Benchmarking for Gold

Sixteen years ago I discovered that public MAP surveys available in the CPA firm market weren’t very helpful in benchmarking CPA firms. So I created my own. It was one of the best decisions I ever made.

CPA firms sometimes operate in a cocoon
My favorite benchmarking story (true!) goes something like this: I ask “do you feel your firm’s billing rates are high, low or just right?” The response is often “high.” Then I show the partners the results of our MAP survey that demonstrates how LOW their rates are. The partners are stunned, but they are no dummies. They raise rates, expecting some clients to drop off but overall revenue to stay the same. But lo and behold, almost no clients leave and revenues skyrocket. This illustrates the power of benchmarking.

Benchmarking is a 3-step process
First, MEASURE your firm’s performance. Second, ANALYZE why your metrics are above or below industry norms. And third, IMPROVE your firm by exploiting areas in which you excel and taking corrective action in areas identified as sub-par.

Make sure you use the right benchmarks
This is where most MAP surveys miss the mark. The metrics reported by virtually all surveys are averages of large and small firms residing in large and small markets. This is great if you are an average firm, but few firms fit this mold. Make sure that the benchmarking survey you use presents results firm by firm as well as results sorted by revenue size and population size of market. The only survey we know that does all three is our own – The Rosenberg Survey.

The top four performance metrics
Every year in the Rosenberg Survey Test Laboratory, we correlate the ten leading performance metrics with profitability. The four metrics that always come out on top are: (1) Revenue per partner, (2) revenue per full time equivalent, (3) partner billing rate and (4) ratio of professional staff to partner. All four are derivatives of the most important statement I can make about profitability: It’s all about leverage and rates.

The hardest thing about benchmarking…
Taking action – plain and simple. It’s easy to compute performance metrics, benchmark them against other firms and identify areas of strengths and weaknesses. It’s much harder to take action and implement improvements. It takes leadership, accountability, strategic planning, goal setting and performance-based compensation. With these in place, you’ll be a lot more successful in implementing improvement initiatives.

How does your firm measure up?  Consult The Rosenberg Survey and see how your metrics compare.