All of us are in business to make money…
You don’t spend 5 days a week (or more) slogging away in your practice to make no profit at the end of the day.
One of the ways to make sure that you are maximising profits in your accountancy practice, is to look at your recovery rates.
So how do you calculate recovery rates?
(Fees billed / Fees worked) x 100 = X%
E.g. (£400,000/£500,000) x 100 = 80%
But because we usually see recovery rates expressed as a percentage e.g. 85%, it’s easy to forget (or rather ignore) what that translates to in £ terms…
For example, if a practice had fees of £400,000 a year, and a recovery rate of 80%, they’ve written off £100,000 worth of fees (and potential profit) that year.
Add that up over a number of years, and you can start to see why increasing recovery rates is a worthwhile idea…
So, how do you go about increasing recovery rates & consequently profits in your practice?
Here are 5 ways that you can start to implement as soon as possible:
1. Review jobs where the recovery rate was good
A starting point when looking to increase your recovery rates is to review jobs where the rate was good.
What made this job have a better than normal recovery rate?
- Was the work completed more efficiently? If so, then why?
- Was there an increase in the fees billed e.g. for out of scope work?
By reviewing past jobs that have done well, you can learn a few things to improve future ones.
2. Review jobs where the recovery rate was bad
As well as reviewing the good, you also want to review the bad to figure out what went wrong…
What is it that made the recovery on these jobs so poor?
- Was it down to inefficiencies in your practice?
- Was it down to you under-charging the client in the first place?
- Was it down to you over-servicing the client?
Once you’ve figured out what went wrong, don’t just look to fix it on that one particular job, look to make changes to the overall systems and processes in your practice so that you reduce the risk of it happening again going forwards.
3. Look to improve turnaround time
I’ve said it before and I’ll say it again, I believe that turnaround time is one of the most important KPI’s for accountancy practices to measure.
Not only is it an indicator of efficiency and productivity, but it also indicates a high-quality service to your clients.
And generally speaking, the quicker the turnaround time, the better the recovery rate.
In addition, you should avoid starting jobs if you don’t have all of the information available to complete it. Time is money so the more your team spend picking up files, and putting them back down, the lower your recovery rate will typically be.
4. Manage scope creep
Scope creep is when the scope of work that has been agreed with a client increases or changes.
What this typically means is that your clients are asking for more, they’re receiving more, but 99% of the time they aren’t paying for more.
And as you guessed, this can have a negative impact on your recovery rates.
Managing scope creep comes down to 3 key things:
- Client communication
5. Set targets & hold your team accountable
Recovery rate can be a KPI for your practice just like net profit percentage and turnaround time.
And like all other KPI’s, if you want to improve it, then you need to set targets and hold your team accountable.
Consider putting whiteboards up in the office with recovery rate targets for the practice as a whole, or per partner, depending on how your practice is set up.
Then on a weekly basis, meet with your team to review recovery rates on jobs for the past week and set targets for upcoming jobs as well as the practice.
What could a 5% or 10% increase in recovery rates mean for your practice over the next 10 years?
As I mentioned earlier, when we look at recovery rates, it’s easy to ignore what the impact of that is in £ terms on your practice.
By increasing recovery rates, you can add a reasonable amount of money to your bottom-line.
Ask yourself, if you were to increase recovery rates in your practice by 5% or even 10%, what impact could that have on your turnover, and the amount of money you take home…