Misleading Metrics

Source: CPA Trendlines

According to Marc Rosenberg, there are four measures of (or ways of looking at) profitability that undoubtedly are leading you in the wrong direction:

1. Realization. If your realization rate is near 100 percent, you are leaving money on the table. Your rates are probably too low. Realization should be in the upper 80s.
2. Billable hours. High partner billable hours mean less leverage and very little marketing.
3. Labor costs. Suppose the partners divide up administrative duties among themselves to avoid hiring a firm administrator. If the average partner billing rate is $150, the firm could hire a firm administrator for much less per hour.
4. Utilization. The utilization percentage is the number of billable hours divided by total work hours. But if your set a target for staff billable hours (1,700, for instance) ad your staff meets the target, then the utilization percentage doesn't really matter.

For the complete article, read "How looking at realization, billables, utilization, and labor costs can lead you astray."

From CPA Trendlines, December 3, 2012, http://cpatrendlines.com.