Renee Moelders

“That which is measured improves. That which is measured and reported improves exponentially “

                                                                                    Karl Pearson, English Mathematician

The use of key performance indicators ensures that leaders are on the same page with team members about what is expected for individual performance as well as the performance of the team, service line, industry group, department or firm. Key Performance Indicators (KPIs) provide each team member or leader with a focus for what they need to produce, and a filter through which to say no to things that don’t fit. Ultimately, having clear and appropriate measures will drive the performance you’re hoping for, allowing you to reward the right behaviors through compensation and promotion systems.

Traditional accounting and consulting firm measures are based on time spent, which isn’t always the most accurate measure of success. As firms move towards value billing and advisory services, they are exploring alternative measures to gauge individual and team success. We are often asked what the right “new school” measures are for our clients. Before we dive into specific suggestions for KPIs, here are important best practices for establishing new metrics:

    • Resist the urge to measure too many things. When setting goals, we encourage our clients to set three, or possibly a max of four KPIs, to allow for focus and meaningful progress.
    • Incent both current production and future capacity metrics. Current production relates to the work you’re doing this week, month or year. Current production drives cash flow and keeps current clients happy and can’t be overlooked. Future capacity work, in contrast, is effort we expend now to improve the firm or ourselves for the future. Examples of future capacity activities include business development efforts, recruiting, people development, and internal initiatives to institute software or improved procedures. If we focus on current production measures only, we find ourselves short-staffed, without a viable leadership pipeline, and short of the leads we need to grow the practice.
    • Don’t shy away from instituting qualitative KPIs. It can be tempting to only focus on quantitative measures because they are more easily obtained and analyzed. Starting at the team member level, all of us should be working on a behavioral shift or improvement of some kind. This might include goals like more compassionately interacting with other team members, showing more ownership of engagements and initiatives, or demonstrating more confidence in technical or leadership abilities. Even team measures can be qualitative. See this blog, Success, Do You Have the Skills, for more tips for establishing measurable qualitative goals.
    • Aim towards one-size-fits-one measures. Start with a basic set of measures for each department and level of employee, then look at how individual team members are unique or what the practice uniquely requires from them. For example, does a senior in your group demonstrate strong relational skills and a desire to spend time developing business? Consider reducing the standard realized revenue goal for that person so they can focus on networking and business development.
    • Avoid oversimplifying your KPIs or oversimplifying your analysis of the data. If billable hours are up, will you make more money? Not if you’ve gone out of scope and haven’t reset expectations for increased billing with the client. If an employee is working more billable hours, is he or she successful? Not if the focus on hours gets in the way of developing this year’s crop of interns into viable first-year hires or revamping the individual tax return process workflow. Ensure you are considering the full picture and not just one isolated metric.

Now that we’ve covered these best practices, let’s explore a list of KPIs to use to measure certain aspects of your business. The metrics below are organized into categories based on the characteristic they evaluate and then mapped to the “things” that they can be applied to.

Growth/Growth Potential

  • Revenue growth (percentage)
  • New work sold or sourced to new clients
  • Sales pipeline leads rated as an A as a percentage of revenue
  • Existing client expansion
  • Referrals in or out
  • Sales close ratio
  • Cost of client acquisition
  • Thought leadership produced (articles written, presentations developed or delivered)

Pricing

  • Average bill rates/package price by service
  • Average revenue per client
  • Revenue for a type of service as a percentage of client revenue

Staffing/leverage

  • Number of leaders (partner or manager or both) compared to staff
  • Leader (partner or manager or both) billable hours compared to staff hours
  • Percentage automated (engagements, clients)

Quality of work produced

  • Lifetime client value (revenue earned to date)
  • Client satisfaction surveys (e.g. Net Promoter Score)
  • Client account plans completed
  • Client turnover
  • Turnaround time
  • Insights delivered to the client

Team capacity

  • Budget-to-actual capacity hours
  • Number of (or dollar value of) clients culled
  • Non-CPAs involved in service by level
  • Staff recruited
  • Staff promoted
  • Staff turnover
  • Revenue/person

Team production

  • Net revenue managed
  • Net revenue per person
  • Engagement contribution margin (revenue less the cost of variable expenses)

Team development

  • Average tenure at each level
  • Technical expertise gained
  • Leadership training completed
  • Employee satisfaction

Personal production

  • Personal net revenue billed
  • Returns / Audit sections / Projects completed

To bridge the gap between your current time-based metrics and alternative “new school” ones, identify one new metric to track over the next year for each aspect of the business. After six to nine months of data-gathering on your identified metrics, analyze your experience using the metric to measure success and the difficulty to produce or develop the KPIs. Based on your analysis, continue working with that metric or identify a new measure to try for the upcoming year. Consider your efforts to be a pilot or “trial run” and be willing to make refinements based on what you learn.

What metrics are you measuring that we haven’t mentioned? Where are you having success with piloting new KPIs? Which metric will you try in 2020? We’d love to hear from you!

Regards,

 

Renee