Benchmarking Boosts Your Profits – How Do You Measure Up?

The integrity of CPAs is consistently rated among the highest of all professionals. Primary reasons for this are dedication to client service, delivery of high-quality work and a high degree of technical excellence acquired from working with hundreds, if not thousands, of clients. Partners at many CPA firms pursue this dedication to the point of neglecting the management and profitability of their own practice. As the saying goes: “The shoemaker’s children go barefoot.” Benchmarking helps firms improve profitability as they continue to serve their clients.

By comparing various statistics, ratios and metrics of your firm to other firms, preferably firms similar to yours in terms of size and geographic location, you can measure your firm’s performance. By identifying areas where performance is strong, firms are able to focus even more on those strengths and exploit their total potential. Too often, firms tend to focus on their metrics that are below industry norms, ignoring opportunities to build on their strengths.

Benchmarking is a Three-Step Process:

1. Measuring your firm’s performance by computing various performance statistics.
2. Analyzing performance by comparing those statistics to other firms and industry norms.
3. Changing your firm’s performance by exploiting strengths and curbing weaknesses.

Without benchmarking, firms inevitably lead a provincial existence, blissfully unaware of reality.

Compare to the Right Benchmarks

1. The two key ways to ensure using the correct benchmarks:
   Compare your firm to comparably sized firms. If you are a $7M firm, you should be comparing yourself to $5-$10M firms, not $25M firms. The two firms’ sizes are managed quite differently from one another.
2. Compare your firm to firms of comparable market size, as defined by the metropolitan population. If your firm is in Decatur, Illinois, you should be comparing yourself to firms in similar-sized cities, not firms in Chicago, Dallas or Phoenix.

The above is an excerpt from our book, What Really Makes CPA Firms Profitable? Second Edition. If you pre-order your book by September 12, you can join our webinar on the topic and get your profitability questions answered!  Find out more here. (scroll to bottom).