How Elite Firms Maximize Income Per Partner
Source: The Managing Partner Advisor
The following includes excerpts, reproduced with permission, from a blog entry by Gary Adamson.
The universal measure of profitability in accounting firms is average income per partner. The 2010 Rosenberg National MAP Survey identifies 54 “elite” firms – those with income per partner over $500,000.
I want to focus on two measures: Partner-to-staff leverage and overall net firm billing rates. The elite firms had a staff-to-partner ratio of 7.7-to-1 compared to 4.9-to-1 for all 425 firms surveyed. Clearly, the fewer owners you need to service a given amount of client revenue, the more you will earn per partner.
The net firm billing rate for elite firms was $157.80 versus $136.63 for all firms. Most of us assume that the most profitable firms have the highest billing rates and “we can't get there because we just can't raise our rates that much.” But the survey included 40 firms with more than $20 million in revenue and an average partner billing rate of $356. The average partner billing rate for the top 54 was only $324. So what else is going on with those 54 firms?
The answer is that billing rates are only part of the equation. The net billing rate is total billings divided by total charge hours. But how do you maximize the billing number and minimize the hours? All of these factors have an impact:
- Billing rates
- Mix of staff on jobs (proper leverage)
- Efficiency
- Scope creep – are you controlling it and getting paid for it?
- Type of work – audit vs. tax vs. consulting. Are you billing what the market will support?
- Fixed fee?
- Work budgets
- Who are the billers and what are their billing philosophies?
As managing partners we should be examining all of these and looking for ways to make incremental improvements.
For the complete entry, read “How Do the Most Profitable CPA Firms Do It?”
From The Managing Partner Advisor, the newsletter of Gary Adamson, CEO of Adamson Advisory, July 2012, http://adamsonadvisory.com.