Key Performance Indicators Every Accounting Firm Should Track
As an accountant, you spend a good part of your day helping your clients manage their finances. But who’s managing yours?
Aside from traditional financial statements, what information are you tracking for your firm? Are you aware of the most common key performance indicators for accounting firms?
For example, do you know if your clients are actually earning you money, or are they costing you money? What about client retention? Are you able to retain your clients or do they try out your services for a short time and then move to another firm?
If you don’t know the answer to these questions, it’s likely you’re not tracking the right (or any) key performance indicators (KPIs).
Why track accounting firm KPIs
If you’re unsure how to track KPIs for your practice, you may not see the value in setting up reporting . Yet key performance indicators for accounting staff and clients alike can provide your firm with the information you need to make good management decisions. The KPIs your accounting firm tracks should be customized for your firm’s size and goals, and provide you with real time answers to the questions above, as well as others.
If you’re not sure where to start, we’ll provide you with a few pointers.
What are accounting firm key performance metrics?
It’s difficult to run a successful business if you don’t take the time to measure the metrics that matter. Every business, including accounting firms, has key objectives that need to be met. Depending on your firm, these metrics can include things such as client engagement, client satisfaction, revenue, and staff and firm performance. Drill down into any of those categories and you’ll find even more metrics that you may or may not want to track.
Your accounting firm KPIs should be quantifiable measurements used to track performance and goal attainment. They should always be associated with a particular goal or objective that plays a large role in the success of your firm.
For example, if you’re looking to increase the number of new clients that sign with your firm by 25%, that is a measurable KPI that can be easily tracked.
By strategically tracking KPIs, you can not only measure your successes, but understanding them can help you pinpoint areas of your firm where performance is lacking, or where you have failed to meet your initial objectives.
The best way to use KPIs is to create them specific to your firm and your expectations.
Tracking and measuring KPIs is just one way to build a better practice. Download our free whitepaper, Adopting a Transformative Practice Management Mindset for details on five strategic areas you can leverage to keep your firm ahead of the curve.
Which KPIs should your firm be tracking?
While any business can benefit from tracking revenue KPIs such as cash flow and total revenue, accounting firms can benefit from tracking additional KPIs that focus on firm growth and strategy, helping them better manage their firm.
Key performance indicators for accounting firms to track include:
- Client profitability: Client profitability is one of the more important KPIs . This can be done by adding all revenue for each of your clients and then subtracting all job-related costs from the revenue. This process helps you determine just how profitable each client is for your firm. This can be time-intensive to do manually, but only takes a few minutes if you’re using an integrated practice management technology with automated time and billing capabilities.
- Client retention: Client retention is another important KPI for any accounting firm. Sure, you want to attract new clients, but it’s also important to be able to retain the clients you already have, particularly since bringing on a new client always costs more than retaining a current client.
- New client growth rate: The new client growth rate is particularly important for firms that are in the startup phase or are looking to grow their firm. It’s helpful to pinpoint exactly how much you wish your firm to grow in order for the KPI to be useful. For example, your goal may be to increase your clients by 50%, making it a trackable number that can easily let you know if you’re on target to reach your goal.
- Job profitability: Job profitability is a great accounting KPI to track, especially if you’re looking to specialize. Similar to the client profitability KPI, job profitability allows firms to take a look at their menu of services and identify the services that are profitable and those that are not. For example, while some firms specialize in preparing personal income tax returns, using a job profitability KPI let’s you take a look at that service and see if it’s profitable for your firm.
- Employee productivity: Tracking employee productivity can provide you with a good look at how productive your employees are. Start simple by tracking company revenue and simply dividing that number by your current number of employees. This metric becomes even more useful when you track productivity per job or per team. This KPI also helps to pinpoint lackluster performance over time, allowing you to make adjustments as needed.
Other KPIs you may want to consider tracking for your firm include average hourly rate and the average number of services per client, all which can help contribute to a more profitable practice.
The best ways to start tracking KPIs for your firm
While you can track simple KPIs using financial statements, accounting reports, and spreadsheet software, the most efficient way to track multiple KPIs is by using an accounting KPI dashboard. An integrated accounting practice management solution, like OfficeTools, makes creating dashboards easy. Using a KPI dashboard gives you a real time look at KPI metrics, so you’ll always know exactly where you stand.
A good accounting KPI dashboard can provide you with the following:
- Customization capability for tracking specific KPIs
- An overview of company performance in specified areas
- Real time information on performance and goal attainment
- User-defined layout to suit your needs