AccountingWEB editor John Stokdyk launches a series on the elements of practice profitibility with a look at some of the key lessons from successful firms in the 2012 Practice Excellence Awards.
As part of the shortlisting panel in the 2012 Practice Excellence Awards, I was privileged to get an insight into the behaviours and techniques of some of the country’s most successful accountancy firms.
The premise of our awards is that excellence leads to growth, not just in client numbers and fee income, but profitability too.
One of the key insights that consistently comes through from the PEA entries is that client care is a state of mind: top-performing firms put clients at the centre of their vision and pay particular attention to their feedback and changing needs, and adjust their services accordingly.
Many of the shortlisted firms in the 2012 Practice Excellence Awards already surveyed clients and monitored their satisfaction ratings. The principle behind the entire scheme is to broaden access to this data through online client polling.
This article draws out some of the common themes and approaches from the shortlisted firms that had a positive influence on their client satisfaction ratings and profitability.
Net promoter - good service equals good revenue
Sage’s Claire Carter, who was part of the judging panel for the small firms section, commented that the firms who focused on ensuring they add value for their clients will grow their businesses.
“If they are thinking about what they can do for their clients and put that at the heart of their business, they’re in a good place,” she said.
As a marketing manager with Sage, Carter puts great store on client satisfaction in the shape of the Net Promoter Score. As conceived by Fred Reichheld the Net Promoter Score (NPS) boils customer satisfaction down to the ultimate question, “Based on the service you have received in the past 12 months, how likely would you be to refer us to a colleague?”
Reicheld’s original research and subsequent studies have repeatedly shown that there is a very strong correlation between revenue growth and a high NPS.
The Practice Excellence survey does not apply the same statistical analysis as NPS, but includes answers from clients on how likely they would be to recommend their accountant to peers. Across all the PEA entrants in 2012, the average score was an impressive 3.80 out of 4.
Fellow PEA judge Ric Payne was a firm advocate of the principles underpinning NPS: “I like to see firms focusing on client service initiatives. If they do this right, they should see the impact on revenue growth and/or the bottom line very soon.”
Some of the most effective measures that shortlisted firms took didn’t actually cost them a lot of money to implement. The 2012 PEA survey findings indicate that quick wins can be achieved on client satisfaction by:
- Making clients feel important - good scores for firms’ understanding of client business objectives and flexibility strongly correlated to clients’ willingness to recommend the firm to others.
- Making regular meetings/telephone conversations part of the firm’s client care programme. A huge element of client satisfaction comes down to good communication.
- Manage referrals systematically - Actively seek referrals from clients and set up formal mechanisms to manage them.
- Appoint a relationship partner – so partners focus on higher value work.
PEA judge Ric Payne considered the relationship partner approach to be the most important strategy in enhancing profitability, but lamented, “So many firms ignore it.”
He continued: “We also see dramatic improvements in professionals’ productivity from having lower level people doing triage before work goes to the partner to complete.”
Adding value boosts satisfaction and profitability
The 2012 PEA survey found that while poor value for money can negatively affect willingness to recommend, premium fees did not hold back some of the best of the year’s best performers from good recommendation scores.
Happier clients will obviously be keener to invest in advice than disgruntled ones and it pays to focus your efforts on meeting more than just their basic compliance needs.
Lamont Pridmore, winner in the medium firm category, reported that in recent years growth in typical compliance services such as preparing accounts and filing tax returns had dropped to 1%.
The firm responded to this feedback by cutting fees on purely compliance-based services and introducing new services such as wealth management, profit improvement consultancy and an outsourced finance director service.
As a result of these efforts, the firm grew its fees by 19% in the past financial year and net profits were up 23%. The outsourced finance director service was a particular success, doubling in income during the past year.
Lamont Pridmore maintains a spreadsheet to monitor the added value work done for each client as the year progresses. As more things are done, the spreadsheet is populated with the value that the advice adds to clients’ businesses. The average reported at the time of the PEA survey stood at 3.18 times the fees charged.
“What we’re finding is in working with clients who improve profitability, it takes the pressure off the fee. If they’re profitable, and we’re perceived to be making a difference to their underlying financial performance. They feel good about us and the fee’s not a consideration,” said managing partner Graham Lamont.
The winners of our small and new firm category awards exhibited very similar characteristics. Small firm winner Stark Main & Co, for example, created new recurring revenue streams from activities including management coaching, cloud accounting and strategic KPI monitoring. These initiatives helped the firm’s partners built up strong client portfolios with fees averaging £5,500 per client.
Even though Accountancy Advantage is a relatively young firm, founder Shabaz Husain already emulates Lamont Pridmore by adopting a fair fees policy: “We don’t charge for things that people resent paying for,” he said, “but we do charge for other things where real value is added.”
Most accountancy practices view bookkeeping, accounts production and tax return work as commodities, that anybody can do. “I don't think there's any value added for that and I would charge for it based on that attitude. What we make money out of is the value-added things that we do, whether it's a business plan, tax planning, or whatever. That's something else we're doing differently, and people appreciate it.”
This article has put forward some of the techniques that helped boost profits at firms shortlisted for the 2012 Practice Excellence Awards. As AccountingWEB focuses on practice profitability during the spring of 2013 we will continue to draw on findings from the PEA client survey, and from the firms that took part.
You do not have to be in the top 10 category for sales and marketing to benefit from these suggestions. But the pattern of good practice is fairly clear from the approaches at the majority of our shortlisted firms. As already mentioned, some of the ideas you can take from them to make a difference for your clients will not cost you money or drain your bottom line.
We are also keen for AccountingWEB members to share their insights and ideas on the site. Your contributions to the debate will be added to the mix and incorporated into future articles looking in more detail at the elements of practice profitability, including:
- Client focus: Targeting, segmenting and managing clients for better profitability
- Introducing business advisory and added value services to complement “bread and butter” compliance work
- Process efficiency: Reduce time and resources on compliance to maintain profit margins and free up time for fee-earning staff to devote to higher value services.
You might also be interested in
AccountingWEB’s interim Editor in Chief has been with the site since 1999 and returned to the editorial hot seat in March 2020 to lead the hunt for a long-term successor... Send a DM if you're interested! When not tending to the needs of AccountingWEB members and geeking out on their technology habits, he devotes much of his time to his oddball...