What do trail hiking and accounting have in common? At the end of the day, they both come back to the numbers.
Think about it: if you’re hiking the Appalachian trail, following a map, and aiming to reach your destination before a certain date (say, before winter hits), you’ll need to travel a set number of miles each day. Ignoring the numbers could prove downright dangerous.
In the same way, every accounting firm needs to understand its definition of success (and failure) by the numbers. This is where metrics tracking comes in. Whichever methodology you use to establish and review objectives, your leadership team needs to be aligned on the firm’s top priorities in the short and long term.
From there, measuring and tracking the right numbers lets you assess growth based on what you see as most important. And keeping these numbers front and center gives the rest of the team the vision and motivation they need to keep going through every season of the firm.
I’ve seen the power of metrics firsthand through my own leadership of multiple cloud-based accounting firms, and currently in my work with Good Measure Financial. From the big-picture to the tactical, here’s how metrics help your firm stay on the right path.
The metrics of your firm tell a story. Without them, you’re flying blind.
As accountants, we provide the clarity and direction needed to help business owners understand how they’ve performed over the course of a year and where they want to go next. We work with them to craft their big-picture vision for the company. But at the end of the day, the numbers are how we track our clients’ progress toward what they want to achieve.
Within our own firms, it’s the same way: We have to understand how we’re doing in the larger context so we know which levers to pull. This means asking ourselves: What should we do more of? What should we do differently? Metrics give us a clear organizational picture to chart our course one, four, and 52 weeks into the future.
But you shouldn’t review numbers blindly or merely for the sake of reviewing them, either. You need to regularly review metrics based on your firm’s top priorities.
Consider your growth stage and your goals for what to achieve next. Then, assess performance by focusing on the numbers that are most relevant to your firm’s vision. When you’re not measuring up in key areas, respond accordingly by adding the right team members, tools, or procedures.
Effective processes for regularly reviewing your metrics keep you tuned into the business based on where you are now and where you hope to go in the future.
Recommended reading: 5 revenue KPIs every firm must track
How do metrics look in practice? To determine target numbers at my firm, we begin with the end in mind. We start with the big-picture business vision we established for the year, particularly our revenue and profit goals.
From there, we reverse-engineer the metrics we will need to achieve throughout the year. We use the Entrepreneurial Operating System (EOS) as our framework to determine our targets—through our scorecard and quarterly goals (what EOS calls ‘rocks’)—and know exactly who is responsible for what.
With targets like achieving 30-40% labor costs, we know to review the labor we have and the costs of hires we’ve made. In addition, our revenue goals help guide our efficiency metrics since we use a fixed-rate model with clients—so increasing our revenue per billable hour depends on the time each task takes.
At every turn, our firm’s goals lead us to determine and review the metrics that matter.
Sales is a major growth point for my firm, so our tracking focuses on numbers that move us toward meeting sales goals. This includes measuring indicators like:
Leads from referrals and non-referrals
Sales pipeline value
Along with these leading indicators focused on tracking future sales, we review revenue metrics like:
Monthly recurring revenue
We also track service metrics that help us see how we’re performing for our clients. We use Karbon to track:
Revenue from existing clients
Attrition of lost clients
Number of overdue projects
Our current focus is on getting new clients and keeping those clients happy—gauging client satisfaction through these metrics lets us assess the latter of the two.
Finally, we track team metrics like hours worked and billable percentages to assess if any efficiencies are missing or process changes need to be made. We also review client-specific metrics to globally track how we’re doing against revenue vs. time spent per client. This lets us understand where we’re undercharging some clients (and, as a result, overcharging others) for a holistic view of the firm.
Each firm likely has its own matrix of metrics that involves some combination of sales, service, and team metrics. What you measure and the patterns you see can lead you to more strategic decisions around every aspect of your firm—from hiring to networking.
Download Karbon’s Metrics That Matter resource for a deep dive into finding the right measurements for your accounting firm.
A healthy approach to your firm’s metrics is about more than what you’re measuring—it’s also about revisiting those measurements at the right cadence to guide the business effectively.
In line with EOS, my business partner and I meet to review a weekly scorecard of our most important numbers to regularly ensure we’re on track.
On a monthly basis, we also review our revenue-focused metrics, such as total and new revenue, hours worked, and revenue per hour. This lets us keep tabs on ongoing revenue goals.
Finally, we keep our employees engaged in metrics through quarterly objectives and key results (OKRs) based on our company goals.
This ensures the team is aligned around a shared vision and that they stay engaged and motivated. For goals like reaching $100 per billable hour, each person has a part to play and targets that they should reach.
By reviewing metrics on a weekly, monthly, and quarterly basis, we can spot leading indicators signaling the need to make changes.
Numbers don’t lie—and sometimes they tell us things we don’t want to hear about our firms.
They show us not only the areas of poor performance but the places where we can’t effectively move forward without making adjustments or hiring up. However, only through knowing your company’s numbers can you assess your next steps for a stronger business.
Here’s a common scenario:
For smaller firms bringing in high revenue with strong profit margins, owners are likely entrenched in the firm’s operations (particularly during tax season). But this strained, overworked structure makes both growing and selling the business incredibly difficult.
In order to grow beyond this point, owners need to lay aside some of the profit they’re bringing in to hire the right people that will strengthen and grow the business even further.It may seem painful in the short term to sacrifice six figures of profit to hire a skilled operations person. But the long-term alternative is staying burnt out, keeping the business from growing, and remaining unsellable.
The beauty of metrics is the predictability they offer.When you make strategic changes like hiring or switching your pricing model, you may have to sacrifice in the short-term, like losing profits or even clients. But relying on data to inform decision-making allows accounting leaders to make big changes with confidence. Yes, you will experience short term losses, but the numbers indicate long term gains.
By consistently revisiting your metrics and measuring against objectives, firm leaders can assess the success of investing in the business and the growth of the firm over time. Additionally, coming back to your metrics reminds every team member of your vision for what’s next and supports increased motivation and alignment across the organization.
Examining your strengths and weaknesses by the numbers lets you know when it’s time to prioritize ultimate growth over immediate profit. Only then can you take your firm to the next level.
Whether your goal is growth or the sale of the company, metrics let you know whether or not you’re on the right path and serve as a guide for ascending to new heights.
Director of Services, Karbon
Joe has led cloud accounting firms since 2011, focusing on strategy, leadership, technology, efficiency, and talent integration. He is passionate about process improvement and loves talking with leading accounting firms and other top app vendors from across the globe.