Using Metrics the Right Way - Continued
Source: Public Practice
According to Bill Reeb, metrics rarely provide a CPA firm with definitive answers, they just help them ask more questions. Depending on the situation, the same statistic may reflect a strength or a weakness, so it's important to think of metrics as tools rather than as benchmarks. In part two of this continuing series, Reeb discusses what he calls Capacity BudgetingTM — a metric that incorporates projected revenues, staff turnover ratio, and an inventory of a firm's people to identify weak or marginal performers.
To illustrate the importance of this concept, Reeb provides an example involving a two-partner firm with $2 million in net revenues, 16 full-time employees (FTEs) and that has been experiencing a minimum of eight percent annual growth for the last three years. The firm's average revenue per FTE is $125,000. If the firm continues to grow at eight percent, then it will need to add two employees each year to maintain the same average revenue per FTE. The firm's hiring needs will be even greater once you factor in turnover and the need to replace weak or marginal performers.
For the complete article, read “Metrics: Their Value is in Creating More Questions — Part 2.”
From Public Practice, Texas Society of CPAs, August 2015, www.tscpa.org.