Choosing the Right MAP Survey and Using it Properly: What Exactly Is “MAP?”
Marc Rosenberg, CPA / Oct 9, 2024
Not all our “young
er” readers may be familiar with the term “MAP.” They may have heard the term but not really know what it means or its historical significance. “MAP” stands for “Management of an Accounting Practice.” Prior to the mid-late 1970s, the term wasn’t in accounting firms’ vocabulary. That’s because the era of professionally managing a CPA firm like a real business (instead of a group of client-focused, collegial owners) had yet to begin in earnest. From this sprang terms like “MAP Conference” and “MAP Groups.”
Once CPAs began formally managing their firms, being numbers people, they wanted to know how their firms compared to others. Hence, the birth of MAP surveys, also known as practice management surveys.
Overarching perspective
MAP Survey → Benchmarking → Perspective
The process of comparing the performance of one firm against the performance of other firms is called benchmarking. The purpose of benchmarking is to view your firm in the proper perspective. For example, a firm’s partner billing rate may be $400. That doesn’t tell you much. But when you find out that most firms’ rate in your market is $450–$500, that tells you a lot and will hopefully lead to an increase in rates.
Comparing your firm’s performance to others is a secondary reason for benchmarking. The primary reason is to use the results to initiate improvements at your firm. I can’t stress this enough.
Show me the money!
Many of you may recognize this great line from the movie Jerry Maguire. Firms benchmark for many reasons: curiosity, peer pressure from firms in your association, etc. But the main reasons are to make more money and, ultimately, be more successful, which as stated earlier, happens when you take steps to improve metrics. Raising rates. Increasing productivity. Reducing write-offs. Improving leverage by increasing the staff–partner ratio. Developing your practice to generate revenue.
Fundamentals of compiling a MAP Survey
Always consider the source of any data and information. Before I read anything related to the accounting industry, I make sure the author is credible and the publication is current. If you hear about a weird practice used by an MP you meet at a MAP conference, don’t accept it as valid unless other MPs echo similar thoughts. The same applies to MAP surveys.
There are many MAP surveys available to CPA firms. Before your firm begins drawing conclusions from the data, vet the survey for the following:
(1) All surveys compute averages for metrics measured. For example, firms in a survey may show average partner billable hours that range from 1,100 to 1,300, with an average of 1,150. In order to be useful and valid, the average of 1,150 must be reasonably representative of a large enough number of firms. Surveys of, say, 100 firms will be much more valid than those of only 20 firms. Make sure the survey you use has a sufficient number of firms participating. Or, as I learned in college, make sure your survey results are statistically significant.
(2) The survey’s results must be meaningful to your firm in terms of revenue size and geographic location. A $5M firm should not be interested in data for a group of firms in the $20M–$30M range. A firm in Grand Rapids, MI, should not be interested in data from cities such as New York, Chicago and Los Angeles. Comparing apples with oranges is not helpful.
(3) The most common surveys are those compiled by 30 or so CPA associations and roundtables. Most of these surveys report on 20-50 firms, with large variations in firm and market size. Despite the relatively small number of firms in the surveys, the results can still be meaningful if you consider these firms your peer group. However, be aware that one or two firms in a small survey can skew the averages so dramatically as to render them irrelevant. Here’s a true example of an association survey we are familiar with. There are 20 firms in the survey, and 18 firms have income per partner (IPP) ranging from $300K–$700K. The other two firms have IPP of $2M and $1.2M, respectively. The average IPP of all 20 firms is $610K. But if you take out the two outliers, the average is $500K. That’s a whopping 22% difference. Clearly, the only meaningful average is the metric for the 18 “normal” firms. The message: if surveys have a small number of participants, keep your eyes peeled for outliers that skew the averages.
The 2024 Rosenberg Survey is now available! Recently released, it’s well-known and well-respected within the national CPA profession, with a long-standing reputation for accuracy, thoroughness, and a high participation rate. Check it out and purchase your copy today!
Specific nuances
Throughout the remainder of this blog, the term “partner” refers to equity partners and excludes non-equity partners.
(1) The most important metrics. The top four metrics that correlate the highest to firm profitability are revenue per partner, ratio of staff to partner, revenue per person, and partner billing rate. Other metrics are important, but nowhere near these four. A great MP who taught me a lot years ago told me that “profitability is all about .” Firms looking to increase profitability should start with improving these four metrics.
(2) The fallacy of using partner profits as a percentage of revenue (let’s call it “profit percentage”) as the primary way to measure profitability. To illustrate, let’s do some math. Assume a $10M firm has 8 partners and total partner profits of $3.5M. This firm’s average income per partner (IPP) is $438K. Partner profits are 35% of revenue.
The problem with profit percentage is that it is greatly skewed by firms’ ratio of staff to partner. Firms with a low staff–partner ratio will usually have a higher profit percentage. Firms with a high staff–partner ratio will usually have a lower profit percentage. For a firm with a higher profit percentage to be more profitable than a firm with a lower profit percentage may seem counterintuitive. But because staff–partner ratio correlates so closely to profits, firms with a low profit percentage often outearn those with high profit percentages.
The industry standard for measuring a CPA firm’s profitability is IPP, not profit percentage. It’s not perfect, but it’s the best we have. Caveat: depending on the circumstances, both metrics can be valid measures of profitability, but IPP is usually more reliable.
(3) Changing industry trends create challenges for compiling a MAP survey. Two of them are:
- Impact of consulting. Over the past 20 years or so, the volume of consulting services provided by CPA firms has increased steadily; this is expected to continue. Consultants often have different models of operating different from compliance-oriented CPAs. For example, billing rates for consulting are often higher than those for compliance. Consulting usually isn’t as leverageable as compliance work. As a result, firms with higher than normal levels of consulting work will produce metrics that deviate from traditional CPA firm norms. The moral: be sure you are comparing apples to apples; don’t compare metrics from firms with a high level of consulting to firms that don’t provide much consulting.
- Non-equity partners. In the past 10-15 years, use of the title “non-equity partner” has amplified dramatically. Firms should be careful using surveys that measure metrics “by partner” where “partner” includes both equity and non-equity partners. Examples that are heavily impacted by this point include revenue per partner, revenue per person, average partner billing rate and average partner billable hours. Be alert to metric variances arising from these structural differences.
(4) Measuring full-time equivalents (FTEs). An FTE is a full-time person whose total work hours (including vacation, holiday and sick time) are 2,000 or more per year. The following rules must be adhered to in measuring FTEs:
- No person can ever be more than a 1.0 FTE. Even someone working 3,000 total work hours is a 1.0 FTE.
- A person working 1,000 hours a year is a 0.5 FTE.
- A person hired October 1 will be a .25 FTE on a calendar year basis.
- A person who was on board on January 1 and left September 30 is a .75 FTE.
Examples of metrics heavily impacted by FTE are staff–partner ratio and revenue per person. To be consistent from firm to firm, the measuring of FTEs must be consistent in MAP surveys.
CPA firms employ many part-time people as well as people who join and leave the firm during the course of the year. This makes it doubly important to measure FTEs properly.
Conclusion
There are many ways for firms to increase their overall success, growth and profitability. We have long advocated that sound, strong management is the best way to achieve these goals. MAP surveys aren’t the only way to improve success, but they are unquestionably valuable. It’s important for CPA firms to gain a perspective on how their firms stack up, thus identifying ways to go from good to great.
2 Comments
Get our expertise delivered to your inbox.
I have two questions when reviewing this survey, as a Canadian firm partner. First, would you scale everything in to Canadian dollars if you were benchmarking these results to a Canadian firm’s results? Secondly, is there something unique about American 1040s relative to the T1 Personal Income Tax filings that make them inherently more time consuming to prepare? I’ve seen large firm invoices (i.e. big 6 international firms) preparing them for well below what they say the average 1040 cost is in the US. Or maybe there is just more wealthy people in US paying more for personal tax services?
Noah, thank you so much for your comments and questions. First, an overall thought that gives perspective on my responses. I’ve spent a lot of time in Canada, on business as well as vacation. I love your country. I’m not an expert on life and business in Canada vs. the U.S., but Canada has always seemed to me to be so much more pleasant and saner compared to the U.S, which is plagued by the severe political divisions, foreign policy enigmas, ethnic and racial tensions and many other ills that characterize life in the U.S. Despite all this, life in the U.S. for my family and friends overall is pretty good. Probably because I and a lot of CPA firm partners live in a bubble. I just wish our country could overcome some of our troubles.
Now to respond to your questions.
Regarding converting U.S. to Canadian dollars- yes do the conversion when using Rosenberg Survey dollars. For decades before, say, 2000, the exchange rates between the two countries were within 10% or so. I remember a time when they were close to even. As a result, many businesspeople didn’t bothered to convert the currencies when comparing monetary data on a general basis. But as you know, for the last 20 years or so, the exchange rate has been nowhere near par. Today, one Canadian $ = .73 USD. So the conversion is necessary. It has always been an oddity to me that people from both countries often hesitate to make the conversion in some matters. Maybe because our countries are so similar: both use dollars and our countries are neighbors and have very similar cultures.
Regarding the U.S. tax code. One of the traits of the U.S. tax system is that it is ridiculously overcomplicated. This pleases tax preparers because it enables them to earn a nice living navigating through the complexity. One of the reasons for the complexity is a 100 years of politicalization of the tax code. Changes, amendments, new laws, are continuously made to appease one political party or another. I’m a CPA but I’m not a tax expert. But I know enough about the U.S. tax system to know it’s very complicated. I know nothing of other countries’ tax codes; maybe they are just as excessively complicated as the U.S. Maybe not. Knowing what I know about Canada, it wouldn’t surprise me one bit that Canadian personal income tax returns are, in general, simpler and less costly than in the U.S. You may be aware of the growing and significant income gap in the U.S. So maybe there are more “well-off” people in the U.S. than Canada. I wouldn’t be surprised. Our Rosenberg Survey shows that the average fee for personal income tax returns for firms with revenue of $2-5M of revenue is $1,125. For firms $5-10M, it’s $1,346. In Chicago, a much bigger city than yours, average local firms (average revenue of $16M) charge an average of $2,000. I wonder what your firm charges?
One final thing. The state of CPA firms in the U.S since Covid is that business is booming and there is not enough staff to get the work out. This has created a perfect storm. As a result, most U.S. CPA firms are culling out their small, stand-alone 1040s and not accepting any new ones. And raising prices.