What do the latest industry benchmark reports reveal – and where do you sit?

Matthew Prouse
Xero

Every year of the eight years I was in practice with my previous firm, we submitted our performance data to Business Fitness before purchasing the annual report, The Good, the Bad and the Ugly. Its insights were invaluable in helping us benchmark ourselves against our peers, and inform our strategy for the year ahead.

More insights are now available for modern accounting professionals, including a new report from Xero that reveals how your firm stacks up against your peers. This data can help you spot unrealised efficiencies and identify new revenue streams, as well as compare outlooks and opportunities for the year ahead.

What The Good, the Bad and the Ugly report tells us

A comprehensive benchmarking data report, the 2017 edition of The Good, the Bad and the Ugly of the Australian Accounting Profession report was completed by over 200 Australian practices.

Here are some of the key points:

  • When asked to consider the outlook for state of the Australian accounting profession overall for 2018, only 32 percent of the firms surveyed felt that the coming year would be better than the last. The majority of respondents felt that it would be the same, and 7 percent thought it would be worse.
  • According to the report, the average increase in overall revenue for 2017 was 5 percent – and the forecast increase in overall revenue for 2018 was almost the same.
  • When asked to predict what would have the largest impact on the accounting profession in 2018, respondents named changes in technology as number one, followed by fee pressure from clients, the economy, regulatory changes and the outsourcing of work.
  • This is consistent with the top four challenges identified over the last ten years having been workflow efficiency, revenue growth, attracting new clients and automating business processes.

What Xero’s Accounting Industry Report for Australia 2018 tells us

Xero recently conducted its own global benchmarking survey to offer a snapshot of the attitudes and performance of practices that are increasingly focused on online accounting for small businesses. More than 5,700 participants responded, and the research was split into regions.

When you look at the Accounting Industry Report – which takes the responses of more than 497 Xero accountants and 286 Xero bookkeeping partners using Xero in Australia – it reveals distinctly different feedback on firms’ previous performance and outlook for the future.

Where the GBU report reported an average revenue growth of 5 percent for firms in 2017, the average firm on Xero reported revenue increases of 11.2 percent. The pacesetting firms on Xero – those with the largest number of clients (300+) using online accounting software – grew revenue by an average 14.4 percent. That’s almost three times the industry average recorded in the broader, industry-wide report.

Data reveals online accounting opens the door to growth

While the strong revenue growth results of firms using Xero are positive, they are not entirely surprising. It’s becoming well known that online accounting and revenue growth go hand in hand.

Firstly, consider the market. Unlike days of old where clients may have found it too hard move accountants because of the difficulty of extracting their information, today’s small business owners have shown they will change advisors to get the service they require. Our report showed more than 190,000 small businesses switched to a new accountant in 2017. And in our survey of Xero partners, participants confirmed that the majority (55 percent) of new business clients switched to them from another firm.

Here’s where it really gets exciting. Practices that use online accounting are not just attracting new clients from other firms, they are realising the benefits of compound efficiency gains as they do so.  

Scale creates efficiency

According to the data provided by practices using Xero, a number of key growth figures improve as the number of online accounting clients per firm increases.

First up, practices with the most online business clients gained the most new business clients using online accounting software.

abegraph1

Broadly, the average revenue per small business client using online accounting remained reasonably constant. This makes total sense; more online business clients doesn’t mean that the fees charged can suddenly increase for all clients.

abegraph2

Digging deeper into the data, it became clear that a single staff member can work with more business clients if they use online accounting software. When you remove the need to ask clients for documents, bank statements or data files, team members can concentrate on delivering value for clients and revenue for the practice. 

Sure enough, the average revenue per staff member from small business clients increases as the number of small business clients on online accounting rises.

Efficiency creates time

As online firms become increasingly efficient, they create more time for themselves. It stands to reason then, that those are the firms well placed to offer new advisory services that increase revenue.  

Firms that offer compliance-only services to clients on Xero bought in an average revenue of $4,200 per client per annum. In comparison, those who offered compliance and advisory services bought in an average of $6,990 per small business client – $3,440 worth of compliance, and $3,550 of value-added advisory – over the same period.

Better still, when only comparing firms already using Xero, the pacesetting firms – those with the highest portion of online clients – grew even more rapidly, and more than doubled the advisory revenue of the average firms.

So, with all the numbers on the table, what kind of firm do you want to be? A firm that’s excited about the future, best-practice efficiency, and the multi-faceted opportunities for growth – or one that doesn’t believe next year will be any different to the last?

Four ingredients for success

In summary, the Xero report points to four key ingredients for growing your practice:

  1. Firms that have larger numbers of online clients have an easier time signing on and retaining clients.
  2. Firms that provide advisory services earn considerably more revenue per client.
  3. Firm that serve a larger number of online clients generate significantly more revenue per employee.
  4. Firms that position their firm as a business mentor generate higher revenue per client and experience rapid growth.

 

See how you measure up with our Australian partner benchmarking reports.

 

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