This week I’m diving into the three key metrics for driving sustainable growth in your firm.
But first –
Anxiety is a killer.
I thought my anxiety would decrease as I gained more talent and experience.
However, I’ve found that anxiety doesn’t come from lack of skill or talent but from having options.
Anxiety is inevitable if you’re growing your firm and encountering new problems. You consistently find yourself at decision crossroads at every stage of growth.
Anxiety is not a weakness but a protection mechanism to ensure you give your decision the proper attention.
I’ve found that I can reduce my anxiety by reframing:
1. Define the end goal. We get anxious about WHAT to do when we haven’t fully defined WHY were making that decision.
2. Refine the timeline. Tight timelines ratchet up anxiety. Refined timelines with milestones leading up to the goal create a better perspective. Staring at a single large outcome on a tight timeline will stop you in your tracks.
3. Talk to experienced people. Mentors or mastermind groups that have been there will help you better define the decision perimeters better.
4. Remember that decisions are reversible. We can reverse almost every decision. Building a firm is part Art and part Science. You won’t get every part right; if you do, you’re moving too slowly.
With the right process in place, anxiety can be your catalyst for making better and faster decisions.
Why We Do What We Do
When I write, I dissect what I see firms doing. I challenge approaches and paradigms.
I don’t do this to demean the accounting profession. I do it to draw attention to our actions and results. Many firms are stuck, but it is not their fault because many of our efforts are anchored by external influences.
Those influences can be our experience working at old-school firms or maybe app companies trying to increase their profitability.
Transparently, my content and views are a paradigm with specific intentions: I produce content to nurture my leads toward becoming my coaching clients.
This week, I want to reverse engineer our outputs to see how to analysis our external influences and effect real change in our firms.
If you don’t remember anything else from this week’s newsletter, remember this:
We can’t change our outputs unless we truly understand our inputs.
We are pros at capturing and recording outputs. In our profession, correctly presenting outputs as metrics or ratios is our forte.
However, we sometimes don’t track the right metrics when it comes to our firm.
For growth-focused firms, the top three metrics we need to track are:
- Revenue per client
- Revenue per employee
- Sales calls per month
It is easy to calculate these outputs, but digging a bit deeper to determine the inputs and HOW to adjust the input lever to change the output is difficult.
Revenue Per Client
I feel that revenue per client is the best indicator of a firm’s scalability and sustainability.
At times, we mistake future clients as our fuel for growth when, in fact, it is our current client base that determines growth speed and trajectory. To increase rev per client, we must look at the whole client base, not just new ones.
I know that I am talking about revenue here and that it’s profit that matters more, but revenue is the biggest piece of the profit equation.
When your rev per client is low when benchmarked against other firms, I can almost guarantee that:
- You’re priced too low;
- Your core service team is either at or over capacity. Firms try to balance lower prices with pushing teams to work more.
- The partners or owners are doing more client work.
I was trapped in this scenario. My revenue per client was too low, so there wasn’t enough profit or capacity to grow without pain and cashflow issues.
To increase revenue per client, you must focus more on quality and NOT the volume of clients you engage.
Here’s a different perspective.
By 2020, almost 40% of all shots taken in the league were three-pointers.
Research has shown that despite the lower completion rate for the longer shots, teams that opt for the higher-value shots more often finish with more points. Overall, shooting lower-converting but more valuable shots yields a higher return.
The same goes for accounting firms.
Firms that opt for higher-value clients may have a lower sales conversion rate but finish with a higher revenue per client, propelling the firm to better profitability and more sustainable growth.
Revenue Per Client
Tracking revenue per employee helps you create the best cost structure for your firm.
I see many firms, including myself, opt for lower labour costs. Again, a mindset focused on reducing costs instead of optimizing for value.
Junior team members should generate between 1.5 – 2.5X their salary in revenue. More senior team members should be at 3 – 4X their salary in revenue.
Firms sometimes hesitate to hire administrative employees but rather push the admin work onto the core service team members.
Having accounting employees do administrative is the lowest ROI on their skilled time.
When your rev per employee is low when benchmarked against other firms, I can almost guarantee that:
- You’re missing key administrative positions.
- You have team members doing work beneath their pay grade.
- The partners or owners are buried in billable work, unable to support team training and mentorship.
To improve and maintain revenue per employee, you have to clearly define tasks for each role. Ensure that roles are optimized to generate the correct level of revenue.
Thoughtful Standard Operating Procedures (SOPs) can easily highlight tasks you can delegate to admin team members.
If you find the amount of administrative work can’t justify a full-time hire, fractional administrative staff can be part of a more profitable core service team.
Sales Call Per Month
When I ran my firm, I would cling to every prospect and bend backwards to ensure that they become my client.
I would do stupid things, from reducing fees to offering unique payment arrangements.
I made my firm fit every prospect when I should have been finding prospects that fit my firm.
Building your firm is just a numbers game. Finding the right clients is not a matter of luck but a function of actions.
Getting good clients can be simplified into an equation. Remember that the output is Good clients, but the input is further up stream.
We have to work backwards:
- How many good clients do you want?
- How many sales calls does it take to close a good client?
- How many leads does it take to get booked call?
- How many new contacts or how much ad spend is needed to generate a lead?
Closing a good client is not a one-step process. Until you can answer all four questions, you cannot expect to generate a dependable pipeline of clients.
When your Sales Meetings per month are low when benchmarked against other firms, I can almost guarantee that:
- Growth is slow and unpredictable.
- You don’t have a client avatar, and margins vary for your non-standardized core services.
- Offering any advisory or high-value service is nearly impossible.
To improve and maintain Sales meetings per month, you need to have an automated marketing system to generate leads. As you refine the system, you will generate and nurture a predictable amount of leads.
- Revenue per client – Are you getting the right clients for growth?
- Revenue per employee – Is your firm structure designed for growth?
- Sales calls per month – Is your pipeline adequate to reach your goals?
Announcing: Outsourced Series
From Sept 7 to Sep 28, I will be co-hosting a four-part webinar series on Outsourced Services. I’ve partnered with four companies to dive into how your firm can quickly improve profitability.
The series will include:
1. How to find offshore Latin American accounting employees who are in the same timezone as you and your clients.
2. How to reduce the cost of payroll services while not compromising the quality of the service.
3. How to find, train, and leverage offshore VAs (Virtual Assistants) to reduce administrative costs AND increase core team efficiency.
4. How to test and qualify new hires more efficiently, drastically reducing the cost of building your onshore and offshore teams.
I have ensured that each webinar will deliver as much value as possible for your time investment, including discounts for each service.
Additional information and sign ups will come shortly.
Build The Firm You Want.