Tracking margins, KPIs, sales data. These are most commonly associated with retail or e-commerce based business. Professionals such as accountants miss out on a host of information they have at their disposal. In this sector you’re unlikely to have a warehouse full of inventory or logistical tracking. So what metrics should you be measuring… and why?
1. Project profitability
A project in the professional space can take many forms. It could be a particular contract for a set period or an outcome-based agreement. Either way you need to track and review your profitability on a project basis. It can be easy to overlook losses on individual projects if you are making a profit in your business overall.
By getting specific about individual projects you can learn what went wrong. Then you can revise processes and procedures for future work. You may even be able to improve your margin on already profitable projects.
2. Staff costs as a percentage of revenue
We all know the mantra of more billable hours. In many professional firms, this is one of the only metrics that is tracked extensively. But one of the most useful metrics is the ratio of total staff costs to revenue (or net revenue if you have significant third-party costs that are passed through). A typical professional services firm would likely find that overheads – office rent, marketing and general running costs – might amount to 18-20% of revenue. So, for a professional services firm looking to make a 20% profit margin, staff costs should be a maximum of 60% of (net) revenue.
3. Repeat business rate
We have all heard the saying that it is five times more expensive to attract a new client then it is to keep an existing one. Clients like to work with professionals they trust. Combining this will excellent customer service usually means great repeat business rates. Unfortunately, without tracking these rates it can be difficult to know how successful your business really is when it comes to retention.
Put in place a system to monitor repeat business and if it is not as good as it could be you can take action and implement changes. A small percentage increase in repeat business could add a lot of revenue to your bottom line.
You’ll want to measure repeat business both in terms of percentage that repeats by value year-to-year and also the percentage of recurring income each month.
4. Stay on top of billing
Every business needs to be paid. All too often this can be much more complicated than it sounds. Especially in services businesses where typically some proportion of the bill is in arrears so it can be difficult to have any leverage when it comes to getting paid.
If the issue is large enough it can be damaging to your business and create issues with cashflow. This can put you under pressure with your bank and create headaches for all concerned.
Automating billing, call follow-ups and reminders using debtor management software can improve your payment rates and reduce your need for an overdraft or other financing. Stay on top of this metric to keep your business moving forward.
5. Cashflow – number of weeks of trading
And we already looked at getting paid above. Of course, that is one of the major contributors to the health of your cash flow. With overheads and payroll commitments, it’s essential to always be managing working capital. Late or erratic client payments, uneven pipelines of work and even VAT payments all create peaks and troughs in your cash flow that must be navigated.
One metric to track here is the number of weeks’ trading the business has. This takes into account the current bank balance and upcoming commitments to see how long the business could continue to trade for if no future sales came in. A 12-week buffer or more of cash is prudent.
By using cashflow software you can manage this and plan accordingly.
So these are some of our favourite metrics to track for professional services firms like accountants – what are yours?
Written by Caroline Plumb OBE, Fluidly. Exhibiting on stand 1170 at Accountex 2018.