPS Profit before Partner salaries / benefits and before taxation
Number of client groups X retention rate X number of transactions per client per year X average transaction value = Revenue
e.g.: 225 X 96% X 2.7 X $4,827 = $2,815,106
Revenue minus all labor costs – including contractors but excluding Partner benefits
e.g.: $2,815,106 revenue
$760,201 labor
Gross Profit = $2,054,905 = 73%
Revenue minus all costs (labor and overhead) before partner benefits
e.g.: $2,815,106 revenue -
$760,201 labor (27%) -
$647,578 overhead (23%) = $1,407,327 Net Profit = 50%
Revenue per FTE
Leverage
Productivity or Utilization – Fee Earning Team (excluding Partners)
Productivity or Utilization –Partners)
Average Hourly Rate (AHR) – All Hours Worked
Average Hourly Rate (AHR) – Client Hours
Turnaround Time
Revenue per full time equivalent person
How many people per Partner you have
How much time is charged per fee earning person versus their worked time
How much time is charged per Partner versus their worked time
Revenue per hour per person for all hours they work
The average margin you achieve for each hour of client work
Speed of getting the work done
Revenue divided by # of FTEs (all team including Admin, Partners, & contractors)
e.g.: $2,815,106 / 13 = $216,546
Total team members excluding Partners divided by number of Partners
As much as possible to achieve your goals
>$300,000
e.g.: 13 / 2 = 6.5 >12:1
Client time recorded divided by worked hours e.g.: 1,300 / 1,800 = 72%
Client time recorded divided by worked hours
e.g.: 500 / 1,800 = 28%
Total revenue divided by total FTE team member worked hours (all team including admin, contractors & Partners)
e.g.: $2,815,106 / 23,400 = $120
Total revenue divided by total client delivery hours (Accountants, Contractors & Partners)
e.g.: $2,815,106 / $12,511 = $225
First piece of information received to the final product delivered to the client
e.g.: May 1 first information received. June 30 final product delivered = 61 days turnaround time
- 75%
• Practice owner model –as much as possible
• Business owner model <30%
• Investor model – 0%
>$150
>$300
<30 days
Time Under Budget (TUB)
Efficiency of getting the work done versus the time allocated to do it in
Total hours for client project divided by maximum hours allocated to project
e.g.: 16 hours / 20 hours allocated = 80%
1 – 80% = 20% TUB
As much as possible without affecting quality control
Work in Progress (WIP) Days
Accounts Receivable (AR) Days
A measure of throughput, invoicing and efficiency
A measure of the time it takes you to collect the outstanding revenue
Average Fee Per Client How much on average each client group pays you per year
Number of Transactions Per Client Per Year
Average Transaction Value
How many ‘products’ each client buys from you each year
The average fee per invoice
Churn Rate Lost clients rate per year
Dollar balance of WIP / Revenue for year X 365 = WIP days
e.g.: $93,250 / $2,815,106 = 3.3% x 365 = 12 days
Dollar balance of Accounts Receivables / Revenue for year X 365 = AR days
e.g.: $123,250 / $2,815,106 = 4.37% X 365 = 16 days
Revenue divided by number of client groups = Average fee per client
e.g.: $2,815,106 / 225 = $12,511
Number of invoices divided by client groups
e.g.: 607 invoices / 225 client groups = 2.7 transactions per client
Revenue divided by number of invoices
e.g.: $2,815,106 / 607 = $4,637 per transaction
Client churn rate = number of clients that left during the year / total number of clients at start of period.
e.g.: 15 lost clients for year / 225 clients at start of year = 6% churn
<10 days
Lifetime Value (LTV) How much a client is worth to you over the time they are a client of yours
Marketing Qualified Lead (MQL)
Sales Meeting
Lead Acquisition Cost (LAC)
Client Acquisition Cost (CAC)
A qualified enquiry that has been generated through your marketing methods
A meeting to determine if a prospective client is a fit for your firm. Or a meeting with an existing client to see if they have everything they need to help them achieve their goals
How much it costs you to generate a marketing qualified lead
How much it costs you to acquire a new client for the first time
100 divided by churn rate = years X Average fee per client = LTV
e.g.: 100 / 6 = 16.6 years X $12,511 = $208,516 LTV
Someone who has expressed interest in becoming a client because of your active marketing (phone in, meeting booked, email in, referral etc) – not a download of something, event attendee or new name into your database. They must have expressed interest.
A specific meeting with a prospective client to convert them to becoming a client OR a specific meeting with an existing client to see if they need to buy more from you
<15 days
Total marketing spend (labor, agency fees, technology, ads etc) divided by number of marketing qualified leads created
e.g.: $126,500 / 163 = $776 LAC
Total of all marketing & sales costs divided by number of new clients created in the period
As much as possible to achieve your financial model and your goals
• If not Monthly recurring revenue (MRR) model >4
• If MRR model >12
As much as possible to achieve your financial model and your goals
<5%
As much as possible to achieve your financial model and your goals
As many as possible to cover churn and new client goals
• Prospect – 1 – 2 meetings to get a resolution.
• Client – annually
As little as possible so you cover conversion rate and still have a healthy positive return on first year client fees
As little as possible so you make a healthy positive return on first year client fees
Allowable Client Acquisition Cost (ACAC) How much you’re prepared to spend to acquire a new client for the first time
Lifetime Value to Client Acquisition cost –(LTV : CAC)
A ratio of how of when you get a return on your sales and marketing efforts
Average new client annual fee divided by healthy return on CAC investment in year one.
e.g: $15,000 / 250% = $6,000
Total of LTV divided by total sales and marketing costs
e.g: $208,516 LTV / $4,503 = 46 :1
In this example, every $1 spent in sales and marketing returns $46 over the lifetime of the client—a good investment!
As little as possible so you make a great return on investment on your CAC expenditure
>20:1
Profit Time Index (PTI) A measure of profit per hour per Partner when they work ‘IN’ the business
Profit before Partner benefits divided by total Partner working ‘IN’ the business hours ‘IN’ hours are categorized as:
• Client work – charged or not charged
• Review of team members’ work – charged or not charged
• Firm administration, HR, IT and firm management
e.g.: $1,407,327 / 2655 = $530
Sustainability Index A measure of business sustainability without the Partners doing the client work
Sustainability Index = 1- Partners revenue contribution divided by total profit before Partners salaries
e.g: 1 – ($745,290 /$1,407,327) = 52%
Depending on your business model goals:
• Practice owner model – as low as possible –say <$500
• Business owner model – as high as possible – say >$2,000
• Investor model –>$40,000
Depending on your business model goals:
• Practice owner model – as low as possible –say <20%
• Business owner model – as high as possible – say >70%
• Investor model –100%
Making Change Happen
This report is all about the benchmarks in critical areas of your accounting business. Hopefully, it inspires you to build a better, more fulfilling accounting business. One that provides the owners with more time, more enjoyment, and more money.
Since 1994, my team and I have been helping accounting firms all over the world who want to run a better business. I have observed that there is a proactive 4 step process for change:
Understand your current numbers and current reality.
Engage your stakeholders and team members to embrace and implement the change. 01 02 03 04
Engage a coach to guide you on the right strategies and implementation process. Set realistic goals for the numbers you need to change and want to achieve.
What you change and how you implement should not be left to chance. You have an opportunity to build an amazing accounting business so why not do it once and do it properly?
The coaching help we provide to firms lasts long after our work is done. Typically, we work with a firm for around 3 years to fully implement a better business model. This business model provides meaning, freedom, and an amazing lifestyle for all.
MAKING CHANGE HAPPEN
We help you in 8 critical areas:
Workflow management, cashflow improvement, technology, reporting and systems.
Operations Products Time Growth Clients Leadership Team Momentum
Defining product types, systemizing and documenting, packaging, scaleable products and creating a menu of products.
Effectiveness of time, delegation system, Partner time, the 30|60|10 model and the use of assistants.
Your target market, client communication, classifying clients, enhancing relationships and creating loyalty.
Finding the right people, organizational structure, team performance, culture and behavior.
Operational plan, team alignment, vision, strategy and implementation plan.
Team engagement, meeting rhythms, solving issues, innovation and implementing themes.
In every area of the 8 categories, we provide the coaching, the tools and the how-to content to successfully implement each one. We call it the ‘Accountants Operating System’ or AOS™ for short. AOS™ is the best practice way to run an accounting business. It’s an end-to-end solution to help you:
+ Reduce personal time
+ Increase profit
+ Build a more sustainable business
Every year, we (the coaching team) help implement AOS™ with a maximum of 64 firms at a time. Our criteria are firms who:
+ Are more than $1M in revenue now
+ Have 1-5 Partners
+ Are ambitious
+ Are coachable
If that’s you, then let’s meet and see if we can help you.
Go to robnixon.com for more information or click here to apply.
About Rob Nixon
ROB NIXON has forged a niche to be one of the world’s foremost authorities on how accounting firms can achieve peak performance.
He believes that:
• Accountants are the No. 1 in numbers – not a piece of software.
• Accountants can and need to be the trusted advisor.
• Accountants can help their clients build amazing businesses.
• Accountants need to help their clients make history rather than writing up history.
• Accountants do not make enough money for how smart they are, the value they add and the risk they take.
He is an entrepreneur who has been running businesses since 1986. Since 1994, he has specialized in helping accountants run better, more profitable businesses.
Accountants intrigue Rob. Over the years, he has trained them, consulted with them, coached them, researched them, and visited thousands of them. All in the pursuit of understanding what works and what does not.
His speaking work has taken him around the world where he has educated more than 200,000 Accountants at over 2,000 industry events in 18 countries. Currently his products and strategies are used by Accountants in over 50 countries. His landmark ideas and strategies are adopted by thousands of large and small firms all over the world.
He (and his coaches) have coached over 960 firms, helping them add more than $1.5BN in new profit.
In the first 12 months, the average results of a firm that Rob coaches are…
• A profit increase of 98.4%
• A revenue increase of 20.8%
• Partner time reduction of 20.1%
He is the author of four bestselling books: “Accounting Practices Don’t Add Up,” “Remaining Relevant,” “The Perfect Firm,” and “The Wealthy Accountant.” Each book has received rave reviews from Accountants and industry professionals worldwide.
His most recent book, “The Wealthy Accountant: How to Earn $1M Profit Per Partner While Working Less Than 500 Hours,” is in the hands of tens of thousands of Accountants worldwide.
His landmark coaching program, Boardroom, is designed for firms seeking to significantly reduce time and dramatically increase profit.
For every firm that Rob personally coaches, his objective is to get Partner profit to more than $1M per year while reducing Partner client delivery time to below 500 hours.
Rob is an avid golfer (with a single-digit handicap), adventurer, and cyclist. He holds ticket number 293 to travel into space with Virgin Galactic. Rob resides in sunny Brisbane, Australia, with his lovely wife Natalie and their three adult children.
