How much money will you leave on the table this busy season? Industry survey numbers show that revenues and income per partner are up, yet average realization rates hover around 85% of standard fees.
Why do we continue to accept that this is business as usual? What’s at the heart of our profession-wide delusion that writing off 10% to 20% of standard billings is acceptable? “That’s just how the industry works,” one might respond, along with mention of the headwinds working against billing 100% of hours that go into each job. And it’s true; several trends in the accounting profession decrease the likelihood of collecting the full rate.
When it comes to compliance services, clients often base provider choice on little more than a comparison of fee quotes, and pressure to underbid the true cost of these commoditized services is real and significant.
Competition for top talent also contributes to the realization conundrum. Every firm is looking to hire the cream of a too-small crop of accounting professionals. Understaffing and an over-reliance on recent graduates make it difficult to schedule balanced engagement teams that can consistently perform at the highest level.
Even when the team is top-notch and brings plentiful accounting experience, 100% realization is still unlikely. A lack of project management skills is partly to blame. CPAs are rarely trained to manage complex, dynamic engagements. Without the skills and tools to maximize efficiency throughout the engagement, full realization and profitability remain out of reach.
Engaged partners can help transcend these barriers.
By bringing new energy to client care, they have the opportunity to elevate performance and efficiency, strengthen the bonds of brand loyalty, and alleviate the need to compete through unrealistically low fees.
First, prioritize human connection over tech-based touches. When clients can see that you value the relationship, so will they. Their perception of your value rises sharply, along with their willingness to cut checks quickly, rather than quibbling over fees. Clients who feel a personal connection with you make an extra effort to comply with document requests and prepare well for engagements. Partners should set the example of communicating with clients in person or by phone as often as possible. Expect and enforce this behavior from staff as well. While email and text are convenient — and appropriate in some circumstances — resist the trend of automatically relying on them in lieu of voice calls or face-to-face meetings.
Stop taking on marginal clients. How many “A” clients are on your current roster? If the answer isn’t “All of them,” then why not? Firms ensure subpar realization when they take on work for clients who aren’t looking for what the firm does best, or who traditionally balk at accurate bills, or who have a history of creating extra work by failing to adequately prepare for the engagement. Decide what is acceptable and what doesn’t offer the potential for true success. Instead of grappling for less-than-ideal work, spend the energy finding ways to super-serve your very best clients. They’ll notice the difference. And the work you reject? It likely wasn’t profitable anyway!
Hone staff skills and support them with the right tools. Efficient project management is a prime driver of profitability. Investing more resources in this critical aspect of service delivery pays huge dividends. That could mean using tools such as workflow automation or data analysis software to help identify points for improvement. In many cases the tools are already in place, but without targeted education, staff are unable to implement them for maximum benefit. Training on specific project management techniques can also significantly improve engagement efficiency, leading to a meaningful boost in realization. Growth and profitability depend on a disciplined approach to increasing realization rates. Taking on only clients that offer an optimal fit and arming engagement teams with the tools to maximize efficiency is a solid start. But beyond the tools and techniques of practice management lies a central truth of client service: the distinction between “business” and “personal” is a false dichotomy. To your clients, it’s not just a tax return; it’s their baby. Treat it accordingly and they will gladly pay your fees.
This article was published in Accounting Today on December 12, 2019.