Over time, the number of CPA and Accounting firms is growing. According to Big4accountingfirms.org, there are more than 138,000 accounting firms in the US. So certainly there is tough competition in the industry. Have you ever sat down and set Key Performance Indicators for individuals or firm to track monthly, quarterly or yearly growth? Not yet? It’s high time to start setting KPIs that are realistic and quantitative. The 10 KPIs every growing CPA or Accounting firm should track are a blend of critical metrics for clients, employees, and organizations. As an accounting firm, you must have clarity on the key areas where you want to perform. Revenue, growth, engagement, and some essential accounting firm KPIs. Instead of creating a broad spectrum to just identify the total revenue, accounting firms should focus on some other useful KPIs to measure long-term growth. So, here are the 10 KPIs every growing CPA or accounting firm should track.
1. Client profitabilityCPA or accounting firms can easily track client profitability by calculating the cost to serve each client and the revenues associated with them for a given period of time. By calculating the client profitability, firms can check if any particular client is costing more than generating revenue.
2. Client retentionThe number of clients who sticks to the firm for a longer duration is known as client retention. As per Involve.ai, “Happy customers are 87% more likely to purchase upgrades and new services than unhappy customers.” As long as it is important to capture a new client base, it is equally important for a CPA or accounting firm to understand how many of the old clients choose to stay with the firm in long term. According to invespcro “Investing in new customers is between 5 and 25 times more expensive than retaining existing ones.” Client retention is a key CPA firm metric that demonstrates the trust and loyalty of the clients in the firm.
3. Service profitabilityFirst, check the services you are offering to clients and then check which among them is profitable and which needs a revaluation. It is not necessary that all the work that you are doing as an accounting firm or CPA is making a profit. Hence it is crucial to check periodically the offering services and the areas where a firm can create more expertise.
4. New client growthWhen it comes to new clients, it becomes crucial to evaluate their growth over a period of time, preferably on a monthly basis. The new client growth rate will determine client retention in the future and is among major Accounting firm KPIs. The firm needs to invest time, and workforce to nurture its new client relationship.
5. Client acquisition costIt is a crucial Accounting firm KPIs. The cost incurred in acquiring a new client should always be a KPI to measure. To calculate the client acquisition cost, the firm needs to calculate the total spending on acquiring new clients divided by the total number of new clients over the given period. The total spending will include marketing, equipment, or any other overhead costs. CAC is important to chalk out the client acquisition strategy for the coming months.
6. Net Promoter ScoreWhat are the chances of the current client base to recommend the CPA or accounting firm to others? NPS is one such KPI, that is often missed by accounting firms. See how satisfied the clients are with your services. Ask the clients on a scale of 1 to 10 how likely they will rate the firm. Ask for feedback and suggestions, and constantly focus on implementing the received feedback. It is always a good idea to understand the areas of improvement in your current clients.
7. Average Revenue per ClientIt is the amount of revenue that one client contributes to the CPA or accounting firm over a period of time. The average revenue per client can be tracked monthly, quarterly, and yearly. To calculate the Average Revenue per Client, simply divide the total revenue by the number of clients. It is a helpful KPI and is essential to keep a check on the growth of the firm. If it is declining in a given period, then the firm needs to revisit its offerings and strategies for the plan for the coming months. Once you understand ARPC, you know about the following:
- Which of your firm’s services appears to be the most popular?
- Are your customers happy to pay your prices because they know they’re getting a good value?
- Do you want a large number of small businesses as clients, or do you want a small number of large clients?
- How many clients do you need to cover your expenses and get a return on investment?