In this industry, charge hours and realization are key measurement tools. Are you able to reach the goals you’ve established in both areas? Or do you find your results are more like a teeter-totter – there is no balance between the two?
First, you decide to focus on realization. While realization goes up, charge hours may go down. So you then begin to focus on charge hours…and realization goes down. Why aren’t you getting both? Because you get what you ask for.
Which of us haven’t had to talk to a team member who opts not to enter all their time or skimps on work that should be done for the client in order not to hurt realization? Or sit down with staff to figure out why a project took so long resulting in more write-offs? Perhaps, we’re the ones to blame.
Typically, firm management focuses on realization without giving employees, including partners, the tools, methods and processes to achieve better realization. If you give someone a goal, they will try and achieve it – and that’s when the unintended consequences occur.
The problem lies with the fact that firm management is not focusing on performance metrics that drive the right behavior, nor giving their employees the tools, processes and methods to be successful.
Consider a different approach. Start by giving your team the tools, processes and methods to do the two things that matter above all else in a CPA firm:
1.) Deliver superior client value
2.) Do it profitably
If you provide your team with what they need to deliver superior client value, it will naturally lead to increased profitability. Then, and only then, will the historical metrics play out how they should and not teeter-totter.
Charge hours should initially go down as you gain efficiencies and effectiveness in the process. They will start coming back up as you begin to fill in that capacity with both work for new clients as well as existing clients that you are now servicing better than ever. Realization will trend upward as will dollars realized per hour. And write-offs will go down. The results are exactly what you’ve been trying to accomplish all along.
The next time you hear someone say “we need to increase chargeable hours,” remember that you will essentially be creating a teeter-totter effect. Rather, take a more holistic approach to your business by focusing on what really matters – your processes and methods to deliver superior client value. If you do, charge hours and realization will take care of themselves.
Come up with new metrics you can look at that focus on providing superior client value. They might include:
Don’t fall in the trap of focusing too heavily on one issue to achieve a goal that another one suffers. If you can complete work timely, be responsive to clients, add value to what you do and be proactive in client planning, you will be able to ask for – and receive – a fair market price.
Finally, the teeter-totter will balance. You’ll be more successful, your clients will be more successful and your firm will reap the benefits.