Practice Paradox

3 Ways to Grow Your Accounting Firm – But Where’s the Leverage?

// August 6th, 2009 // Clientshare

The ‘3 Ways to Grow Your Business’ formula explains that to grow revenue, you can either find more clients, sell to them more often, and/or increase the average transaction value. It’s a simple formula but it’s very useful when analysing where the leverage points are for growing your business.

For example, if your accounting business has 300 clients, and on average a client ‘purchases’ from you once a year, with an average fee of $3,000, the formula reads 300 x 1.0 x $3,000 = $900,000 revenue.

You’ll know that the magic of compounding means that a 10% increase in each of the 3 areas produces not a 10% increase but a 33% increase in revenue: 330 x 1.1 x $3,300 = $1.2 million.

A nice improvement; and a 10% increase in each is usually very achievable.

For many accounting firm practitioners (and small business owners in general), when they think ‘marketing’ they think ‘find more clients’. Whilst a steady stream of new clients is obviously a healthy thing, acquiring new clients is the most difficult, most costly and least leveraged of the 3 options. When you consider that many accounting firms find it difficult to create additional capacity, the last thing many firms need is yet more client relationships to manage.

Increasing prices by 10%, appears on the surface to be the easiest change to implement. However, competitive forces may limit your scope to increase fees. Do carefully consider this option, however. (You might be more price sensitive than your clients.)

It’s quite difficult to increase client numbers by 50% in a year (excluding acquiring fees/firms).

It’s unlikely you can increase your prices by 50%.

The greatest leverage typically lies in increasing the number of times clients ‘buy from you’ in a year: Increasing the ‘1.0′ in the middle of the equation. This also offers the greatest opportunity for helping your clients to a more meaningful level, strengthening client relationships in the process.

It’s easy to calculate your average fee per client, and it’s important to know and track that figure. (The 2008 benchmarking survey of Australian accounting firms, The Good, the Bad & the Ugly of the Accounting Profession by businessfitness™, found the median fee per client across the 356 firms to be $3,500 with upper quartile $4,250.)

But that’s a fairly gross measure of limited value for directing management and effecting change.

Drilling deeper, you need to know this: The Average Number of Services Provided Per Client Per Year.

That’s a mouthful, which is why we coined the term Clientshare© for this Key Performance Indicator.

Growing your Clientshare enables you to grow your firm without growing client numbers. Having fewer, more meaningful client relationships makes for a simpler and richer professional life—and a more profitable and manageable business.

It’s likely you don’t know your firm’s current Clientshare. Don’t be too hard on yourself. You’re not alone.

Measuring your firm’s Clientshare entails a series of steps.

We’ll be covering these in future posts …