Profit Margin Improvement - How To..
| |Many of the accounting firms that we work with have relatively modest growth goals for gross sales and are very concerned about the quality of the work they produce, which is understandable. However, most don't focus enough on improving the bottom line and look at all clients equally. To us, this makes no sense.
If this rings true at your practice, here are some quick suggestions:
1.) Invest in growing your higher profit margin services now. In many cases, savvy accountants will strategically invest into concentrations (aka niches, areas of specialty) to enhance their overall profit margins. I think of this as margin blending in the right direction. In other words, they will invest their limited marketing investment into niche areas that yield higher hourly realization rates so they can offload lower profit margin sectors (or clients).
Here are some examples of accounting firms proactively investing in niches to improve overall hourly realization rates and average firm profit margins. Keep in mind, each of these firms also have regular clients and a generalist website too.
Divorce Accounting - Litigation Support - Forensic Accounting
Hedge Fund Accounting and Administration
Defense Contracting Compliance - DCAA
International Tax Compliance - CPA for Businesses and Expatriates
IRS Tax Audits - Tax Settlements - Offers in Compromise
2.) Cull Out Lower Margin Segments - Rather than "fire" less desirable clients, we suggest that you package them up and sell them. Over the past year, we've had several clients package up their payroll clients and sell them off recognizing that the hourly realization was much lower than the niches above. Others have packaged up individual tax clients so they could focus more on higher value clients.
Now is the time to invest a little into your higher value segments so you can cut loose some of the dead wood (lower margin) after tax season. Just saying....
