How does your firm measure efficiency? For many firms, measuring Realization (the ratio of hourly rate multiplied by hours spent, divided by amount billed) is the primary metric that is monitored. But as firms start to implement technology and process improvements to do more work in less time, Realization becomes a less valuable metric.
In a recent whitepaper, Dustin Hostetler and Michael Wherry of Boomer Consulting, Inc., look at why Realization percentage is no longer (or never was) a good metric for CPA firms trying to measure efficiency. Getting more done in less time doesn’t actually encourage or incentivize staff to engage in behavior that will benefit the client or the firm. So what metrics should you be looking at? According to Hostetler and Wherry, some more useful metrics are:
- Cycle Time
- Process Cycle Efficiency
- Revenue by Full Time Equivalent
Moving away from Realization as an efficiency metric may take some getting used to, but as clients continue to demand more and more value from their business relationships, it will be necessary to find efficiency metrics that fulfill client needs as well as the firm’s need for profitability.
To learn more about how to develop metrics that matter, download the whitepaper, “Measuring Efficiency: Moving beyond Realization to what Truly Matters”