3 Killer KPIs for the Modern Advisory Firm

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In the fourth article of a series on how you can take the right steps to truly add value to your clients and transform your firm, author, CA and Founder of Spotlight Reporting Richard Francis offers advice on three meaningful key performance indicators to help properly measure the growth of your practice.

Every credible business -- accounting firms included -- needs to measure what matters and, moreover, without the measurement of meaningful Key Performance Indicators and a monitoring and reaction regime, your measure of success becomes just a stab in the dark.

There are many opinions on critical or killer KPIs for professional firms, but we are seeing "smart growth KPI's" becoming more prevalent. Some of these are borrowed from other industries such as software-as-a-service, but killer KPI's for the modern advisory firm include a more multi-faceted view than has traditionally been the case.

Thematically we group KPI’s in three categories:

  1. Engagement KPI’s – client satisfaction and community engagement
  2. Revenue KPI’s – tracking the fee level and balance of your clients and services
  3. Team KPI’s – resourcing, delivery and satisfaction

Before we dive into these further, let’s get our own core reporting set up properly.

Start with the Basics

Many accounting firms paradoxically do not do their own accounting very usefully. Many just use a pretty broad ‘bucket’ to capture Revenue earned; doing so makes it much more difficult to identify useful service line splits and trends that can aid decision-making.

I recommend you do the following:

  • Define Advisory Fees
  • Categorize these separately from core Compliance Fees
  • Where possible, track the categories of Advisory Fees (i.e. Forecasts, Spotlight Reports, Strategic, Mentoring etc.)
  • Capture Monthly Recurring Revenue for each category – i.e. what recurring, predictable services are baked in and delivered on a predictable cadence
  • Capture Non-Recurring Revenue for each category – from projects, irregular service work (raising finance, restructuring, business sale, etc.)
  • Set both Budget (expectation) numbers for each category
  • Set Targets (aspirations) too

Once you have your own numbers set up correctly and flowing into useful buckets, you can start to roll the killer KPI’s into the mix. Again, establish a baseline and set a time-frame that makes sense to you – after all, we’re looking for improvement and forward progress, right?

1. Engagement KPIs

At a recent presentation, I asked the audience of accountants if they surveyed their client base to gauge satisfaction levels. Only a handful of nervous hands went up and I could tell from the looks on faces that there was a degree of trepidation about going down this path. 

My view is that it is more dangerous not to engage on satisfaction; that accountants who do not proactively encourage feedback are missing out on useful analysis and suggestions for improvement, as well as revenue opportunities.

At my firm, we surveyed customer satisfaction annually, using the feedback to course-correct with clients, develop new offerings and to spark conversations that often led to additional work. The Net Promoter Score (NPS) apps of today make this process easy and immediate.

At Spotlight, we use NPS on a rolling basis, allowing us to see satisfaction trends, and to receive immediate, actionable feedback. NPS is a somewhat brutal “advocates minus detractors” model (only a ’10’ or ‘9’ counts as a truly positive ‘advocacy’ outcome - yes, it’s a tough school this NPS!), but it does remind us to keep our eye on the customer and their perceptions. 

With NPS, follow up is key. In fact, we see NPS primarily as a mechanism for improving dialogue and outcomes; every NPS respondent gets a call or an email and we absorb and utilize this feedback across our business. We even have an internal Slack channel open to all, exposing the NPS feedback of all customers.

You can use a specific NPS tool (we use Ask Nicely) and customer support tools (we use Zendesk) to incorporate point-of-interaction satisfaction metrics too. Community engagement is another facet of your practice that is important to monitor and react

2. Revenue KPI’s

Many accountants, counter-intuitively, associate higher fees with grumpy clients.  I have found the opposite to be true, but on the essential proviso that you deliver value consistently and communicate transparently. The revenue KPIs you can measure include Average Revenue Per Customer (ARPC) and your value-added service mix.

Average Revenue Per Customer

ARPC is a great indicator of:

  • relationship depth and nuance
  • your ability to offer, sell and deploy a range of services; and
  • the ability to grow your fees faster than the absolute growth in client numbers.

The great thing about ARPC is that once you understand your baseline you can use tools like the Service Opportunity Matrix (see later) to start planning for an increase.  Each year you should be thinking about the percentage increase in ARPC you aspire to, cross-referenced to the services or package you will offer to achieve this. We used a similar approach to get solid per annum ARPC growth over a number of years.

Value-Add Service Mix

This percentage measure of Value Add (or Advisory) Fees vs Compliance Fees was a mission-critical indicator for me as I strived to stay true to my business model and dream of being a trusted advisor.  It was also a sure-fire measure of:

  • Accepting the right clients, not just any old referrals
  • Proactiveness - i.e. us taking the time and effort to upsell; and
  • Satisfaction - clients, staff and owners all seemed to occupy a happier place when we had our eye on adding value, rather than the brief interludes where we lost focus and got stuck in the compliance treacle.

3. Team KPIs

There are two key team KPIs you can measure: human contact and revenue per employee. Here’s how they can play out in your firm.

Human Contact

Now this may seem like a strange one, but my belief is that if we expect our staff to have a cadence of face to face (or online) interactions with clients, employees will be happier, more engaged and want additional services from us. So whilst this is an activity KPI for staff members (i.e. 10 client meetings per month), it should positively ripple across the other KPI’s noted here.

Tim Munro of Change Accountants is passionate about his team having ‘face time’ and uses KPI’s to track this:  “We need to get back to face-time…and be human.  Technology is a great enabler, but the human connections are what really drive our business.”

Revenue Per Employee

This is a solid KPI in wide use, and for me has more resonance than utilisation.  I was less concerned with ensuring that every hour was billable at a set rate, but I did want a feel for:

  • how client-facing the team had been
  • whether the higher mix of value-add work had (as it should) create revenue leverage without blowing out head-count

Report and React

Once you have selected your KPI’s, regularly report and analyze them for insight and accountability.  Program in your KPI monitoring and reaction regime - and make it a non-negotiable business process. Every value-add firm should ensure it has its own robust KPI reporting in place before it deploys a similar approach to clients.

This extract is part of a serialization of Richard Francis CPA's new ebook Transform! - his playbook for helping accounting firm managers and owners to value and seize opportunity in this exciting time of industry change. Richard is founder and CEO of Spotlight Reporting, an award-winning performance reporting and cash-flow forecasting toolset designed to empower accountants to have great client conversations and deliver real impact.

Richard’s next article will discuss properly scaling your advisory services.

About Richard Francis

Richard Francis

Richard Francis, CA is Founder & CEO of Spotlight Reporting which offers advanced reporting, cashflow forecasting, dashboard and multi-entity analysis to accountants and organisations globally.

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