Understanding where your firm stands relative to the competition is essential for strategic growth. Benchmarking provides a clearer picture of your firm’s performance and reveals potential opportunities or improvement.
Here’s why benchmarking matters for your firm and how to use it to drive transformation.
Why benchmarking matters
Benchmarking allows you to assess your performance on key metrics like realization, utilization, leverage, margin, billing rates, net income per partner, turnover, and the golden ratio—a metric that measures overhead, salaries and benefits and profit. Comparing these metrics against similar firms gives you insight into your standing and identify areas for growth.
It’s possible to gather similar metrics from resources like the Accounting Today Top 100 Firms survey, but understanding how your firm compares to these top firms can be challenging if you’re not familiar with the nuances of their business models. Any conclusion you draw without that context might lack the actionable insights needed to make meaningful changes.
The advantage of peer-to-peer benchmarking
Boomer Consulting, Inc. surveys our member firms each year to understand how they perform across critical areas. We share these results at our Managing Partner Circle meetings, where members can review and discuss these metrics in the context of their firms. This process allows partners to better understand their performance within a similar group of firms—not just based on size, but also on services, client niches and operational structure.
Members know each other in the Managing Partner Circle, and this familiarity turns data into actionable insights. For example, a member might notice another firm with a net income per partner double their own. This connection enables meaningful follow-up. The member can ask questions and get specific strategies directly from the peer firm. Is the leading firm charging significantly more for its services? Do they do a better job of pushing work down or leveraging automation and outsourcing? Learning valuable “secret sauce” insights helps drive targeted improvements.
Such exchanges have immense value. By benchmarking with known peers, firms gain access to the unique insights and practices that widely available reports often lack.
Metrics to track and what they tell you
Here are a few key performance indicators (KPIs) we commonly recommend firms track.
Realization. Measures the percentage of billable hours actually billed and collected. Low realization usually indicates issues with scope creep or pricing.
Utilization. Gauges the percentage of billable hours worked by staff relative to total hours. This helps firms identify workload distribution and assess productivity.
Leverage. The ratio of staff to partners shows how work is distributed among different experience levels. High leverage often correlates with increased profitability because partners and managers successfully push work to lower-cost staff.
Margin. Profitability measure, representing the percentage of revenue that becomes profit. Monitoring margin helps identify areas where a firm may need to trim costs.
Billing rates. Average hourly rates billed. Comparing billing rates can reveal competitive positioning and pricing strategy.
Net income per partner. A profitability metric critical to firm valuation. Variances here may reveal differing approaches to billing, efficiency or cost control.
Turnover. High turnover can signify problems with culture, workload or compensation. Firms must manage this KPI to maintain continuity and client trust.
The golden ratio. This metric compares overhead, salaries and benefits to profit. Tracking it can reveal how efficiently a firm manages costs.
Practical steps to get started with benchmarking
Following these simple steps, you can use benchmarking to continuously improve processes, technology and talent strategies.
Identify key metrics. Start with the metrics mentioned here and choose those most relevant to your firm’s strategic goals. If your focus is profitability, net income per partner and margin should be central. If growth is the goal, focus on leverage, utilization and turnover.
Gather comparative data. Using surveys like those from Accounting Today for a broader context is helpful. However, insights from peer groups like the Managing Partner Circle provide connections that allow for more actionable feedback.
Analyze and reflect. Review where your firm stands. If turnover is high, ask whether you can adjust culture, compensation or workload expectations. For low billing rates, investigate whether clients see the full value of your services.
Build relationships for deeper insight. Through our Circle communities, firm leaders have access to invaluable follow-up. Knowing another firm’s approach to automation, delegation or fee structures can provide ideas that transform strategy.
Implement and track progress. Benchmarking isn’t a one-time exercise. Regularly track your metrics to assess progress and identify changes you need to make to continue working toward your strategic goals.
Benchmarking is ultimately about using data to fuel progress. Firms that understand their strengths and weaknesses and learn from their peers can better navigate the challenges of a changing profession. Our experience with members shows that access to peer insights (with context!) helps firms translate raw data into tangible results. This approach keeps your firm ahead of the curve.
Do you want to connect with other Managing Partners in the accounting profession to improve performance and grow your firm?
The Boomer Managing Partner Circle is a peer group of Managing Partners from successful and growing firms. Apply now to gain a network of trusted peers to call on as you shape your firm for the future.
As a Solutions Advisor for Boomer Consulting, Inc., Derek Olsen is passionate about helping members get matched up with the right Circle community and seeing how a peer community gives them more energy for their roles.