Tracking metrics can seem like a never-ending list of acronyms, ratios, and formulas. To set your firm up for success, you need a story to connect those dots and a driver to move the needle on action items. Without these things, the chances of getting your business where you want are like the odds of a Formula 1 driver last on grid winning. Not impossible, but difficult.
Choosing the right metrics and working them helps you:
Identify trends
Make well-informed decisions instead of following your gut
Stay aligned with your goals, rather than falling into the trap of always chasing new initiatives
Grow your firm with intention
When your KPI strategy is firing on all cylinders, you have an awareness of options that would otherwise be lost in the shuffle. Whether it’s spotting issues and course correcting early or doubling down on what’s working, the better (and more accessible) your data, the faster you can act.
Keeping up with changes in our industry can feel like you’re heel-toeing more than an F1 driver so these gauges on our business performance are a lifeline.
You might call metrics OKRs, KPIs, a scorecard, or “the levers you pull to achieve a desired result,” but the idea is the same. They are the leading indicators of the health of your company before they become P&L items. The earlier you analyze them the better, because once they hit the P&L, you’re looking at history.
Assumptions for KPIs
You have high-quality data (accounting, production management, sales, client experience, etc.)
You have readily accessible data (this one might be a stretch if your workflow, billing, and accounting are not integrated)
You know your goals
The Right KPIs Drive Firm Growth
Growth-oriented firms track data proactively because they understand KPIs aren’t just numbers. They are decision-making tools that help you transition from looking busy to running an efficient, profitable firm.
For example, rather than always looking back at the P&L to assess new monthly recurring revenue (MRR), I get a quicker pulse working backwards to the source of that revenue: leads.
How many leads does it take to get a discovery call? How many discovery calls to close an engagement (close rate)? Once I have data for close rate, I can start predicting the outcome (estimating MRR) just by looking at new leads.
Managing your firm by “feel” doesn’t scale. The right KPIs tell you where to give attention, what to do more of, and what to stop doing.
How to Choose KPIs That Do Their Job
Finding the right KPIs for your firm is simpler than it sounds. Here’s the golden rule: Each KPI should answer a specific question and answer it clearly.
Start with the questions that impact decision-making and work backwards to determine the best metric for each. Not every question can be answered with a KPI, of course, but using this framework eliminates the busy work of tracking metrics that don’t tell a story.
Tips:
When considering clarity, make sure the data you’re analyzing is relevant.
KPIs must be consistently measurable. Qualitative data is useful, but it doesn’t scale and is difficult to gather.
For example, I would love for clients to never have to follow up and for us to track exactly how often this happens. However, the lift to consistently gather that data across platforms and team members would be a burden and would likely be unreliable. A better choice might be the percentage of calls missed during business hours. I say “percentage” because that scales with team growth, and “during business hours” because that creates a guardrail on what is within the team’s control.
Don’t overwhelm yourself with too many metrics. A few KPIs tracked and analyzed effectively beats a long list poorly executed.
We have a few “forever” metrics we always monitor and others that are benched seasonally. For example, from January to April, we run a “Tax Olympics” theme internally where the push is getting returns out the door, and we report on the percentage completed during the weekly all-hands meeting.
Beware of vanity metrics that look good and feel important but don’t provide any strategic insights, such as:
Total number of clients. This could be saturated with low revenue/high touch clients you’re operating at a loss on.
Billable hours. Higher billable hours might actually signal inefficiency. We used to track utilization (billable hours/total hours), but much like total number of clients, it doesn’t account for low-quality hours being logged.
Newsletter open rate or total social media followers. Tracking these won’t tell you much, unless you’re monitoring conversions into sales.
For each KPI, determine how it will be tracked, who is responsible, and the cadence for how often the data is analyzed.
My Scorecard (KPIs)
Every firm will end up utilizing a variety of metrics depending on the season or active initiatives, but here are a few metrics I like to have a pulse on:
Realization, Average Hourly Rate, and Time Under Budget
I teased earlier that utilization can be a vanity metric, while these three metrics give us a pulse on efficiency. They answer the question “Did we make more or less money than expected on this project?”
Drilling down further, we can gain visibility across more than just a project, gauging success across all work for a client, all work by a team member, or by department. This data helps me identify what’s going well, who needs support, which clients are under scoped, and so on.
Realization
A pulse on realization can flag anomalies and help you prioritize where to lean in.
Maintaining high realization is the best way to ensure our time translates directly into revenue. Lower than expected realization indicates we need to fix inefficiencies before they erode profit, or that certain services need to be reevaluated.
Average Hourly Rate
Our firm uses a fixed-fee pricing model where we add up the value of all services we anticipate delivering in the upcoming year and divide it into 12 fixed-fee monthly payments. This means tracking AHR is even more important than at a firm that invoices using billable hours.
Watching our effective rate allows us to keep an eye on our margins in real time. Dips in AHR may indicate suboptimal staffing, ineffective processes, scope creep, or low pricing. Increasing AHR shows that we’re enhancing service value or optimizing output. Monitoring this regularly over time also shows trends, like January being a lower AHR than June.
All of us in the industry know from experience that January and April are the gauntlets of busy season (for CAS and Tax, respectively) while the summer gives us some breathing room. Quantifying this, however, helps us see if we’re on trend or veering off.
Time Under Budget
Assuming all tasks have a budget (what you charged the client divided by desired hourly rate, at a minimum) you will be able to drill into anomalies and plan for capacity in your sleep.
Leads, Close Rate, and Customer Acquisition Cost (CAC)
Since leads = discovery, and our focus is funneling in high-quality prospective clients, leads are an indicator of the effectiveness of our activity.
Close rate on discovery calls can be an indicator of both the quality of our leads and our personal communication skills—both are levers that can be pulled to increase close rates.
CAC is another indicator of how effective our process is.
Profit Margins by Department and as a Firm
This is more of a P&L item than a leading indicator, but it’s one I monitor because EBITDA = value. If you know you need to hit X% margins on your billable team and associated costs (as a percentage of revenue), hiring becomes a formulaic endeavor.
One may “feel” at capacity, but if margin is below X%, the answer might not be to hire more people or work more hours. You might need to focus on driving efficiency through tools, processes, and standardization.
Overdue Tasks
This can be tracked as a percentage by managers and reported up, creating both awareness and accountability.
Knowing whether our project-management process is keeping up with demand delivers both internal and external insights. Falling behind erodes client trust, damages team morale, and puts a downward pressure on capacity.
Tip: Without capacity, you can’t grow. We’re diligent about getting every single task into our workflows, giving us the power to see the lift required of each department and the ability to exclude “with client” tasks at any time with the push of a button.
Communication
The non-financial metrics are the hardest to measure, but they’re critical in terms of client experience. I’d like to track our NPS (Net Promoter Score), but that data is only as reliable as our ability to get 100% of our clients to rate us, which is—unlikely. And by then, the review would be a “P&L item” rather than a leading indicator.
Here is what I can track:
% of missed calls during business hours (data from SmrtPhone)
% of emails not responded to within 24 hours in the shared inboxes (we utilize a shared inbox for the tax team that Operations triages/assigns communications to)
# of notices due to our error (we can track this because every notice becomes a task in Canopy) and can be turned into a percentage by dividing this number by all returns
Building Your Tracking Routine
Canopy is a great start when it comes to KPI tracking tools, but you’ll also want to leverage HubSpot, QuickBooks, and possibly even layer on Fathom or Jira, depending on the metrics. Get creative.
Use dashboards or scorecards for ease of use and keep things simple. If it’s hard to track, hard to read, or hard to analyze, you won’t do it. The goal is consistency, not perfection.
For frequency, don’t set arbitrary timelines. Think about how often you need the data and how it fits into your meeting tempo and scheduled leadership reviews.
Just remember that you can’t change what you don’t measure, so never believe that your firm is too small to be tracking KPIs or you’re too profitable for it to matter (hats off, if that’s you). And soon enough, you’ll be moving up the grid and increasing your chances of success.
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