As a business owner, you will be interested to know how much you are earning and how you are spending your money. However, merely understanding the inflow and outflow of cash is no longer enough. The rapid technological advancements in accounting and practice management have transformed the way accountants conduct their business. Tedious manual tasks such as invoicing and billing are now things of the past. Instead, modern accountants focus on offering many value-added services and are acting as Financial Advisers and consultants.

Along with the changes in the business landscape, the billing models have also changed. Subscription models and value-based billing have replaced traditional timesheets and hourly billing models. With all these rapid changes in accounting, simply monitoring inflows and outflows no longer gives a holistic view of your business. You need tools and metrics that churn your data and give you meaningful insights for growth and future expansion.

This blog focuses on modern accounting firm metrics that allow you to build a versatile business model called Accounting-as-a-Service.

KPIs for modern accountants

Modern accountancy practices monitor disparate data points such as social media interactions, interview recordings, call center logs, media files, documents, error logs, customer profiles, emails, and messages to gain a holistic view of their business. Modern measurement techniques consider these disparate data points and offer valuable insights into future possibilities.

Measurement metrics are of four major categories: Revenue metrics, performance metrics, efficiency metrics and investment metrics.

Revenue metrics

As the name indicates, revenue metrics evaluate incoming revenues, revenue sources, and time of realization of your practice.

Monthly Recurring Revenue (MRR)

MRR is one of the most crucial metrics for your practice. It predicts ongoing revenues and offers predictable forecasts for future revenues and cash flows. For all one-time services or value additions, you can annualize all the extra costs and add to your MRR.

Note: For annualized predictions, multiply the MRR with 12.

Expansion MRR (EMRR)

The Estimation MRR (EMRR) estimates all the additional revenues from existing customers. EMRR is highly beneficial for important decisions such as letting low paying clients go and increase the pricing for other clients without impacting the MRR.

Churred MRR (CMRR)

Use this KPI to monitor the health of your business. The CMRR, when expressed as a percentage of MRR, highlights any reduction in MRR. A reduction in the MRR, could mean revenue loss, clients who have decided to leave the practice, clients who avail fewer services or even because of clients whom you have let go.

Attrition Rate

Just like the CMRR, the attrition rate is also used to evaluate the overall health of your business. It indicates the number of clients lost. A higher attrition rate is a serious concern which calls for your immediate attention.

Average Revenue per Client (APRC)

The Average Revenue per Client shows the contribution of each client to your business. The APRC indicates the growth of your business and allows you to customize your offerings to cater to the diverse needs of your clients.

Performance metrics

Hourly Production Rate (HPR)

Once a productivity measure exclusive for the manufacturing industry, the Hourly Production Rate indicates the hourly performance of your workforce. This performance indicator is useful for determining pay scales and performance-linked benefits of your workforce.

Monthly Revenue

Monthly Revenue shows the monthly contribution of each of your employees towards the firm’s MRR. This KPI is useful for developing commission-based or performance-based compensation models.

Efficiency metrics

Efficiency metrics play a vital role in strategic planning and process re-engineering. These metrics help you to visualize your firm’s scalability and predict growth opportunities.

Accounting as a Service Quick Ratio (AaaS)

Evaluate your firm’s long-term viability with AaaS Quick Ratio. This KPI combines your sales and marketing efforts and your client retention efforts to predict future growth opportunities.

AaaS Magic Number

AaaS magic number is an efficiency benchmark for determining the overall health of your practice in terms of growth in MRR. This KPI shows the performance of your marketing on your existing MRR. AaaS magic number is useful for determining budgetary allocations for sales and marketing teams.

Jobs completed per team member

Track the performance of each team member with the Jobs completed per team member's value. This KPI measures each team member’s productivity and their contribution to the firm’s MRR. While evaluating this KPI, make sure to include the complexity of the job.

Average time to complete a job

The average time taken to complete a job gives you insights into the productivity of a team or an individual. It helps you to track tasks, allocate workloads, and estimate budgetary allocations.

Investment metrics

Effective growth of your practice happens only when you intelligently invest time, effort and money. The investment metrics indicate the performance of your investments.

Cost of acquiring a client (CAC)

Cost of acquiring a client shows the average amount of money spent on acquiring new clients. This key investment measure is widely used in Social media marketing for calculating the return on investment from each channel of marketing.

Payback Period

The payback period is the time required to break-even on the CAC from your revenue. If the payback period is longer than expected, then try reducing costs or targeting prospective clients with larger funds.

Lifetime value of a Client (LTV)

LTV gives the financial benefits derived from a client during their entire tenure with your practice. This investment measure is useful for segmenting your clients and for analyzing the lifetime benefits from each segment.

We hope this compilation helps you for gaining more visibility and for identifying the right growth opportunities for your practice.

Key Performance Indicators for Modern Accounting Firms