Not all accounting firms are created equal. That’s why there’s no such thing as one single service, strategy or idea that you can implement today that will ensure the success of your firm into the future.
Instead, there are many activities that, when done well, each work at improving and tracking a particular function of your accounting firm.
But which activities are worth investing in? Research suggests that leading accounting firms are focusing on 10 that are helping them grow and stand out from competitors.
The 2022 Practice Excellence Report provides a unique glimpse into the business abilities of 1,000+ accounting firms from across the world. It assesses their self-reported proficiency across four key pillars, and maps this data against firm tenure, size and revenue.
And at the end of that analysis, the report helps to visualize a clearer picture of the state of accounting firms right now. You also end up with a spectrum of data: leading firms that have high Practice Excellence scores, all the way to the laggard firms that have an opportunity to enhance their business abilities.
So, what are the 10 key activities and metrics that the highest performing accounting firms are investing in right now?
Objectives and Key Results (OKRs)
Monthly Recurring Revenue (MRR)
Target market selection (niche)
Client Lifetime Value (LTV)
360° performance evaluations
Net Promotor Score (NPS)
Target ideal client profiles (personas)
Emotional IQ testing
Standardized staff onboarding
Email Response Time (ERT)
OKR is a goal-setting framework that helps firm owners gain greater insight and control into their objectives by breaking down larger, longer-term goals into smaller, shorter-term goals and measurables.
OKRs have two main areas of focus:
Objectives are goals. Think of them like an archery target.
2. Key results
Key results represent specific metrics and activities that directly align with objectives. Think of them like a bow and arrows.
Quarterly objective (target)
Double revenue MoM, 3 months in a row
Key results (bow and arrows)
Increase client headcount by 25 new clients
Increase the value of current clients by 18%
Increase employee engagement
With the OKR framework, objectives and key results are layered and broken down into departments. This enables each team member to own specific objectives and/ or key results that are directly aligned with the firm’s overall goals.
Boost cross-functional collaboration
Often, an objective’s key results will be owned by different departments with an accounting firm. For example, growing your firm’s YoY profits will need input from your sales team and customer managers at a minimum. Already, we’re seeing a cross-functional approach to achieving this objective.
Gain team-wide alignment
When you have a team of people each actively involved in actioning key results that are aligned with your firm’s objectives, everyone’s performance is directly tied to the company’s performance, and vice versa. There’s no confusion, forgetfulness or apathy.
If you’re not specific with your key results, you simply won’t reach the full potential of your objectives.
Learn more about OKRs for accounting firms, including more real-life examples.
MRR is a revenue metric that tracks the sustainability of your firm by taking into account your recurring revenue at the end of your previous month, added to any additional committed revenue this month, less any cancellations from existing clients.
The formula for calculating MRR is:
Let’s say you have 20 clients that each pay $1,000 every month. Right now, your MRR is $20,000 (20 x $1,000 = $20,000).
But next month, your situation changes slightly: you acquire 10 more clients, but decide to fire 2 existing clients, bringing your client count to 28. Now, your MRR is $28,000 (28 x $1,000 = $28,000).
MRR is the lifeblood of an accounting firm. It’s how firm owners can predict ongoing revenue, which should be the major contributor to the top line. It’s also an indication of capacity and expense because when you acquire a client, you no longer need to allocate ongoing sales and marketing resources their way.
Learn more about the revenue KPIs every firm must track.
Honing in on one niche paves the way for specialized value-adding services, simplifies the market, and separates the experts from their competitors.
By becoming highly specialized in a particular area, you become the ‘go-to’ firm for everyone in that niche, and:
Increase online searchability
A firm’s specialization helps define what they do and who they do it for, making it easier to be found online.
Stand out from the crowd
Competition is vast in accounting. To tackle this, niches help you to narrow the field and minimize competition.
Become the trusted advisor for a particular industry
Specialist accounting knowledge attracts new clients more than general accounting services, so people are more likely to choose an accountant that has expertise related to their industry.
You’ll improve your own skills and knowledge
By focusing on a market niche, you’ll learn more about the intricacies of the industry and businesses you cater to. As a result, your firm will only grow stronger and your clients’ trust deeper.
Focus your marketing efforts
Knowing exactly the type of customer you’re targeting will transform your marketing strategy into a silver bullet approach, where you choose exactly which high-value clients you want to win, and then focus your efforts on doing just that.
Recommended reading: How to identify your firm's perfect niche
LTV shows the total financial benefit you can expect from a client over the course of your firm’s entire relationship with them.
The formula for calculating the LTV is:
To calculate your LTV, you need to know your:
Gross margin percentage
Average revenue per client (ARPC)
Let’s say your gross margin is 50%, your churn rate is 4% and ARPC is $2,000. Using the formula above, your LTV is $25,000=50%(14% (churn rate))2,000.
LTV helps firms estimate what a client is worth over the course of their relationship. Firms can then use this information to segment their client base to better understand their most profitable groups vs. their least profitable groups. Ultimately, with this information, firms can then make better business decisions.
Recommended reading: 4 metrics to calculate your firm's return on investment
360° performance evaluations go beyond the traditional manager and employee performance appraisal. Instead, they are designed to gather broader feedback from two or more anonymous colleagues.
This appraisal approach provides employees with more well-rounded feedback that includes a wider range of factors, including:
How they perform cross-functionally with other departments
How they work with diverse groups of people across the firm
Other people’s perspectives of how they conduct themselves
Any opportunities to develop soft skills
Recommended reading: What is a 360-degree review?
NPS is a tool used to measure client satisfaction by asking one simple question: “How likely are you to recommend our business to a friend or colleague?”
NPS isn’t just a tool that measures how happy your clients are—it’s also a predictor of growth.
NPS surveys take understanding client satisfaction one step further by asking what action clients would take based on their experience with your firm—that is, how likely are they to refer your business to a friend or colleague. Using your firm’s NPS score, you can better understand your firm’s potential for growth.
Recommended reading: Measuring your firm's client satisfaction using NPS
Understanding your ideal client is critical in directing your sales and marketing efforts. Without this direction, your outreach will be wide and vague, instead of narrow and specific. These are often called ‘buyer personas’, and exist as fictional representations of your ideal clients.
Let’s say your niche is small ecommerce startups.
The key to creating a strong ideal client profile is specificity. Be as specific as possible. But be warned, people can often become too focused on being specific about less-relevant information, like how many kids their persona has.
Yes, it’s important to understand them as a person broadly, but instead of focusing on their home life, your attention should be directed to being as specific as you can be about their pain points, goals and motivations about running their small business.
By taking the general personality traits, habits, goals, desires and fears of your ideal clients, and using them to build fake people, you’re more able to connect with each of these clients that these personas represent. And when you know exactly who you’re talking to, you’re better-equipped to:
Appeal directly to them
Allocate your marketing and sales resources correctly
An emotional IQ test is an assessment of a person’s emotional intelligence. It helps recruiters and hiring managers better understand candidates’:
With this information, employers will have a fuller picture of a potential new hire and if they’re a cultural fit or not.
Sometimes, someone’s emotional intelligence is difficult to gauge in two hour-long job interviews. Leading accounting firms are breaking a well-known hiring cycle: hiring unfit employees, diverting time and energy into correcting their performance and addressing their satisfaction, only for them to not pass probation.
Standardized staff onboarding is a single onboarding process for your new hires, designed to ensure every single employee begins their journey at your firm with the same information and experience.
Standardized and documented staff onboarding processes means firms are finding and using the most efficient, streamlined, and simple way to turn new hires into value-adding team members.
The benefits are three-fold:
Start on the right foot with new hires by making a good impression
Get new hires providing value to clients quicker
Get back to running your business without needing to ‘hand-hold’ each time you hire someone new
The time it takes you and your employees to respond to client and prospect emails sets a few standards:
ERT expectations with clients
To your existing clients, your firm’s ERT represents how much you care about them (i.e. the quicker you respond, the more you value them)
To you, your firm’s ERT represents how efficient you are at handling client requests
ERT expectations with prospects
To prospects, your firm’s ERT sets expectations about how responsive your team will be if they decide to sign an engagement letter with you.
To you, your firm’s ERT with prospects is a representation of how well-oiled your sales team and processes are
Understanding how long it takes to answer emails directly relates to your firm’s ability to close more sales, improve client satisfaction, recognize bottlenecks, and have confidence that nothing is falling through the cracks.
Learn more about email response times and why they matter.
How many of these activities is your accounting firm investing in today? It might be most, it might be none. Either way, there exists an opportunity to either start investing in at least one area, or invest in optimizing one area.
To better understand your firm’s strengths and weaknesses compared to others around the globe, take the free Practice Excellence Assessment.