Typically Accountants measure the wrong numbers like productivity / utilization & realization. If you only wanted to measure 1 number (outside of revenue, profit and cash) then it would categorically be Average Hourly Rate – for all hours worked.
After 23 years coaching and advising Accounting firms all over the world on how to achieve peak performance this is THE number to measure and grow – the MAGIC number! It’s the number that is a mix of your top line pricing, your administrative structure, your productivity / utilization, your write downs / realization and your efficiency.
Basically the higher the number the greater return on your biggest overhead – labor.
The vast majority of firms do not measure this number – to their peril. It’s a simple number to work out. Here’s the equation.
As an example. If your revenue is $2M, there are a total of 13 of you in the firm (everyone including you and administration team members) and each person WORKS 2,000 hours per year then your AHR is $77…
$2M / (13 x 2,000) = $77.
Typically when most firms measure this for the first time the number is low – frighteningly low. Many will find it hard to measure as they do not measure worked hours. You can certainly measure paid hours which will yield a higher number however don’t kid yourself the real base number is worked hours. The first benchmark should be well over $150 and then heading well above $200 and $300 over time.
You can take this to a micro level and measure it per client, service and even per invoice.
Once you’ve got your number (and you’ve picked yourself up off the floor or had a stiff drink) now it’s time to dramatically increase it.
There are 3 main variables to increase it:
- Top line price. The actual price your charge a client before you do the work. This must be fixed in advance the scope of works defined clearly.
- How efficient you are in doing the work. Time down and automation is the key here. You’ve got a fixed price now you’re incentivized to drive the time down.
- Courage. You must believe in your self, your IP, your contribution and your team. The more courage you have the more creative you’ll be in your value pricing and packaging.
When I coach Accounting firms I take them on an AHR journey. There are 6 levels (steps) to driving AHR through the roof. There are 3 below the water line and 3 above. Each one builds on the previous one. Be warned on step 6. Most firms ditch time sheets well before they are ready to. There are many examples where we have advised firms (who are on level 6) to go back to level 5 immediately. They soar as a result.
The objective is to get to level 4 immediately and then once comfortable with that (maybe for 6 months) rip off the wax and go to level 5.