Taking care of clients’ finances is what you do best, but that shouldn’t distract you from checking your own numbers. Just like your clients need solid financial reporting, so too does your firm require its own set of key performance indicators (KPIs) to measure success and make informed decisions.
But there is a catch.
With a mountain of data at your fingertips, it’s easy to get lost in the noise and start tracking metrics that don’t actually move the needle. In this blog, we’ll uncover 9 accounting KPIs your firm should really be tracking.
But before we get to that, let’s define accounting KPIs and see their practical benefits.
What are key performance indicators in accounting?
KPIs are measurable values that help businesses assess how effectively they’re achieving their financial and operational goals. Think of them as the vital signs of your firm because they provide a clear picture of how well you’re performing in critical areas.
They can range from financial indicators, like profit margins, to operational benchmarks, such as the billable utilization rate. Accounting practices that strategically monitor relevant KPIs can expect to:
- Improve financial visibility because they’ll know exactly where their firm stands
- Optimize resource management as they’ll identify inefficiencies
- Strengthen decision-making given they’ll have tangible data to work with
- Improve risk management by spotting potential problems before they escalate
In short, it’s essential to track accounting KPIs if you want to improve efficiency and profitability.
Related: Accounting automation software: Industry experts reveal their favorites
KPIs every accounting practice should track
Here are some of the most critical KPIs every accounting practice should follow.
| Note: There are many other metrics you could follow, but we don’t want to overwhelm you with too many options. |
1. Gross profit margin
Gross profit margin measures the percentage of revenue remaining after subtracting the cost of goods sold (COGS). It essentially tells you how profitable your core business activities are before other expenses like overhead or taxes are factored in.
Why does it matter?
A healthy gross profit margin shows that your firm is efficiently managing its costs relative to its revenue. If your margin starts to decline, it may indicate rising costs or shrinking revenues that need immediate attention.
2. Net profit margin
Net profit margin is the percentage of your revenue that remains after all expenses, taxes, and other costs have been deducted. In a nutshell, it’s the true profitability of your firm.
Why does it matter?
This KPI is a clear indicator of overall financial health. It shows how much profit your firm is making for every dollar of revenue.
3. Revenue growth rate
Revenue growth rate tracks the percentage increase or decrease in your firm’s revenue over time. It reflects how well your firm is attracting and retaining clients.
Why does it matter?
A consistent increase in revenue proves that your practice is growing, gaining new clients, or expanding services. Conversely, a slowdown signals issues with your service offerings or market competition.
4. Accounts receivable turnover
Accounts receivable turnover measures how quickly accounting firms collect payments from clients. The purpose of this metric is to reveal how efficiently you manage receivables and the credit you extend to clients.
Why does it matter?
The faster you collect payments, the more liquidity your firm has to operate smoothly. If you’re seeing a slow turnover rate, there are probably inefficiencies in the billing process or payment delays from clients.
5. Current ratio
The current ratio measures your firm’s ability to meet its short-term obligations with its short-term assets. It’s a simple KPI for gaining insights into your firm’s liquidity and financial stability.
Why does it matter?
A healthy current ratio ensures that your firm can pay its bills and other liabilities without facing financial distress, while a low current ratio suggests liquidity issues.
6. Billable utilization rate
Billable utilization rate measures the percentage of an accountant’s time spent on billable work compared to the total time worked.
Why does it matter?
This KPI determines whether accounting employees are working on revenue-generating tasks. If not, accounting managers will realize that too much time is being spent on administrative or non-billable tasks.
7. Client acquisition cost (CAC)
Just like the name suggests, client acquisition cost is the total cost of acquiring a new client. That includes all expenses related to marketing, sales, and onboarding.
Why does it matter?
Knowing how much you spend to acquire new clients enables you to assess the efficiency of your marketing and sales efforts. If CAC is too high, you probably need to optimize your client acquisition strategies or focus on retaining current clients.
8. Client retention rate
Client retention rate measures the percentage of clients you keep over a specific period. It shows how well you’re maintaining long-term relationships and client satisfaction.
Why does it matter?
Some reports claim that the cost of acquiring new clients is five times higher than the cost of retaining existing ones. Although figures probably vary from one industry to another, the truth is that it’s often more cost-effective to retain an existing client than to acquire a new one.
Related: The dos and don'ts of building good client relationships
9. Average revenue per client (ARPC)
Average revenue per client measures the average amount of revenue your firm generates from each client. It helps you understand the value each client brings to your business.
Why does it matter?
Tracking ARPC allows you to identify the profitability of individual clients and see how much value they contribute. If ARPC is increasing, it could mean you’re upselling services or that your client base is becoming more valuable. A declining ARPC likely indicates that your services are being undervalued, or you might be losing high-revenue clients.
Common KPI tracking mistakes to avoid
Tracking accounting firm KPIs is helpful, but only if you avoid mistakes that lead to poor decision-making. Here are the most common pitfalls and how to avoid them:
- Tracking too many KPIs: Instead of overloading on KPIs, it’s better to focus on a few key metrics that directly impact your firm’s success.
- Focusing on vanity metrics: Metrics like social media followers might look impressive but don’t drive real results, so make sure to prioritize KPIs that lead to business outcomes.
- Irregular KPI monitoring: Failing to review KPIs on a regular basis leads to outdated data driving decisions.
- Lack of action plans: Tracking KPIs without follow-ups renders them pointless, so do your best to act based on the data collected.
- Unrealistic targets: Overly aggressive goals lead to frustration and burnout. You should set realistic targets that challenge your team but remain achievable.
Final words: Follow metrics that truly matter
You don’t need to track every number under the sun to run a successful accounting firm. On the contrary, the idea is to focus on a few metrics that truly reflect your firm’s unique goals and business challenges.
Remember that KPIs are tools — they are meant to guide, not overwhelm. So, with the right focus, these numbers will give you the clarity and confidence to build a more efficient firm, one smart decision at a time.