I recently came across a dingy, coffee-stained copy of the 1990 AICPA MAP Survey while cleaning out some old files.
It was quite telling to compare key metrics from that time to The 2016 Rosenberg Survey (reporting on 2015 data). You’ll find that the comparisons not only amusing but they give us insight on how the CPA firm operating model has changed in 25 years.
Average Revenues: 1990-$4.0M; 2015-$10.0M; 150% increase
That’s a 4% compounded annual increase, kind of OK but not flashy. Factoring in rate increases (3.5% – see next section), it would seem that organic growth has been quite small. However, substantial technology improvements in the past 25 years have enabled firms to perform their work much more efficiently and in less time. The market probably has not allowed firms to fully maintain their fees as technology reduced the time needed to perform the work.
Equity Partner Billing Rate: 1990-$136; 2015-$309; 128% increase
Increases in partner billing rates are a reliable indicator of firms’ overall billing rate increases. This 25 year increase translates to a very modest annual rate of 3.5%. Given the high demand/low supply nature of the CPA firm market, the tremendous value provided to clients and the limited capacity caused by endemic limitations of labor, I’ve never understood why CPA firms don’t bill more aggressively.
Staff to Partner Ratio: 1990-5.0; 2015-5.4; 9% increase
Half of this 9% increase occurred in just the past 5 years as firms have significantly changed their operating model to one where there are fewer equity partners, more non-equity partners, and partners finally realize it’s more important what they do with their non-billable than billable hours. Partners today are spending more time on practice development, firm management and leadership and helping staff learn and grow than ever before.
What Really Makes CPA Firms Profitable addresses ►profitability, ►benchmarking, ►marketing and the bottom line, ►strong management and leadership: the most reliable path to profitability, ►25 best practices that move firms from good to great, ►what does not seem to be important to firm profitability, ►partner relations: happy partners are productive partners and ►40 great ways to improve CPA firm profitability.
Annual Billable Hours of ProStaff: 1990-1,627; 2015- 1,496; 8% decrease
Probably one of the most perplexing metrics we’ve seen. The main reason for the 25 year decrease is firms’ response to the work-life balance conundrum. With labor being in short supply – seemingly forever – and staff crying out for work-life balance (code word for working less), firms have become frightened into reducing their expectations for staff hours out of fear that staff might leave. Interestingly, The 2016 Rosenberg Survey shows that 85 of 326 firms participating -26% – get 1,600 or more billable hours from their staff. So these 85 firms have proved that it’s quite doable to get respectable billable hours from staff without asking them to work more total hours. It’s called good management. Staff want to be kept busy in the time they do work.
Often, I ask audiences this: “Why do you think staff billable hours have declined from 1,627 to 1,500 or less? A common response is: “With tremendous improvements in technology, staff are able to do their work in less time.” To which I respond: “If staff are completing their projects in less time, shouldn’t they be able to use the time saved to work on more projects, thus maintaining the 1,600 billable hours?” Of course, this comeback is greeted by silence. Firms have not been vigilant in maintaining staff chargeability as efficiency increases.