What we can learn from the fastest growing, and most profitable, firms

Hey 👋 - Brandon here.

Happy Saturday to 1,065 growth-minded accountants.

Today’s issue takes less than 5 minutes to read.

Last week, AccountingToday released a list of the fastest-growing accounting firms in the U.S.

Fast growth is great, but I wondered how profitable these firms are.

So I compiled the information provided in the article into this list. My goal was to calculate Revenue per Employee to gauge profitability. And the results are very interesting.

The top two firms (EEPB and Smith+Howard) have Revenue per Employee exceeding $340k.

From my experience, if your revenue per employee is $225k-$250k your running at a 30-35% net margin. If we assume that's generally true, then EEPB and Smith+Howard could be operating at 40-45% net margins.

Which begs the question: what are they doing right that the rest of us can learn from?

Below are my top three ideas to increase your profitability:

A Niche Focus

While a review of EEPB's website shows a variety of services and industries, it appears the firm has niched in the Oil and Gas space. Specifically, Oil and Gas outsourced accounting... a service I had never heard of before this.

I wasn't able to determine Smith+Howard's specific niche based on my research.

However, they are a large regional firm with a strong local presence. It wouldn't surprise me if they have niched horizontally through specific services across several industries in their local market.

When you niche, you build a strong brand that allows you to price services at a premium.

This in turn raises your revenue per employee and profitability to boot.

There's no doubt in my mind that EEPB and Smith+Howard have built a strong brand in select niches.

Creating a Service Flywheel

Firms that earn more revenue per employee generally expand services beyond tax and audit work.

Smaller firms tend to offer services such as tax advisory, financial planning, and monthly accounting.

Larger firms have the capital to invest, and networks to leverage, to develop more specialized services that command premium prices. Such services may be enterprise risk management, transaction advisory, automation/process improvement services, litigation support, fund accounting, outsourced CFO services, outsourced HR, cyber, and technology.

When reviewing both EEPB and Smith+Howard's websites, its clear they offer many of these services.

And in doing so, they create a service flywheel.

A service flywheel is a way to create a loop of clients across the various stages of the buying process. The idea is to move clients around the flywheel at an increasing pace to add more value, capture more revenue, and increase retention.

The number one goal is to increase customer lifetime value.

Any firm can begin to create its own flywheel. Start by asking: what does my client need after I deliver X service?

For example, you may deliver a tax return and recognize your client also needs tax planning to reduce penalty exposure in future years. Upon delivery of the tax return, you can pitch your tax planning service and keep the client moving through your flywheel.

Leaning into Offshoring Work

I can't confirm if EEPB and Smith+Howard are offshoring work through online research, however I was at a conference in Q4 of 2022 where the topic of discussion was building offshore capabilities.

This is not new.

But the firms who are doing this well, and the approach we take at our firm, is to treat your offshore staff like more than a service center. If you want to build institutional knowledge and a team whose capabilities expand organically, you have to treat your offshore staff like your U.S. Staff.

That means bringing offhshore staff on as engagement team members.

It also means performance reviews, technical training, leadership development, career development plans, virtual happy hours, sending swag and busy season gifts, and the occasional travel.

If you are unwilling to do these things, then your offshore team will feel like a service center.

Your U.S. team won't treat them like true teammates. And you'll experience high turnover because there's nothing you're offering that other firms aren't (for the offshore staff).

In summary, none of this is rocket science. But great execution on niche and premium services, coupled with a move to a global workforce, very clearly drives more to the bottom line.

That's all for this Saturday. See you next week.

Whenever you're ready, here's how I can help you.

→ Work with me 1:1 to grow your firm (one opening per week, 12:30pm EST on Friday)

See you again next week.

Cheers,

Brandon

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