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 profitability
CPA 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 retention
The 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 profitability
First, 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 offered services and the areas where a firm can create more expertise.
4. New client growth
When 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 cost
It 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 Score
What 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 Client
It 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?
Client Revenue Exiting your business is the rate at which the clients are moving out of the firm. The lower the CHURN rate, the better will be the firm’s growth and profit. The churn rate offers a better understanding of how well the accounting firm is retaining clients. It implies the quality of the service and usefulness the CPA or accounting firm is providing. CHURN rate will help in identifying if the accounting firm is on a stable foot or not. If the CHURN rate is higher then you need to evaluate the loopholes and check the services being offered and whether they are valued for money.
9. Community engagement
It is an important accounting firm KPI and CPA firm metrics. In community engagement, the CPA or accounting firms can track the click-through rate of newsletters, the number of visitors to the website or blog, and the number of registrations and attendees on the webinars and other important events. These visitors and registrations are likely to convert into future clients, hence keeping a check on these is a key metric.
10. Employee productivity
Lastly tracking the productivity of employees is an essential KPI. As per research conducted by Voucher Cloud, the average office worker is only productive for two hours and 23 minutes each day. Track the productivity in each job role or the firm can also analyze the productivity team-wise. This way, the accounting firm gets a broader picture of where they are lacking and can make adjustments accordingly. Once you have set the KPIs, it is important to keep track of them. Make this a monthly or a quarterly task to tick these 10 KPIs every growing CPA or Accounting firm should track. Also, it is not necessary to stick to a said format of KPIs, one can make changes to them as per the need of the organization. The CPA or accounting firm should regularly analyze the KPIs for a better understanding and accountability of their growing business.