Five KPIs Every Accounting Firm Should Be Tracking

Marcus and Rachel break down the five essential KPIs that drive firm value, using real data from over 200 accounting firms. They reveal how the average firm in their network decreased owner production hours by 12% while growing revenue by 10%, and share the exact backwards mapping framework they use to identify which levers to pull for improvement. Marcus also walks through DBA's 2024 price increase strategy that netted a 4% revenue gain despite losing $12,000 in monthly recurring clients.

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Introducing Collective by DBA
https://collective.cpa
https://www.linkedin.com/company/collectivebydba

Learn More About Dillon Business Advisors
https://www.dillonadvisors.com
https://www.linkedin.com/company/dillonbusinessadvisors

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• (00:00) - Introduction and Life Updates
• (06:28) - Transition to Business Discussion
• (07:32) - Key Performance Indicators (KPIs) Overview
• (12:36) - Gross Revenue Insights
• (17:15) - Monthly Recurring Revenue (MRR)
• (22:07) - Revenue per Full-Time Equivalent (FTE)
• (26:13) - Earnings Before Owner Compensation (EBOC)
• (27:24) - Understanding EBOC and Valuation
• (28:43) - Profitability Trends and Analysis
• (29:44) - EBOC and Market Attractiveness
• (31:59) - Owner Production Hours and Efficiency
• (36:21) - Leveraging KPIs for Business Improvement
• (37:23) - Real-Life Examples of Business Levers
• (38:41) - Price Increases: Strategy and Impact
• (48:52) - Backward Mapping for KPI Improvement
• (52:30) - Final Thoughts and Encouragement

Creators and Guests

Host

Marcus Dillon, CPA

Host

Rachel Dillon

What is Who's Really the BOSS??

"Who's Really the BOSS?" highlights the joys and challenges of running a CPA firm with your spouse or family. From hiring and terminating to improving capacity, cash flow, and culture, our conversations cover leadership, operations, and current accounting industry challenges. Our mission is to strengthen families and accounting firms by helping listeners avoid the mistakes we have made, so they can lead and live happily ever after.

There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.

Rachel Dillon: Welcome to Who's Really the Boss podcast. I'm Rachel Dillon, and along with my husband, Marcus Dillon, we share the joys and challenges of leading a $3 million accounting firm together. From team structure to growth strategies, we share our leadership successes and failures so you can avoid the mistakes we have made and grow a valuable accounting firm. Welcome back to another episode of Who's [00:00:30] Really the Boss podcast.

Marcus Dillon: Hey, thanks for having me back.

Rachel Dillon: All right? I was just telling you, we definitely need to do life updates, so we need to give updates on the girls, our daughters, Kenley and Avery. We can do Kenley first since she's first born, and then we'll do Avery second. Which one do you want to take?

Marcus Dillon: I can take Kenley. You know that one? She's, um, living her best life, you know? Um, and we're just along for the journey. She's, uh, got a great group of [00:01:00] friends there at Baylor and is all involved with everything that Chi Omega throws at her and that she does for her sorority. And, um, like I said, we just couldn't be happier with the, uh, young ladies that she's found and surrounded herself with. And I know that they'll carry those relationships on throughout life. They just wrapped up if if you are familiar with Baylor and Homecoming week and everything. Uh, they do pigskin, which is kind of, [00:01:30] uh.

Rachel Dillon: Kind of like musical theater or or a recital. If you grew up with kids that did dance or did dance yourself, it's kind of like a musical theater or recital.

Marcus Dillon: Yeah. So they were they were able to do that. We went up and, uh, got to see their last performance of their, you know, production, which was great. Um, from how she started as a child and, you know, she [00:02:00] was in ballet and swimming and all that stuff. But, you know, she's come a long way and she had to work really, really hard to pull off the musical number that she did and very proud of her for, for what she did, what she put into it. She also, uh, some of the other festivities for the week. There's a parade, so they have to work on floats. And that's quite a, you know, heavy undertaking as far as time and things like that. But, uh, now that she's on the other side, I was actually talking to her this morning. She [00:02:30] called, and, um, she likes to call when she's walking to class, I guess, you know, and if you're not available, you're at Bible study already. So she called me, so I got the backup call, but she, you know, just called and said she didn't really know what to do with her time now that she was on the other side of homecoming. And it's like, hey, let's remember that, uh, accounting class. You got a 45 in, you know, last week, uh, whenever you took this exam or this quiz. And please do not tell them that your dad is a CPA or that he owns a firm or anything [00:03:00] like that. So, um, yeah, let's let's get back and focus on school now, that's probably wise. And so yeah, there's that. And then she also she hit a deer a couple weeks back and we had to she was driving your 98 year old grandma's car, uh, around Waco. Um, so she was very thankful to get back her Bronco, um, and, you know, be riding, you know, in style a little bit better than a very well maintained Toyota Avalon. Um.

Rachel Dillon: That [00:03:30] car is actually super nice since I had the opportunity to drive it home from Waco. Um, a 2003. Right. I believe.

Marcus Dillon: 2003, with a brand new battery out of the battery in it, but, um.

Rachel Dillon: Has only like 80,000 miles, and we probably put most of those on there in the last month. Um, but it's always.

Marcus Dillon: It's always the car that everybody borrows, right? It's the extra car and the family.

Rachel Dillon: So it is. Yeah. That's awesome, I just laugh. Um, you mentioned that Kinley had to work really hard for her dance, so [00:04:00] I actually that that was my sport that I played. I was in dance my whole life growing up. Um, and when we put Kinley in when she was a, a young child, um, we just my sister and I just described her as a tangled giraffe. She was tall and kind of lanky and really didn't know what was happening with her body. And so she did a great job at this. Um, update on Avery. She is swimming now [00:04:30] at TCU for the swim team and she is doing a great job. I feel like we shouldn't brag so much, but if her parents aren't bragging about her, who will? And so she has already set a record a TCU school record in the 1000 freestyle. She swims distance free. And, um, she has set top ten. Like one of the top ten times for the school. Um, and the other events that she has swam. And so she's doing [00:05:00] a lot of first place and, uh, top swim times. And so that's really good. She is getting close to her personal best or swimming personal best in these races, and it's super early in the season. So we're proud of her. We are obviously just following her everywhere she goes. So, um, traveling to swim meets a lot. Thankful when they are close by, but also willing to jump on a plane if we need to, um, and [00:05:30] travel to watch. So it's exciting. It's a lot of fun. She's tired, um, and I think ready for a break at Thanksgiving in a very short break at Christmas.

Marcus Dillon: Yeah. No, it's it's been fun to watch. And, um, you know, we have traveled really well with as being empty Nest Swim parents the last few weeks. Um. It's just it's a lot. You know, we've we've been going back and forth from Fort Worth to Waco to our, you know, Houston area home [00:06:00] and, um, yeah, it's been a fun eight weeks, I would say. Um, it'll be interesting. Kind of like Kenley and the, uh, after homecoming, like, I don't know what we're going to do after big 12 and NCAA. Um, so it'll maybe have some additional time to get back to other areas of life that aren't as priority right now.

Rachel Dillon: Those will wrap up right before the trip to Mexico and the tax deadline. So it'll I'm sure we'll find something. I'm sure we'll find something to fill our time. Okay. We promised on [00:06:30] a previous episode that we were going to talk through the KPIs that will double or increase firm value, and so really wanted to dive into that. We actually you, not we you and Amy actually presented two sessions, one at gather 2025, and then also a session at Intuit Connect about this topic and not only what KPIs are important to look at, but [00:07:00] the levers that you can pull to improve those KPIs. Again, we talk a lot about we don't want to just talk about the idea or like inspire an idea. We actually want to give the practical of how to do it, how to move forward with that, whether it's something to do or someone to know. We want to give that so that you're not kind of stuck wrestling with an idea and not sure where to go with it. So definitely focusing on what are those KPIs and what are the levers that [00:07:30] can be pulled to improve those.

Marcus Dillon: Yeah. So this is it was both at gather a hot topic that we presented and Intuit Connect. Um it was fun. There was over 200 people in that room at Intuit Connect and any anytime. So two things I don't present by myself anymore. Um, so, uh, I usually rely on the, uh, shared knowledge and just being able to vibe off of, you know, the, the [00:08:00] co-presenter that I have. I like that a lot more than a solo presentation. So um, but there are over 200 people in that room. So I thought Amy and I, you know, opened it up. We had a lot of conversation. We had a lot of questions throughout the throughout the session, which is good and bad, you know, because you want to help everybody, but you only have an hour. So, um, but yeah, it was it was great. And I think we always share we always share numbers. We always share data. Not not to boast or brag, but to really give perspective [00:08:30] on the journey that we're on. And you know, where we're at and people can resonate with whether it's revenue or team size. You know, I just think that they can connect with that a little bit better than, um, then just kind of being ambiguous or, you know, anonymous. So, uh, when we, when we share revenue or number of team members or anything like that, it's not to brag or boast because there's always going to be someone that's more successful than us and that we can look up to and [00:09:00] same thing like we've we've had a lot of, you know, failed experiments over our career that we hope others can learn from. So I just hope all that to say, I hope this helps. It's not to it's to add perspective on where people can be.

Rachel Dillon: Yeah, you just made me think of the guy on Instagram that always tells the story and he ends with, I hope this helps. Um, he has great t shirts. I think he sells the t shirts is maybe his whole.

Marcus Dillon: That guy, his [00:09:30] camera or his lighting is crazy. Like, you.

Rachel Dillon: Really like his eyes, right?

Marcus Dillon: Yeah. Well, yeah, I.

Rachel Dillon: Think you know his name. That's so bad. I just really am telling you all about this. And I don't know what account to tell you to go follow, but I hope this helps. So, um. All right. And so let's talk through the five KPIs. Now we track how do you know how many KPIs we track within DBA and the collective?

Marcus Dillon: Well, when we do KPI submission and collective [00:10:00] now it's over 20. Uh, because we really started getting into some of the tax KPIs. People wanted data on number of tax returns, average price per tax return and all that fun stuff. So it's grown a little bit here in the last year, but there's, uh, at least 22 or 23 that we pull and get submitted. Uh, the five, uh, that we land on. Those are the ones that if you, if you think about it like your car, right, or your vehicle and you have your dashboard, you can scroll to all the different [00:10:30] gauges that are imaginable, you know, that are out there. But the main ones on your dashboard are probably the ones that are really important to the to the drive that you're doing. Right. So, um, but yeah, we we applied that same concept to arrive at the five that we think are very important.

Rachel Dillon: Yeah. So we'll talk through those five KPIs. We'll give the numbers of the KPI data that was submitted for our gather event. So that's a mix of both [00:11:00] collected by DBA members and um, some guests and friends that were in the room that are also firm owners and leaders and that we're willing to share their data so they could get benchmarked, um, with the rest of the group. These firms are, uh, anywhere from 500,000 to I know they're over more than 5 million. Now, we have firms that are bigger than 5 million within this data set, correct?

Marcus Dillon: Yeah. For sure. Yeah. So, um, for those just, [00:11:30] you know, backing up like collective is mainly based off of firm, mainly based on firms 500,000 in revenue to 5 million in revenue team size of 3 to 30. But we do have some firms that are less than 500,000. We have some firms that are more than 5 million approaching 10 million. And so but the majority of firms do fall in that 500,000 to 5 million.

Rachel Dillon: I would like to say that they are now beyond that 5 million because of their peers, like the accountability and support that they've [00:12:00] had in that room. Um, I don't know that I can actually say that. I can say that for DBA for sure. We are we are where we are because of our peer network and the support and accountability we have had over the years. So we are no longer at that 400,000 where we started like we are now. Over what in revenue now?

Marcus Dillon: Yeah. So we're five approaching six. So um, but and that's part of what we'll talk through today. Like how do we get there. Like what leverage did we pull. Um, obviously [00:12:30] acquisitions been a part of that. So um, but yeah like happy to share that today. So why don't we start with just the first core KPI, right? The one that you know, it's your speedometer. It's big in the middle of your dash. Um, is that gross revenue? Because gross revenue is a vanity metric all day long, right? You can say you're a $2 million firm, $5 million firm, $10 million firm, and feel good about it. But ultimately, what that means to me as an accountant is, hey, what are the [00:13:00] budget line items that go along with a $2 million firm, a $5 million firm? And so, um, with that, you know, it's kind of one of those where that's an easy one to pull. And it's probably not rocket science that that's the first one. So based on that. Oh go ahead.

Rachel Dillon: Yeah. And I would say too that that's one that's easy to talk about because it is so easy to measure and to track. And so that is often right. What's getting thrown out when people are asking about your business [00:13:30] or what size you are. Some people answer with number of team members, but a lot of people will answer with their revenue. Um, yeah.

Marcus Dillon: So yeah, in every everybody's tracking that one, right? You know, um, so what we saw, uh, in the KPI submissions, uh, is that right now leading into and then at gather, uh, the average is right at 1.939. And so people are right under two, approaching two. Uh, I would assume when we pull [00:14:00] them again, it'll be over two. But that was a 10% increase on those same firms since spring 2025. And so that 10% increase could have been price increases. You know, actually getting the confidence and the accountability to to employ price increases. Maybe it was calling your client list and removing some clients, taking away revenue, but then accepting better clients, growing in better ways, which we we've heard that story. That's a part of our journey as [00:14:30] well. So whenever you say like, hey, revenue is X, there's always more to the story than just revenue is X, so we're just going to round that to 2 million. Round it up a little bit to 2 million and just say hey up 10%. What we what we look at there is it's also trailing 12 months.

Marcus Dillon: So I know a lot of accountants love to think in calendar year after calendar year. And this is trailing 12 months is what we pull and what we ask for because that's the cycle of the business. Now, [00:15:00] with so much monthly recurring being built in different phases of a business, trailing 12 months is more important to me than my last calendar year. And so it's nice to see that up 10% because of, you know, it removes that seasonality and just shows friends. And then also that's what investors are looking at. They're looking at your last 12 months or your last periods. They aren't going all the way back. Especially right now. We're recording this in November. So for me to go back to 2024 [00:15:30] and look at January through December 2024. Think about how much has happened ndeeba in the last 11 months and this year of growth. We've done two acquisitions. We've continued to grow collective. We've done different things. Had it added different people. So it would be very, um, very deceiving to only focus on that last calendar year.

Rachel Dillon: Yeah. Um, we had we talked about in a previous episode about what does success look like. And [00:16:00] for us at DBA and at collective, the success for us looks like our members and our clients succeeding. So we are looking at the numbers of our clients businesses within DBA, whether that's they're able to like, sell and have a succession event or whether they're growing, um, whether that's team member or revenue. Um, and then also within collective [00:16:30] that those firms, which are evident by these numbers, that they are continuing to to grow and to move in the direction that they want to move. So that just shows us, again, our success is not based on how many clients we have or how many members we have. Sign up for services. It's all about what is the impact that we are having and is it moving in the positive direction. So I love that there is movement and [00:17:00] just another reason to track data, because then you have real results that you can look at and say, yeah, people are doing things like things are moving the right way.

Marcus Dillon: Yeah. So, um, you know, it was a big push. It was good. So, um, what we saw next was the second KPI that we look at is MRR monthly recurring revenue, percentage of gross revenue. So you have $2 million in revenue. That's great. Is it all made up of annual tax returns or is it made up of 100% [00:17:30] monthly recurring revenue? That's going to that's going to drive different values in the business. It's going to speak into like how you run the business and what kind of team you run it with. Those are two different, two very different scenarios, right. So, uh, what we saw in collective is we saw people are now at 47% monthly recurring. That's grown. It's grown 2% since the spring. So people are continuing to focus on getting more monthly recurring, more sticky services in place versus annual only touchpoints or project [00:18:00] based touchpoints, which is great. That's building a business, that's building something that can maybe live on beyond yourself. Dba we have focused on MRI, where we are at as a business now as 70% MRI. And so that's where we can count on that revenue.

Marcus Dillon: There's going to be some churn, no, no doubt about that month over month. But it's very unlikely that 70% of our business or revenue is not going to show back up the very next month. So that just helps us run a more stable [00:18:30] business. It helps cover payroll, rent, all those different expenses. Our technology vendors that love to get paid monthly. So yeah, that's that's a push for some. And it's interesting at connect, um, there's a panel that had our friends, um, Matt May, uh, Chris Williams and I think Becky Munson from Icer on it. And they mentioned, you know, after they were acquired or did their deals, um, that they actually, you know, it's better for [00:19:00] you to move your clients over to MRR if you have a succession event in the future, because regardless if you do it or not, the acquiring firm most likely is. And so would you rather get a better a better valuation? Would you rather run a better business by moving them over to monthly recurring? Uh, or would you rather somebody else do that as soon as you have that event?

Rachel Dillon: Yeah, I thought it was. That was a really interesting conversation. I'm glad you brought that up. Um, what they said was [00:19:30] it doesn't matter if you have clients on monthly recurring services or not, they'll still acquire. They will still be interested if you don't have them. They're just not going to pay you more for it. So if you already have it, you're going to get a much better multiple on the offer that they give you. Um, if you don't have it, they're going to take that into account that that's something that they have to put effort and time and possibly lose some clients over when they're making that [00:20:00] shift themselves. So if you're considering and you want to increase the value of your firm, the answer was yes. Move your clients to monthly recurring revenue engagements. So if you're on the fence and you're wondering, is it even worth it? Is it worth my time? Should I do it? Do people even care anymore? The answer at first was no, we don't care. We'll buy you anyway, right? But the real answer was for you. You should care, because we're not going to pay you as much if [00:20:30] there's not as much monthly recurring revenue.

Marcus Dillon: And it's just a harder business to run, you know. Um, so the two acquisitions that we did, the one that closed in January, that came with about, I would say 50%. Mri, uh, 40 to 50%. So the day after we closed or within a few days after we closed, recurring revenue invoices went out for about $25,000. And that immediately comes in. So as a business owner, you get you're buying that cash flow immediately. [00:21:00] And so that that's a benefit to a buyer. The second acquisition we did later this year, just this previous month, has about $90,000 of MRR. And so you close on September 30th, October 1st. Those invoices go out and you collect that MRI within the very next week. They're like, that is just setting yourself up for success, setting that new buyer up for success. And that's why we love MRR. You know, as far as [00:21:30] as an acquired acquiring firms, also what it means for just running the business that much easier. So and both of those because of that MRI we're at a premium. Right. So I think that's just one of those those case studies to look at. So collective firms, firms overall are continuing to to speak into MRI. Um I think your point was well received. Like they'll still buy you they'll buy anything. Right. You know, depending on the buyer. But they are going to turn your clients into MRI clients or they're not going to be clients [00:22:00] anymore is what these these firms are saying. So so that was helpful. The third um, KPI that we focus on is actually revenue per FTE. And so this is where, you know, you've got that $2 million firm. How big is your team size.

Marcus Dillon: And so a lot of people you know may answer how big their firm is with their team size, and that kind of helps, you know, you equate what their problems are or their problems the same as your problems. What we saw in, [00:22:30] uh, in collective, the data that we had was the average is now 194,000 per FTE. So it's about that $2 million firm has about ten FTEs in it. And that's how they're operating. So we saw that increase about 1% since the spring of 2025. So that's great. That just means that people are becoming more efficient or effective that they're able to scale staffing. Um, now part of that is the number of team members given technology may be able to reduce over [00:23:00] time because technology is going to make you more efficient or effective. That's the hope. And that you can operate, you know, go above 200,000 and then approach 250, 300,000. We know that in some of the larger firms that, you know, 300,000 is a very real thing, and then even up, you know, but it also depends on the work that's being done. Um, a lot of, a lot of firms that are our friends, they have, you know, team members, a lot of team members that are accountants, bookkeepers, you know, entry level kind [00:23:30] of just great people. And those those projects that are done at that level may not carry the same weight as, like a tax attorney would at $500 an hour. So I think it's also has to be taken in relation to the business that you run. But it is really good data that that $2 million firm has about ten people in it.

Rachel Dillon: Yeah, I think within collective within DBA as well. It's not so much about finding ways to cut people [00:24:00] out of your business. It's more about not having to find that next person. When you bring on two more clients or three more clients, it's about being able to do more with what you have within your team, which might look like bringing on different or more technology to help. Reorganizing your team structure, um, defining roles and responsibilities so that those team members can gain efficiencies. And that's what we've seen just [00:24:30] within our own firm, within collective, uh, members. It's just that's how they're able to keep improving that number. It is not it is not about cutting out great people that you already work with. It's really about we all know that hiring has not gotten any easier as the years are moving on. And so it's really about solving for we're not finding the best people very easily at all. And they they are it is an investment [00:25:00] when we hire great people. So let's make sure that every person on the team is effective as possible, um, satisfied and fulfilled with their work, but also doing good work, uh, and able to produce So that we have the best team members without just having people to have people.

Marcus Dillon: Yeah, no, it's well said. And we'll get into how to improve some of these. Right. There's good ways to improve these numbers. There's bad ways to improve these numbers. So [00:25:30] um, and all five of these KPIs kind of have to be taken in relation. And it's a balance between the whole five is what we, what we taught on. Um, because you can totally, you know, crank it through the roof, have high revenue per FTE, but you're like burning out your team. You're burning out yourself, you know, and it's just one of those where maybe that's not the best approach to to really running a business or having a business that can live beyond you one day. So. So we talked about gross [00:26:00] revenue. We talked about monthly recurring revenue as a percentage of gross revenue. And then we talked about revenue per FTE, which are all, you know, really revenue top line focused metrics. So the next one is actually profit. Um, and the way that we define that is earnings before officer owner comp E-bok. And so what that is, is you take your net profit and then you add back all the fun stuff, including your owner salaries. Right. And the benefits that you [00:26:30] receive as an owner to get to E-bok. Uh, a lot of people talk about EBITDA. You know, EBITDA typically has a value in there for the role that the owner does. And if you're having a succession event or going out to market for valuation, they will get to EBITDA and they'll beat you up based on the amount that you pay yourself or what you should be paying yourself or your role in the business.

Marcus Dillon: So before we even get to EBITDA, we've got to get back to this equal playing field. E-bok. And so that's where it [00:27:00] just gets us back to, hey, this is what I make. If you were a schedule C with all your discretionary items, uh, you know, out of it, that would be the thing. But now because of the way you're structured, Maybe your S corp, C corp, whatever. Obviously you pay yourself some wages and that kind of gums up the the calculation on EBITDA. So but E-bok, um, what we saw there is most firms in that room are right at 40%. That's the average. So 40% earnings before owner comp. Um, so on that $2 million firm. [00:27:30] Uh, that's about 800,000, right. You know, quick math. And um, out of that 800,000, you can choose to pay yourself some salary, pay your kids some salary, right. Your, um, home office off, whatever, whatever else is in there. But you're getting back to, hey, this is the level playing field. So in a valuation standpoint, if you were trying to sell, they would say, hey, you're worth $250,000 on the other side of this transaction, they would take that 800,000, deduct 250 and maybe some other payroll [00:28:00] tax related costs, but ultimately get to a valuation of 550, apply some multiple. And then that's your value because they're saying your EBITDA is 550 because we reduced your earnings because of the amount that you need to pay yourself.

Marcus Dillon: And so in these valuations, we've seen officers or owners on the other side of it be valued at anywhere from 200,000 on the low end, up to 500,000 on the high end, depending on what you're going to do after, after the the sale. [00:28:30] So that all factors into EBITDA. It's all negotiable. But for our purposes, we really wanted to kind of get back to a level playing field, a baseline, if you will. And that's where we've landed on Evoque. Uh, the cool thing there was, uh, while it shows true profitability benchmarking, decision making, the thing that came out of this was it actually decreased since the spring of 2025. It went down 1%. And so we knew that people were growing. You know, they're [00:29:00] growing top line. They were also, um, you know, doing what they needed to to get more MRR. They were also increasing their revenue per FTE, but they actually made less money by 1%. And then so that's a great gauge to see. And then you kind of have to dig into okay. Why is that the case. Is it because payroll expense went up, your cost of labor went up? Or is it because your technology costs went up? You know, so you have to start answering those questions based on that, that gauge flashing at you, that it did [00:29:30] go the wrong way. And so but overall 40% average down about 1%, which isn't bad. That could just be a timing thing. But we would would rather have that improve versus decrease.

Rachel Dillon: Yeah. What if you, um, like just thinking about the market and a buyer or an acquirer? What is a good range for Ebok. What's something that's attractive for a buyer?

Marcus Dillon: Yeah. Um, Ebok is going to get your level playing field. So I would say 35 [00:30:00] to 50% are attractive because then you have a lot of room to work with whenever you add back owner salaries. Um, what we see in the market as far as EBITDA, what these acquirers want on the other side is anywhere from 20 roughly 20%, 20, 25%, sometimes 30% if it's a really high performing firm. Um, but if you use EBITDA as your benchmark, what they're trying to go and kind of have the firm do on the other side of ownership, [00:30:30] uh, 20 to 30% is typical. And because of that, Ebok, if you add back the payroll, add back some of the discretionary, then hopefully you're above that 20 to 30%. If not, um, it's going to be a tough sale. It's going to be a tough value to to see. So but those are the things. And we can also talk into the levers that you may need to pull to improve that before you are ready to have a succession event. Or and all this to say, like it's not all about succession, it's about running a better business. And [00:31:00] some of these levers, some of these KPIs hopefully lend itself to running a better business, regardless if you ever want to sell it, but you will have a A sale in your lifetime. Um, you will have a succession event in your lifetime because you're just not going to live forever. And you're either going to sell it, you're going to give it away, or you're going to shut it down. Those are your three options, right? And so I think those are the things to kind of think through and whether or not you just want to own this business all the way until you just shut [00:31:30] the door one day and nobody else shows up. Um, let's try to make that as enjoyable as possible. And these KPIs also speak into that. It's not always just about selling it.

Rachel Dillon: Yeah. And I would say even if the, um, thought is to give it away, you want to give something other people want. You don't want.

Marcus Dillon: To give them a burden.

Rachel Dillon: Thanks, but no thanks. You don't want the receiver to say thanks, but no thanks. I don't want your problems or the life that you've lived. So, yeah, just running a better business is important.

Marcus Dillon: Yeah. [00:32:00] So? So we've talked about, you know, the revenue metrics. We've talked about the profitability there. E-bok metric. Um, that last one that kind of weaves into this and, and brings us all the way up to speed on all the five or owner production hours, because so many of us are technicians. We were raised in accounting. We have the background we can actually do the work, probably should not be doing the work, or at least I speak for myself in that. Um, but you still are productive production to some extent. And so as [00:32:30] people think about running businesses, they they typically want to remove themselves from production because they want to work on the business, not in the business is the, you know, the time and time saying, right. And so for those that tracked hours, which was most of the firms, uh, they still track hours not to bill, but mainly for project, you know, profitability and scope and things like that. The average was 1152. So 1150 two hours per year out [00:33:00] of a standard 2080. Now that's production hours. That's not total hours that you could be doing other things on behalf of the business. But the cool thing is what we saw there was that was actually down 12% from spring numbers. So and that's not that's not skewed because of some tax season. This is all being pulled trailing 12 months. All KPIs are trailing 12 months, not just the revenue ones. So that's a really cool metric that over 10% of those production hours were given to other people. Rethought. [00:33:30] Do we even need to do that anymore? Maybe that's also part of the reason why profitability went down, because the owner was doing less work themselves. They employed more people to do it. But in the grand scheme of things, revenue went up, MRR went up, revenue per FTE went up. The only one that went down was Ebok by 1%. And then you dropped your time by 10%. I know most owners would welcome that decrease in ebok [00:34:00] to work 10 to 12% less year over year.

Rachel Dillon: Yeah, I think so. I think I know a lot of people that I talk to that are either just friends in the industry and or new friends that are looking for some support and accountability. They're coming because they are working too much and they're not quite sure how to change it. They've tried different things. Um, maybe they've not given enough time or been consistent or not tried the right [00:34:30] thing, but for whatever reason, they continue to repeat the same busy season cycle. Um, whether that's with tax clients or without. Maybe it's just continuing to do a lot of monthly accounting and quarter end work and year end work, and it's killing them. And so that is really awesome to see that we actually have metrics and can track that people are making decisions and making changes within their firms that [00:35:00] are resulting in the actual goal that they were trying to get to, which is I just need to work less. I don't need to quit. I don't need to stop working. I just can't keep working these same hours for the rest of my life, or I don't want to do it anymore. So I think that that is awesome. And I think that we have celebrated well. But to celebrate that, you know, people are spending more time with others. So [00:35:30] that could be any number of things. Um, but definitely gives them a little bit of flexibility and control where they may have felt like for the past few years that the business is controlling them or has control over their life.

Marcus Dillon: Yeah. No, that's really good. So I think the we can all agree that those five are pretty important. We did have questions from the audience when we were at Intuit Connect about well what about, you know, um, your cost of goods sold or your cost of, like, your, [00:36:00] your gross margin, and it's like, well, how do you define gross margin? And everybody in that room is probably going to have a little bit definition, a little bit different definition of what they include above the line for gross margin. Obviously it's going to be labor. Is it going to be technology costs. Is it going to be XYZ? You know, so I think these are the five core that we've landed on. Um, and as we got into this, we've already kind of mentioned levers. And so levers are the different things that you can pull inside of your business. The think about it as [00:36:30] a gear or a lever, how you're going to utilize it to change things, right, the trajectory of your business. And so if you've got one of these KPIs or a group of these KPIs that you want to improve, there's different things that you can do. And so we've got a resource. We we gave it to the to the people that were in the room in Vegas. We're happy to give it to listeners here and members of collective. It's already in platform. Um, but it's one of those things where if you want to do this exercise about what KPIs, which [00:37:00] of these five do I want to improve, or which grouping do I want to improve, and how do I do that? Part of it is backwards mapping, knowing the the lever that you can pull, the estimated cost or investment, the risks involved, and then honestly, what your expected KPI impact is going to be. So if we've got time, you want to cover two of those scenarios that are real life examples from DBA.

Rachel Dillon: Yeah, some of the levers that we have pulled over the years and we won't go into all of these, but, um, some [00:37:30] of the levers that we've used in DBA have been price increases, automation, um, hiring an operations manager, which we talk about Amy, all the time. So maybe we can dig into what does that actually look like? And when were we ready to make that call? Um, evaluating our client list again have talked about that often. So there are webinars on that as well as other podcasts. And then looking at additional looking at like monthly [00:38:00] recurring packages or plans, service plans and specialized hiring, when we think about maybe even like director level, um, team members that again, they're filling that skill set of most likely the owner. So, um, those are some we can talk about. Which one do you want to dive into?

Marcus Dillon: So let's dive into, um, let's dive into two and we'll go. We'll move through them pretty quick so they'll be the easier ones to dive into. I'm going to leave the operations or [00:38:30] hiring of different people for another day, because that one's got a few more moving pieces to it. There's just a lot of different options in the market. Um, as opposed to hiring an individual, you go fractional all that fun stuff. So, um, but let's talk about, um, the lever of price increases like that ones, you know, this season of life that we're in, maybe you're evaluating price increases in your firm before tax season hits. Or maybe tax season already hit when this is coming out and you maybe need some additional motivation, you know, to invoice what you're worth. Um, in 2026. [00:39:00] So what we expected our KPIs to improve. We wanted revenue to increase. That was trailing 12 months. We wanted our earnings before owner comp to increase, and then we wanted our monthly recurring to increase. So the way that we knew that we could do that was by pulling the lever of having a price increase. Um, so the price increase that we landed on was about 5 to 10%, depending on the engagement, whether it was MRI or AR, if it was IRR, we were okay going a little bit higher [00:39:30] on that 10% side because um, monthly recurring, you know, it's it's great work. You don't want to rock the boat too much. And um, it's just one of those things. Hopefully you price it right from the very beginning, which we try to do a really good job on. Um, but but annual recurring, especially if it's tax related, there may be some room for improvement given, you know, complexity, changing in tax laws and things like that.

Marcus Dillon: So we also asked this question at our gather event what people were expecting given tax law changes, [00:40:00] the IRS shutdown, the government shutdown, uh, what 2026 filing season is going to look like? Um, and so most people were still around a 10% price increase, uh, for services across the board. Some went as high as 20, some went as high as 25%. And so not going to say you need to increase prices in your firm by 25%, but 10% seemed to seem to be a lot of hands raised when we asked that question. So maybe that's your benchmark. Uh, [00:40:30] and so what we were shooting for in this example was, uh, 5 to 10%. And this is real life example coming out of DBA, uh, expected investment or cost was client communication. No one loves to talk about price increases or um, you know, share that with clients. And then there's just the possible attrition or churn that comes along with price increases. And so every time we've done price increases, we have some churn, but it's manageable. It's typically, you know, 5 to [00:41:00] 10% if that. Um, but still you have to be prepared for it. And um, you know, the, the main thing that you have to be prepared for is the strong, you know, strong narrative on value, the value that you bring, uh, don't make the price increase about yourself. Don't make it about, hey, technology costs more or team members cost more than they did last year. No client wants to hear that. You have to have a better value perspective than your costs are increasing. So before we share results. Rachel, what [00:41:30] did I miss?

Rachel Dillon: Not anything that you missed. Um, price increases. I would say that's one of the biggest benefits of having a strong peer network, because you can talk yourself out of doing price increases. You can say like this client has had a rough year, or the whole economy has had a rough year, or I just did price increases last year and maybe they didn't. You know, a few people got upset and I don't want to do that ever again. [00:42:00] Um, but in a peer, in a peer group, whether that's one person or 50 people, um, you start seeing what other people are charging, what other people are planning to do for their price increases. And you think, well, I'm doing the same work as they are. Why am I still charging so little? So I just think that having that extra conversation, it confirms what you already know and believe, but it also gives you the confidence and maybe the courage to go out [00:42:30] and do it again. Also gives you a lot of ideas of how to communicate the value rather than defaulting to the, you know, technology and team member costs continue to arise. So if you want the same great service, you know we need you to pay this additional amount. I will say that we have defaulted to that for some that we couldn't point, right? Like this was not a creative conversation or communication [00:43:00] to the clients.

Rachel Dillon: Um, and we did default to that. It wasn't awful, but it's not as easy for the client to accept versus when you can point to the growth that they've had in their business, the tax savings that the team has found for them, or whatever else the team has done, provided the value that has, you know, happened over the past months or year. Also the value that the team will continue to provide. [00:43:30] For example, if you're maybe you're not even offering it as a webinar to the clients, but if you were, um, offering webinars on tax updates or some kind of planning meetings or additional things that's going to directly impact them, and better if their financial impact sometimes if it's peace of mind. Um, but more so easier to swallow if it is a financial to financial comparison that you're communicating. [00:44:00] And again, when you get in a room with a few people, maybe you don't have all of the ideas, but somebody in the room or the ideas that you can come up with together and then create, you know, the letter, the email or the phone conversation or whatever is going to go out to communicate that price increase.

Marcus Dillon: Yeah. So so let's talk about this was 2024 results. Um, we shot for a price increase. We came kind of heavy uh, because we had waited a little bit longer [00:44:30] on some clients. Uh, kind of going back to that accountability and confidence of price increases. We waited a little bit too long in 2024. So we were actually shooting for a little bit higher, 14%. We knew some people were on the bubble. We knew that this would either move them to turn off or, um, you know, invest and go deeper with our team. So we were prepared for that. We also had a lot of clients that we were moving from below $1,000 to above $1,000. And so, like those different thresholds, [00:45:00] uh, we knew would cause some, some conversations. So we shot for four.

Rachel Dillon: And that was really that was really something that needed to happen. Right. Because our average price at that time was like $2,100 per month. So to have a handful of clients that were servicing at under $1,000, with a team of three with the same types of services, that the $2,100, obviously, it wasn't a good business decision to keep those clients on. [00:45:30] So that's really where we made the decision to, hey, let's at least get them like profitable on either.

Marcus Dillon: Get them profitable. Them? Yeah. Either get them profitable or get them out.

Rachel Dillon: Or help them find a new provider.

Marcus Dillon: Yeah. Because we obviously our team of three is really important to us. So we have to create budget for each of those three people on that team. And so, uh, it was just harder to do whenever that price point was below a thousand. And there was opportunity cost to serve other [00:46:00] clients at a higher price point. So, uh, what we did is we shot for 14% kind of across the board on those monthly recurring clients. Uh, actually landed on a net 4% after churn. So we had a total churn amount on our monthly recurring of $12,000. So we lost $12,000 of monthly recurring work, but we gained overall four, 4% more, just total billings, and we had less clients to share. I mean, to, to work on, right. So [00:46:30] revenue went up. It went up by quite a bit because we had some other revenue that came in the door that is related to other things. So revenue went up. Earnings before officer or owner comp went up because just hire that 4% top line. We didn't incur any additional cost to serve the remaining clients. We actually probably cut off some costs with either technology or repurpose some things. So cost went down and then monthly recurring actually went up. So [00:47:00] we had three things that went up. We also probably had some other gauges that were more favorable. Probably owner hours went down, overall total hours went down. But then your revenue per FTE would likely go up as well because you didn't hire anybody. You have more revenue, but you just have the same number of FTEs. So that's the way that, you know, you could improve all five of those metrics more than likely is by price increases alone. So yeah.

Rachel Dillon: And that that is not um, I [00:47:30] think it's just important to point out that that's not a strategy that we employ to, um, exit clients. So these were great clients. They were just they just came into the business under a different service model at some very old legacy pricing. So the goal was not to price them out. The goal was to continue to serve them, like all of the other clients are being served at a price that made sense [00:48:00] for the business. So definitely if there are clients that are not good to work with for you or for your team, but don't just keep increasing their price and serving clients that are like disrespectful or very aggressive. Um, beyond your comfort level, those we do recommend just exit, just have the conversation and help them find a new provider, or tell them they need to find that new provider. Um, don't keep serving them because they're paying you. Because [00:48:30] not all of the team gets the direct benefit of that revenue that comes in from that client, and you don't want to lose a team member over keeping a bad client.

Marcus Dillon: So so that's just one of the levers. That's the, you know, an example that we could go over. There are multiple others that we can dive into and probably will another day, but would really encourage listeners, um, we've got the free resource out there, uh, on the backwards mapping the worksheet. So definitely [00:49:00] getting that in your hands, because once you do that, it's just a matter of defining your KPI benchmarks like where you where you are today and where you want to go, um, identifying the dependencies, like how do these KPIs work together or, you know, improve one another by doing certain things as like the price increase lever, then you're going to determine which lever you want to pull. Maybe it's price increase, maybe it's hiring a director level team member. Maybe it is, you know, calling some clients and [00:49:30] exiting those clients, whether monetizing them or just exiting exiting them without any type of value. So there's different levers. Those are just three that we've talked about. And then the next part is just putting that to a timeline. Right. And then when do you want to move. And then what mile markers what things can you celebrate along that timeline to know that you're either on the right track or off track. And um, so that's really important. And then that final thing with, uh, [00:50:00] the backwards planning framework is actually actually pressure testing it, making sure that the results that you wanted to achieve or what you achieved. And then if there were any negative implication, implementation implications of that, that you go and fine tune that and fix it to continue to refine and and move towards excellence.

Rachel Dillon: Yeah, I love that. And that kind of leans in towards what we call improvement season. So during [00:50:30] improvement season is a lot of times when we're looking at these KPIs and backwards mapping, um, usually we do that at the end of the year. So when we get to we call improvement season from like April 16th till August 15th. Um, so usually at that right after April 15th, we are assessing where we are like what is our progress? But then that gives us all of those summer months where it's potentially a little slower. If you have tax [00:51:00] projects in your office, those summer months are typically a little less volume of work. It gives you time to work on and put things in place. So that planning that we've talked about put those in place. And then whenever you get to a next season of high volume, which could be September, October again, if you have tax projects, that's your pressure test, then you can reevaluate that pressure test in November or December and fix. Right? [00:51:30] So a lot of times when we pressure test we see like, oh, that didn't go exactly how we thought that would go. But we can we can reassess and um, adjust whatever needs to be adjusted. And then we go again starting in January with this great plan in place. And so I think that for us doing both monthly accounting and financials as well as tax, we have just normal rhythms within the business and within the year [00:52:00] that allows us time to pressure test and then reevaluate pressure test again and reevaluate. And maybe for some of the KPIs, it's over a whole year, and maybe for some of them it's in shorter chunks like that, where you can pick a specific time to pressure test and then to reevaluate and keep moving forward.

Marcus Dillon: Well, in some KPIs it may be even longer than a year. Maybe it just takes you over a year to kind of recover from the six figure director level person that you, you know, employed. [00:52:30] So. Um, and kind of the final thing I would say about all this, we're giving you the resource. You know, we're going to prompt you into action and, you know, ask some questions as we close. But the KPIs, you know, as you mentioned, with pressure testing the KPIs can influence one another. Um, and so you can you can look at improving one KPI and do very drastic things to improve just that one KPI. Um, but it could be detrimental to other KPIs or your business. So like one of those would be [00:53:00] revenue growth at all costs. Right. So revenue growth at all costs. What does that look like. We're accepting anything that comes in the door. Probably your owner hours are going to go up. If you do that or your costs are going to go up because you're going to have to employ people to do this work. That may not be the best work for you to to have in your firm. So revenue at all costs. Probably not a great thing, but it is a balance between growth and revenue. Owner hours being the same or decreasing earnings [00:53:30] before owner comp either increasing or staying the same. All of that to kind of take into to account. The other one is revenue per FTE versus earnings before owner comp.

Marcus Dillon: You know I could I could increase my revenue per FTE by having mass layoffs and I could cut headcount across the board. My revenue per FTE would shoot up because I just have less FTEs than I than I do in the past. Um, and that's a that's probably not a great thing because my owner hours will [00:54:00] either increase. Uh, sure, my ebok will increase, but my quality of life will probably not. So like, those are just the things to to keep in mind as you're as you're looking at these gauges as you're running your business. Uh, just to make sure that what you're doing is what's right for you and what's right for your life and for the business that you want to run. Um, and I think this is usually kind of helpful for folks to kind of focus on these five. And if you haven't been tracking [00:54:30] one of these five, I would encourage you to identify which one you haven't been tracking. And maybe you're tracking something else that that is important to you. And that's okay. And you can weave that into this exercise as well. But if you were to if you were to pick 1 or 2 KPIs that you really wanted to improve and not create chaos with the remaining ones, I encourage you to really figure that out and do that backwards. That backwards planning mapping exercise to improve those [00:55:00] KPIs and you know, the value of the firm that you're running on a daily basis.

Rachel Dillon: Yeah. So when I heard you say was two questions for listeners, one, which KPI do you need to move to increase your firm value? It might be more than one, but if you are thinking about focusing on 1 or 2. Um, and then what KPI are you not tracking yet? But you should be. So I think those two questions for sure to think about after this episode. And then last thing is, [00:55:30] make sure you go to the show notes and download that backwards mapping exercise. It's super fun. This is nerdy of me, but super fun to see how simple. Like how you can take something that's complex or seems very difficult and and simplify it and that, um, exercise and that worksheet that we have provided for free, um, is one way to do that. And just to see and hopefully we'll give you some confidence and momentum to keep going. Uh, in the firm.

Marcus Dillon: Yeah. No, [00:56:00] that's really good. The the final thing that I would say to all our listeners is it's really cool when you can invite others into this. So that exercise, look at it, do with your team, do it with your leadership team. Do it with somebody beyond yourself. And then you can invite others into improving that KPI and then celebrate it with others, you know, and and that's the cool thing about having a team is to be all in it on mission together. And so just another encouragement or challenge, depending on how you want to look at it, of actually inviting others [00:56:30] into into that exercise.

Rachel Dillon: Awesome. Well, thank you for this conversation. Thanks to you and Amy for pulling all of the data and sharing this conversation both at Intuit Connect and at gather. Um, and now the podcast listeners get to hear it as well. So thank you and I will see you on the next.

Marcus Dillon: All right. Thanks so much.

Rachel Dillon: Thanks for listening to this episode. If you enjoyed the conversation and want to learn more, be sure to visit collective. [00:57:00] You can schedule a meeting directly with me, Rachel by clicking on the Contact Us page. Be sure to subscribe, like, and share so you don't miss any future episodes. We look forward to connecting with you soon!