By Michael Carter, Practice Paradox
For five consecutive years, ‘Growth’ has been listed as the number one challenge faced by accounting firms participating in the annual Good Bad Ugly benchmarking survey by Business Fitness.
In this year’s survey, on average firms achieved a 6% increase in revenue, which fell 1% short of firms’ budgeted growth targets. As at 25 June 2013, Australia’s GDP annual growth rate was 2.6%. With firms growing at more than twice the nation’s GDP, the cited ‘Growth’ challenge is a case of ‘not enough growth’ rather than a case of ‘no growth’.
Firms are typically budgeting for 6% revenue growth for the year ending June 2015.
It’s interesting to note that tax and accounting-related compliance work has dropped from 70% of firms’ revenue to 64% in the space of four years. If this rate continues, by 2017 compliance will dip below 50% of firms’ fee base.
“Times, they are a-changin’,” as Mr Dylan wrote.
Our observations of the profession is that we’re entering a new ‘Compliance 2.0’ era where the role of compliance is shifting in the relationship firms have with their clients.
Compliance is not ‘dead’. It’s naïve to think so. Instead, the nature of compliance is changing. It is now merely a starting point for a relationship and not the core of the client-advisor relationship.
Consumers are now finding it increasingly easy to use online and social media search to find out about firms and to ask for recommendations from their social networks. This is word-of-mouth, massively amplified. This means firms without a strong and influential online presence are at a disadvantage in the modern Compliance 2.0. era.
Is growth a challenge or a symptom?
As business advisors, accountants understand the difference between lead and lag indicators. Growth rate is a lag indicator; it cannot be directly acted upon. It is the end result of lead indicators that created the firm’s revenue and profit.
If you, as a Principal in an accounting firm, are convinced that ‘growth’ is your number one challenge, you are mistaken.
This indicates you have an ineffective focus for improving your business. You’re like an overweight person who thinks that ‘weight’ is their number one challenge.
It is not. An effective focus is about “controlling the controllables”.
The Compliance 1.0 Era vs. The New Compliance 2.0 Era
- Compliance work was labour-intensive and expensive to produce Compliance highly automated with data feeds, artificial intelligence coding, etc.
- Compliance services subject to moderate price competition vs. Extremely high price competition, compliance increasingly a loss leader or low profit leader
- Compliance seen as the core service in the client relationship Compliance merely a starting point in the client relationship
- Low commoditisation – compliance seen as custom services High commoditisation – services seen as standardised ‘products’
- Compliance underpinned client loyalty and retention vs. Compliance no longer enough for client loyalty
- Service focus on the PAST: Last year / Last period Service focus on PAST AND FUTURE: Next month / Next quarter
- Low consumer power, person-to-person referrals High consumer power via online and social search
In the case of an overweight person, the lead indicators for weight management include:
- Energy consumed: The amount of energy consumed — what a person chooses to put into their mouth each day (choices which they control); and
- Energy expended: The amount of energy a person expends on average each day. This consists of physical activity, not just ‘exercise’ in the typical sense of the word, but simply moving about throughout the day. Energy expended is also affected by a person’s base metabolic rate, which is how much energy their body consumes each day, due to (1) their genetic makeup and (2) their ratio of lean muscle mass to fat. Some people burn more energy each day ‘just sitting there’, due to their muscle mass. Muscle mass can be changed, genetics cannot.
These are the factors that result in ‘weight’ being, or not being, an issue for a person.
Drilling deeper than the behaviours, there are mindset, self-esteem, self-image and education gaps for many people regarding health and nutrition, which result in behaviours that lead to weight gain.
Likewise, there are behaviours, mindset issues and education gaps that result in a lack of growth for an accounting business.
The obvious top-level variables in growing a firm’s revenue are:
1. Number of clients (market share)
2. Number of services provided per client (we call this clientshare™)
Whilst it’s unwise business practice to reduce charge rates/prices and erode margins, it’s equally unwise to seek premium pricing in the absence of providing a perceived increase in value to clients. Increasing price without increasing value is an invitation to your clients to ‘shop around’, which in this online and social media era is increasingly easy for them.
Yet even variables 1 and 2 above are not all that useful as management metrics, because they too are lag indicators. Number of clients is the result of factors including:
- Website traffic
- of unique visitors
- Page views
- Time spent per page
- Bounce rate
- Conversion (%) of website visitors into:
- eNewsletter subscribers
- LinkedIn connections
- Facebook page ‘likes’
- Twitter followers
- Client referrals
- Unsolicited referrals
- Number of clients asked for referrals
- Publishing (a.k.a. new marketing) activity
- Blog posts published
- eNewsletter articles broadcast
- Social media updates shared
- Social media engagement/dialogue
- Workshops, seminars and webinars
- Media exposure, articles and appearances
- Conversion rate of:
- Social media leads into new clients
- Enquiries to new clients
Number of services provided per client is the result of factors including:
- Percentage of new clients who take up more than your compliance services
- Firms’ awareness/measurement of their current and potential clientshare
- Firms’ identification of value added advisory services to focus on in terms of developing advisory capability, marketing and selling processes around them
- Number of clients invited in for future-focused meetings regarding value-add services
- Conversion rate of future-focused meetings into additional engagements
As you can see, these are lead indicators that can be measured, focused on, and improved with conscious effort.
An objective of “we want to grow revenues by 15%” is not actionable compared with:
- Increase website traffic by 100% via focused Search Engine Optimisation
- Improve website conversion rate to 15% of visitors
- Publish 24 eNewsletters this calendar year
- Publish 25 blog posts this year
- Publish 60 updates/tweets into social media each month
- Increase Klout score to 50 (a measure of your online reach and influence)
- Conduct 4 client education events with 20 businesses at each
- Conduct 4 webinars with another 20 (different) businesses at each
- Each advisor to have 4 future-focused client meetings per week, for 40 weeks of the year (you can see the impact this would have on a firm)
- Grow average clientshare from four services to six services
Do these things and growth is an inevitable by-product.
The firm that achieved No.1 ranking based on efficiency factor in last year’s Good Bad Ugly is one we work with closely. Without any focus on attracting new clients, but rather focusing on growing clientshare in a methodical, measurable way to ensure a certain number of future-focused clients meetings happen each week, they are up 32.7% this year on year to date. This is a sole practitioner with $1.8m in annual revenue at healthy margins. We are now planning ahead for a shift to a market share growth focus in the coming months, and we have a specific set of actions planned for that.
Be clear on which growth lead indicators you are focused on this year, this quarter, this month, this week. You get more of what you focus on.
A word of caution before embarking on a growth initiative…
Ensure you have the capacity to deliver in a timely, high quality, and profitable manner. There has been much well-meaning but misguided advice to the accounting profession in recent years, encouraging firms to promote business coaching and other bespoke services that are difficult to resource, difficult to deliver and difficult to scale.
Whilst ‘efficiency of processes’ is the second most commonly cited challenge for firms in recent editions of the Good Bad Ugly survey, this is commonly focused around the areas of compliance. Certainly with the increased commodisation and price-focused promotion of services by many firms, process efficiency is a crucial objective simply to maintain margins.
However, efficiency of processes is just as important in the delivery of non-compliance business advisory services. Our advice to firms is, “If you can’t scale it, don’t sell it.” Design your firm’s advisory services so that they do not require Principal/Director-level input throughout the entire process. With brilliant technology now available around management reporting, real-time KPI dashboards and other advisory tools, firms are better placed than ever before to be able to deliver business advisory services in a scalable, profitable way.
Michael Carter, widely known as ‘MC’, is a pioneer in teaching accounting firms how to attract new clients by strategically using the modern marketing tools such as social media, blogging, video and other online media. His consultancy, Practice Paradox, helps firms build ‘marketing machines’ for lead generation and pre-education through their Academy program and a range of done-for-you marketing services. MC was a Co-Founder of Business Fitness and has worked 23 years in professional services and technology-related firms. MC can be contacted on firstname.lastname@example.org.