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Choosing KPIs for your accountancy practice
One of the most critical actions we take as business owners is choosing the right KPIs for the stage of our business. For best results consider picking the
One of the most critical actions we take as business owners is choosing the right KPIs for the stage of our business.
For best results consider picking the smallest number of KPIs you can get away with and that can be monitored with the least effort. The ones that will immediately tell you if something's off.
I came across someone asking which KPIs they should monitor regularly at their small accountancy practice. A few other well-meaning accountants chimed in with a fair number of suggestions like utilisation rate, average hours per job, client retention rate, customer satisfaction, etc.
Monitoring things can be fun, and it's easy to fall prey into the trap of more: monitoring the minutiae, signing up for just one more tool, feeding one more data point into those systems.
It's time to take a step back and recognise these things for what they really are in a small firm context: MORE WORK FOR YOU! Big firms may have enough staff to go around "managing things". If you're a team of 5 or 10 accountants... There's a lot less room for KPI-managers.
Our common struggle is not having enough time and attention in the day to devote to executing the business. And you need proper rest to work better, which means shutting off for the day at decent hours. But the more refined the KPI, the higher the probability of it needing some specific system to support monitoring it. Whether it's time-sheets - which of course you'll want to integrate with other systems creating even MORE work - or some basic survey tool that needs to be set up and maintained. You should be taking time off but it's now 10pm and you find yourself learning Yet One More Tool.
At a previous role we settled on just monitoring a couple of KPIs and that decision served us well into the 7-digit annual revenue territory. One of them - the most important one actually - was the Gross Margin, probably the #1 KPI for anyone doing professional services.
We kept an eye on it on a regular basis. Not per job, nor per contract, but on a monthly basis. It's dead easy to get it reported, comes as a standard in every accounting software.
And gross margin is great because if it's outside your target, only then it'll be time to put on the detective hat and figure out what's going on.
Suppose you wanted to hit a 40% gross margin per month, but the past quarterly trend was 30%. What's going on? It could be that new business is slowing down and sales needs ramping up. Or that projects are taking more than expected and quoted for; perhaps more staff training? Or maybe your pricing should increase a bit.
Note however that nearly ZERO advance work went into this exercise. That's how you should aim to keep it: simple!
If instead of picking a great KPI like gross margin, we had picked stuff like utilisation rate, average hours per job, etc. we'd only be creating more work for ourselves and making everyone miserable in the process. Do you know anyone who takes pleasure in having to fill timesheets?
So we kept an eye on Gross Margin. Only when needed, did we do some investigation to figure out the root cause for missing a Gross Margin target. Then we fixed that problem and went back to monitoring the Gross Margin. Rinse, repeat.
It worked out great.