Measuring Efficiency: Why Billable Hours Aren’t Enough
Let’s say your firm is evaluating two staff accountants, who each have about the same level of experience and turn in work of relatively equal quality.
One has a high level of charge hours, while the other’s billable hours aren’t meeting the firm’s required minimums. Who will you promote? Who needs coaching to improve their performance?
Based on billable hours alone, the obvious answer is to promote the first employee and tell the second they need to increase their chargeable hours. But what if we add a new metric to the mix? The first employee takes roughly three times the number of hours budgeted to complete a project. In contrast, the second employee produces nearly twice as many completed engagements. Now, who’s in line for a promotion? When you expand your view to consider efficiency, the data paints a very different picture.
Metrics like billable hours and realization help leaders determine scheduling, manage talent, and run the firm. However, they aren’t always the best way to measure what’s truly important to your firm. Nor are they the best metric for making talent decisions.
Why firm metrics are changing
As the accounting profession changes, so must the metrics firms use to measure efficiency and productivity. There are two primary reasons for this shift.
1. Focus on client value
As firms shift away from relying on compliance work toward advisory and consulting services, simply measuring the number of hours people put in isn’t enough.
Consulting services don’t translate well into a billable hour structure. For example, say one of your clients calls for tax advice on how to structure a real estate transaction. In a 20-minute phone call, you provide guidance that saves the company $20,000 in taxes. Is that advice only worth one-third of your hourly billing rate? Even your client would likely agree it’s worth much more.
The value you bring to your clients isn’t just the hours you spend churning out tax returns or performing audit procedures. It’s the relationship you build and the knowledge you share.
2. Focus on results
If billable hours are the primary metric used when evaluating staff, you could be driving talent away. One of the biggest factors driving away talent from public accounting is billable hour expectations.
Returning to the scenario above, it’s not hard to imagine a manager asking the first employee to improve their realization and the second employee to increase their charge hours. The first employee starts eating time to improve realization, and the second starts padding their timesheet to improve billable hours. Both wind up feeling undervalued by a single metric that lacks any connection to what they actually contribute to the firm.
Measure what matters
So what’s really important to your firm? The answer is likely not the amount of time people spend doing work. Instead, your answer is probably client service and growth. If that’s the case, other metrics are much more effective at tracking what matters, such as:
- Revenue per full-time equivalent
- Average number of services per client
- Lifetime value of a client
- Income per equity partner
- Work turnover
- Meaningful contact outside of deadlines
- Client responsiveness
Learn more about measuring efficiency
There’s no one-size-fits-all list of metrics every firm should track. You need to consider what matters most to your firm and look for ways to improve the data you collect and how you use it.
Interested in learning more about measuring efficiency in your firm? Download Boomer Consulting, Inc.’s white paper, Measuring Efficiency: Are You Tracking the Right Metrics? by Arianna Campbell and Amanda Wilkie to learn more about metrics that will help your firm become more successful.