Profitability is an indicator of how much revenue your firm earns from a particular service provided to clients. It may be relatively simple to define, but profitability is a complex concept that varies depending on a lot of factors, including your industry and the specific nature of the service.
One of the best ways to maintain sufficient profitability in your accounting firm is by optimizing the internal processes required to deliver accounting services to clients. Optimization is a lot easier said than done, however, and many firms struggle with various elements of the process.
Here are a few key points to remember if you want to successfully optimize your firm’s client services to increase margins on billable work:
1. Evaluate your current accounting firm services
There’s a famous story about Steve Jobs returning to Apple in 1997. He had been away from the company he co-founded in the late ‘70s for 12 years, and things were dire: Apple was only a few months away from bankruptcy. After growing frustrated with meandering product meetings without a clear focus, legend holds that Jobs stood up in the middle of one meeting, approached the whiteboard, and sketched out a two-by-two box. He labeled the two columns “consumer,” and “pro,” and the two rows “desktop” and “portable,” then instructed the team to focus on creating just four great products – one for each quadrant.
Jobs knew that Apple – like all B2B accounting firms – had to optimize for success and growth by focusing on fewer things they did well, instead of trying to do everything for everyone. As you evaluate the current services you offer, take a hard look at whether or not you really need to be offering all of those different options. If you’ve thought about branching out and adding a new service, consider whether or not that extra energy might be better served on making an existing one better.
2. Deep dive into each step of the service
Once you’re satisfied with the services you’re offering, the next step is to consider everything done to complete the service, from the early kickoff phase to the completion of all work and the closeout of invoices. Pro tip: if you’re not the person who handles these processes directly, spend some time talking to the person/people who do so that you can get an accurate assessment of what it takes to complete each process.
In this phase, don’t worry about judging the processes in each service. These thoughts will naturally crop up, but brush them aside for now – just objectively document what happens in each step. We’ll address improvements in the next section.
Finally, no matter how minor a component may seem, be sure to include it as a step. You want to be as comprehensive as possible so you don’t risk missing something when it comes time to assess ways to make it more profitable.
3. Identify opportunities to improve efficiency
Once you are confident that you’ve broken down every step of a particular service and now have a list of everything required to deliver that service for clients, you can start to evaluate these steps to see how they can improve. The specifics of improvements you make can vary dramatically depending on the services you’re evaluating, but a few general improvements include:
- Automate whenever possible. Think about the most repetitive, monotonous steps in each service that don’t require a lot of creative focus or input from humans. There are tons of options for automating these, from basic API integrations to more comprehensive accounting practice software tools.
- Upsell and cross-sell whenever you can. This idea won’t be applicable for every step in your service, but it will usually work for elements that involve some kind of sales or marketing interaction – for example, confirming an invoice with clients or answering their questions about pricing.
- Batch similar tasks as much as possible. There’s no rule that says you have to handle all the tasks for a particular service at once, or even all the tasks for the same client all at once. You might consider setting aside specific days on which you handle one type of task for all clients. For example, you might use Mondays as a day to input client data into spreadsheets, while Wednesday is the day you generate reports.
4. Review relevant KPIs periodically
Now you have every step of the services you want to improve, as well as a few personalized recommendations for how to make them more profitable. As you carry out strategic plans to execute on the recommendations you decide are most important, it’s critical to have a quantitative way to track your progress.
This is where the creation of KPIs is vital to seeing real improvement in service profitability. For each change you decide to pursue for every part of the service, come up with some kind of metric that allows you to see how it’s changed. For example, if you have an issue with too many emails being exchanged before and during a service, your two KPIs here might be number of emails sent and number of emails received.
Final thoughts on optimizing services for profitability
Accounting firms are used to sorting through lots of raw data and information to achieve results for clients, but most aren’t quite as skilled at applying this idea to maximizing profitability internally.
The great thing about technology is that it has allowed accounting firms to use cutting-edge tools like accounting practice management software to measure their profitability and efforts to improve bottom line revenue. If you take full advantage of these modern tools to review internal performance data, you’ll be able to increase profitability step-by-step to make your business more rewarding and improve client satisfaction.