Amy Bridges of CPA.com dives into what it takes to build a successful client advisory services practice, based on the results of the latest CAS Benchmarking Survey.
Transcription:
Dan Hood (00:03):
Welcome to On the Air With Accounting Today, I'm editor-in-chief Dan Hood. We've talked a lot about CAS on this podcast, from its tremendous growth over the past several years to how significant an opportunity it represents for firms. We've never really talked about what a really successful cast practice looks like. So here to talk about that is Amy Bridges who leads practice development at CPA.com, which just released the third of its biannual CAS Benchmark surveys which provide a wealth of data on all sorts of aspects of what goes on in client advisory services. Amy, thanks for joining us.
Amy Bridges (00:32):
Thanks for having me. I'm very excited to share more results from our client advisory services benchmark survey.
Dan Hood (00:38):
Excellent. I saw a presentation you did on this at the Digital CPA conference, which happened in early December and that's sort of what sparked bringing you on because there is a wealth of data in that survey. It's sort of difficult to hand over data on a podcast. So we're eventually going to send you to actually go look at the survey itself and get the numbers there. But Amy and I are going to talk some today about something like said some of the hallmarks of what makes for instance a great practice. Well let's start with just getting a little bit of flavor of the survey itself. Can you give us some of the key takeaways of that came out of this year's survey?
Amy Bridges (01:12):
This year's survey was really exciting Dan. It's a great snapshot of the way that client advisory, the client advisory services landscape looked at the end of 2021. So that calendar year 2021 data showed us a couple of really big headlines. The first is that CAS is continuing on this amazing trajectory of growth. We're reporting medians in the survey and the median this year was 16% growth, meaning that fully half of respondents had seen growth that was higher, often significantly higher than 16%. Additionally, 81% of the top performers are reporting this incredibly strong opportunity for continued growth based on their sales pipeline, their sales opportunities. Another trend, actually a nude trend that we found in the data this year was the continued use of remote work. Nearly one in five respondents have fully remote cast practices. Nearly half of all of the survey respondents allow for at least 80% of their work to be done outside of the office.
(02:23)
Another exciting staffing takeaway that we saw is that about two thirds of our top performers have moved to fully dedicated cast staffing. So we've talked about this as a best practice for a long time, but this is an increase from 52% in the previous survey to 67% this year. So firms are really moving the needle on that dedicated CAS staffing best practice and it seems to bear out in an impressive net client fees per professional number that's reported by those same top performers. I think another big thing that we're talking about that we saw in this data is that the top referral source for CAS is tax clients. So the partnership between tax and CAS within firms is really continuing to prove to be incredibly important and we see firm leaders who are very excited about some of these big headlines.
Dan Hood (03:20):
Very cool. Someone at DCPA — I can't remember what was in your session or in another one — they were talking about the importance of partnering with the other partners in your firm and they said at some point they were talking about it's really important that they know what you're doing. And they said, oh, I've got partners at my firm who still introduced me as the head of bookkeeping. No, no, I'm not the head of bookkeeping, I'm the head of your CAS practice. So that partnership, making sure that your fellow partners really understand what you're doing and obviously you're saying particularly in the tax department, but they know what you've got going on and what you can offer. That sounds pretty important. I think it's also worth highlighting, you mentioned 16% media growth just for reference, usually people talk about the sort of core traditional offerings of accountant, right? Audit, tax, that sort of thing. The average growth rate we've heard of those for the past several years has been six, seven, 8%. So single digit growth. So when you talk 16% and for half of your respondents higher, that's tremendous.
Amy Bridges (04:16):
We think it's tremendous and I think it's drawing more firms to investigate the opportunities within CAS. In this year's survey, we saw a 75% increase in the response rate to the survey. So over the first two iterations of the survey, we knew we would see growth but we were just so happy that even the survey itself is drawing more and more people in because of the tremendous opportunity in the client accounting and advisory services area.
Dan Hood (04:47):
Excellent. And you mentioned this is for 2021. So by this point, CAS got a big boost from the pandemic in terms of a lot of people needing to go remote. And so that meant they were going to take on new services or approach that whole set of services from a different potential of different angle. And so we're more open to, there's a bunch of other feedback loops that went in there, but basically it was sort of not a bad thing for practices but by the time that your data were looking at, that's all been sort of baked in right By that point I think had a lot of those shifts happened. Safe to say
Amy Bridges (05:22):
We really think so. Dan, the second iteration of our survey that was released a year and a half ago or so, that was the fiscal year 19 data, but had COVID 19 questions. We had a section about the impact of the pandemic. So we really had two surveys that bookended the lockdown periods and really the economic downturns that we saw from the global pandemic and it was really exciting. In this survey we were hoping we would see this type of continued growth that the boost that we have heard, the boosts we've seen in other surveys and anecdotally heard from our cast practices that we work with have really borne out in the data in this survey and it's all in the report that's available.
Dan Hood (06:09):
Excellent. And we're going to point you to where you can get that report a little later but for now I wanna dive into, you mentioned the top performing firms from the survey and that is the top quartile I think of folks by net fee per professional. Is that the I That's correct. All the letters in the acronym.
Amy Bridges (06:28):
Sure. We were really fortunate this year to have, as I said, a significant increase in participation. So when you look at CAS metrics, we spend a lot of time looking at revenue, looking at staffing, looking at the number of clients that that practices are able to serve. And while not the only measure or necessarily the single measure that defines success, we've really landed over the three iterations of this survey, we've landed on the idea of net client fees per professional as being a great way to take one number to indicate how your cast practice is doing. It's a really different way of looking at things, but we believe that the amount of revenue that any particular staff member can handle is going to increase as their expertise with that particular type of client grows deeper. It also, the amount of revenue that a professional can handle will increase as they continue to get more standardized as they're using more technology technology to support what's what they're doing. And honestly as they have more clients that are similar to one another. So they've really started to go deep into industry verticals or gotten a niche around what they're standardizing. So we've used that net client fees per professional, taken the top 25% of those and then calculated medians for the top 25%. So we compare those to what's happening for the median of all respondents, which would really be the bottom of the second quartile. And in many places we're seeing fairly significant increases for those top performers over what our all respondent numbers look like.
Dan Hood (08:18):
And you can see that as we said, you see that reflected in the report. We'll give you a URL for that report at the end of the session, but for now we'll take that top quartile that you've identified and let's look at what, what are some of the hallmarks of them? What's separate them from the rest?
Amy Bridges (08:35):
In many ways they really do look quite different. Dan as a matter of fact, I've got five key areas that I wanted to talk about for top performers. So the first is organizationally and we see that top performers have been offering casts a little longer. I think it makes a lot of sense to think that, well the longer you do this, the more chances you have to get it right. You've had more time to strategize, you've had more time to move to dedicated staffing for example. So while it's not a big deal, I do think, and I think you actually quoted me in another article around this when I said, if you're in that first year, hang on, it's going to get better. So we do see that the top performers have been doing this as a matter of fact quite a bit longer. We also see that top performers are more likely to be part of a CPA firm.
(09:25)
That's true right now. And we really think that it may be correlation but not so much causation. So obviously getting started, you're going to have the support, have the resources for training and investment. When you're part of A CPA firm, I'll, I'll be really interested to watch that particular metric over the next several iterations of the survey. The next big category that we look at for top performers, where we see enormous differences are the financial metrics. So top performers are, they're just more profitable all the way around. They have a higher CAS revenue, they have higher revenue per client by a lot, their net client fees per professional. Obviously that's the way we define the top performers, but significantly higher, like 25% higher than the all respondents. So those financial me metrics start to make a bigger difference there. They serve more clients.
(10:27)
And again, as you become more standardized, as you get the processes figured out, it does make a lot of sense that you can serve more clients. They also have a higher margin percentage. So they're seeing substantially higher rate realized rates per hour for their CAS employees. Even though they're not doing hourly billing. You can still tie that back and you can start to see that because these top performers have been in it been longer, they're probably pricing things higher, pricing things more a according to value. And we even noticed, we asked a new question this year about the percentage of revenue coming from project-based work versus recurring work and we noticed that top performers are seeing a larger percentage of their revenue coming from work. And we attribute this to the fact that top performers also probably understand what's chargeable, what has value. And they're not just doing something on the side and giving it all away.
(11:29)
They're really contribute or they're really dedicating staff to doing the kind of work that has value for clients and charging for it. We've also seen that the median growth for top performers was actually the same as all respondents. We think that top performers are probably not necessarily growing faster than everyone else because they've already made that investment. What we do see with the top performers around growth though is that as I mentioned earlier, 81% of them, so more than four out of five, believe that they have a really strong opportunity. They're tracking their sales pipeline more often than the all responder group was. And they understand where those opportunities are coming from regarding staffing. Top performers have more dedicated staff. So I mentioned that as one of the big headlines. Fully two-thirds of those top performers have fully dedicated CAS staff. They also have more remote staff, they have higher partner leverage.
(12:38)
They're likely to have more CPAs and more CGMA certificate certificated staff. They also have a little higher staff turnover, which is probably not surprising because these are professionals with experience who are now in quite high demand. Finally that fifth area I said I had five is we were looking at technology for top performers. So they're a little more likely to outsource their bookkeeping and some of their lower or their more compliance-based services both using AI and perhaps just outsourcing to another group either in-country, offshore, whatever, they're more likely to use workflow software. They're more likely to pair technology to the industries that they're serving. They're just a little more mature we think. And that's part of being in the service area longer and getting it all figured out.
Dan Hood (13:38):
Right. Well it's interesting. I love that when you say hang on, it gets better because in part one of my secret theories is not so secret. I've said it a lot and I'm not the only one and I probably got this from half dozen other people who know a lot more about CAS than I do. But it strikes me that when you look around from firm to firm to firm to firm, CAS can look very different. I mean there's a certain core set of things that CAS involves, but it looks very different from firm to firm to firm. I mean there's great one of the first charts in the report talks about how everybody calls it something different. I mean, we're generally getting closer to everyone calling it client advisory services, but it's still five or six different acronyms and common names out there. And so I think there's this, I was in the sense that everybody's cash practice is going to look a little different and will probably look a little different over time as they adjust, as they say, oh we're good at this, we're bad at this. I don't wanna do that, none of my clients want that. Or they all want this. And so you, there's that sort of shakedown process over the first year or two or more where you're figuring out what's the best form this should have for us. Is that fair?
Amy Bridges (14:38):
That's absolutely fair. And I'll tell you this, that one of the strongest statistical correlations that we saw in the data was the idea that when a firm reaches the end of that second year, data starts to sa stabilize. So we ask firms how long they'd been providing cas and we defined zero as less than a year. And we discovered that those firms that were zero years, one years, one year or two years, really their data didn't look as good as everybody else's. And that's a big source of the hang on, it gets better for me.
Dan Hood (15:15):
And definitely something worth knowing as you a firm start thinking about building a practice or pushing it, that there is a timeline to get to the point where they used to say things get better. I wanna dive into a lot of those five different areas and I was glad you were counting cuz I lost track cause I was just soaking in the ideas. But we're going to dive into not all of them, but some of them a little bit more deeply. Cause I think some of them are really, they're all really interesting. But some of them I have some more questions about. But first we're going to take a quick break. Alright, and we're back. We're talking with Amy Bridges of cpa.com about the cast benchmark survey that they've just released. This is the third of them and there's a wealth of data in it. And this is actually probably a good time. Is there a place a good URL for people to go to get the actual report itself?
Amy Bridges (15:58):
The report is 28 pages long. It's chock full of data, Dan, and it is available on the cpa.com website. If you go to the website at the top, you'll feel you'll see it, you'll see it on the front page. But if you wanna go straight to the URL, it's
Dan Hood (16:20):
<laugh>. You always have to specify.
Amy Bridges (16:22):
You do have to specify. We often talk about client advisory and accounting services, but it's just easier to say client advisory services and use CAS with one A. So that's where the report is. We do have a webinar coming up in January that you can sign up for on that page as well. So lots of good data coming out in the near future in addition to the first report that was released at our DCPA conference in early December.
Dan Hood (16:46):
Awesome. Alright, well like I said, I wanna dive into some of the five areas you mentioned. We could spend days talking about all of 'em. Cause there is, as you say, 28 pages full of data, full of interesting ideas and important takeaways for people who are either looking to build a cast practice or looking to take theirs to the next level. But I wanna talk specifically about three sort of areas. I wanna start with the dedicated staffing. You've mentioned it a couple of times and maybe one talk about why is that important? Why do you think that matters so much to being a top performing firm or top performing cast practice? I should specify
Amy Bridges (17:19):
This was one of the most exciting data points for us this year because we've used this best practice of having dedicated staff as part of our CAS education at CPA.com for over a decade. In our 2020 survey, we saw that about 52% of top performers had dedicated staff and that number rose to 67% this year. So we're really moving the needle on this understanding, and I think that a lot of firms, a lot of cast practices are really starting to come around to the idea that it's not just best for the client, it's best for the staff, it's best for the firm. So from the firm's point of view, it's really difficult to do staff capacity planning. With some of your staff getting pulled away at different times of year or different times of month it, it's much more difficult as a practice level, as a practice leader at any level.
(18:14)
If you're an accounting manager level leader, you're a cast champion, you are a partner in charge, it's really difficult to have your focus split between CAS and say tax or another area. So dedicating staff from the firm's point of view means that all of those staff members have more time to work with cast clients, they gain experience more quickly. They're thinking about how to really standardize the processes that they have in place to gain efficiencies all the time. So earlier in our show, we talked about the fact that it gets better after one or two years, we start to see some real efficiencies and some real top performing metrics shake out after the two-year point. But not having dedicated staff is really going to slow that down. So if you want to see the growth, if you want to see those efficiencies, if you want to see the optimization that you get around your cast practice, the easiest way to do it is to make the investment and dedicate staff early in the process.
(19:19)
Then from the client's point of view, having a dedicated team on their account means that they don't have any downtime. I mean, it's one of the real reasons to consider outsourcing with a CA practice to begin with. You don't have to worry about PTO, you don't have to worry about somebody whose focus is split within your own organization, but the clients don't see any interruption in their recurring services. When you have dedicated staff for this, they can call, they're going to get an answer in whatever window you have created for them. If that's a four hour window or a 24 hour window, depending on that level of service that you have in place, they're going to get their needs met even during your firm's busy season because you don't have staff that are split. Finally, from the staff point of view, we see that this makes for happy staff. They know what to expect. They understand what the cadence of their weeks and months are going to look like. There aren't a lot of fires to put out and they don't have those long hours.
Dan Hood (20:26):
Excellent. I mean, I think that's problems. All the other departments are afraid that everyone will wanna go work for the cast the ca practice when they hear right deadlines are pretty reasonable. It's an even schedule across et cetera, et cetera. So yeah, that makes perfect sense. I mean, it's probably something I think this is, I'm going to make a wild over generalization say, this is a problem that happens with a lot of new practices, not just cast, but accounting firms think, oh, we can just run it on the side as part of when people have free time. And particularly for this, because it is a constant recurring, you're constantly in their business, you're constantly with them again to whatever cadence you set, but it's a pretty constant regular cadence. You need to be available. You can't be say, Hey, I'm not going to be available for the next two months while I do tax season. So that makes a lot of sense. You also mentioned I think particularly in the context of the pipeline, right? They're saying, like you said, 81% of people expect significant growth going forward. Is that the right number? Did I get the right number there?
Amy Bridges (21:20):
That was the number that expressed a confidence in what they were doing. We actually had some projected growth that at the median point was 15%. They were expecting to see at least 15% growth in the next year. In the three iterations of this survey, we've outpaced the projection in the second two. So even though they're saying 15%, I have really high hopes for the 2024 survey.
Dan Hood (21:45):
Excellent. But a lot of that, they're able to make those projections and because as you said, they're tracking their pipeline pretty tightly which is something all accounting firms should be doing on all else, but well, whether they're doing it or not is another question but certainly it sounds like the top performing firms here are doing that, and I think you also took it to the broader point, broader point of they're tracking a lot of metrics better and more with more attention to detail. Maybe you talk about some of the metrics obviously prospects is one. What are some of the other metrics that people are paying attention to in CAS?
Amy Bridges (22:15):
Sure. CAS practices I think are realizing that the metrics that make sense for them actually look really different than traditional metrics for firms. For accounting firms, they look more like the traditional business metrics that they've been tracking for their clients. So we often tell CA practices when they start thinking about doing advisory work that their own first client, their beta client, should be their own ca practice. They ought to start figuring out how to track the kinds of metrics that they would track for a client on their own service line. So they're paying attention to revenue, they're paying attention to client and staff metrics. They're talking about the lifetime value of a client, whether that's sort of a five year value or the sum of the recurring work in the additional projects for a client over more than one year. So from an efficiency standpoint, they're looking for ways to optimize processes so that their cast staff can handle more revenue, and that's that net client fees per professional that we're talking about top performers were fully 25% higher than all respondents with a differential of about 231,000 per professional for the top performers and only 123,000 for the all respondents.
(23:38)
Yeah, it was a pretty impressive number this year. It's where it's probably one of the more aspirational numbers in the survey as opposed to just a number that reported the landscape in terms of KPIs that they're tracking regularly, not just big metrics. We are seeing practices start to look at the volume of transactions that they process and looking at number of services that there are added to clients annually. CAST practices are probably still tracking hours. I think that's a little bit of a misnomer that we tell people that they shouldn't track hours anymore. You need to track hours for capacity and resource planning, but the hours don't tie back to the billing. That's the big shift and the firm metrics that are often based on those hourly billing methods are really difficult to use for a CA practice as a result. So this is maybe a tough thing for firm leaders when they're looking to compare cast to other practice areas. And honestly, it's one of the goals of the survey. We hope that ca practice leaders can take this survey report and take this data and have conversations with firm leaders about how to measure the success of their practice in a way that really drills into the pro profitability that the CA practice is seen, even though those metrics may look different from what the firm is doing.
Dan Hood (25:05):
Gotcha. Excellent. All right. As you say, very different from what they're tracking from themselves, but hopefully not too weird in the sense that it looks like what they might be telling a client to keep track of which then of course makes you wonder why if you would tell the clients to keep track of it, you wouldn't be keeping track of it for yourself for a bunch of other things anyways, but that's a whole other worm's not going to open that right now. Instead, we're going to pivot very quickly. <laugh> talking about one final area I wanna talk about, which is sort of their approach to technology. There are a bunch of different aspects of how technology plays to cash practices. It is the enabler, right? It's the reason we have cash practices because the cloud allows you to bring all the data together and be everybody together on realtime basis to have that kind of real time insights into your clients at the same time the data is live. So there's a huge element to technology in this, but I'm curious if there's differences in how these top performers approach technology as opposed to some of other peers.
Amy Bridges (26:00):
We really think that there are, Dan. We think that those top performers understand that technology is foundational to cas. We think that they understand that this is how you gain the efficiencies, and as a result we see that they're constantly scanning for technologies that will help them to offer more services, offer more value to more clients. They moved a long time ago away from desktop based systems that required file transfers whenever possible. They're looking for solutions that reduce manual input by the cast staff and also by the clients. So one mo hallmark of these top performing practices that are probably also the more mature cast practices is the idea of one or more technology champions so that the practice can use the systems that they invest in to their fullest. We also see that cast practices who have really leaned in to specific client industries can provide more value when they combine the best in class accounting systems with the industry-specific software that's supporting the client needs of the clients in those industries.
(27:13)
And then we've seen a little bit of an inflection point with practices when they get to the place where they can start to implement workflow software and the types of internal softwares that further systematize the work that they're doing. We love our Excel spreadsheets, we love our Excel workbooks, and they have a place, I don't want anybody to ever think that I don't love as Excel as much as they do, but it doesn't scale. And as you become a top performer, you're seeing that your processes have to scale. And so leaning into the technology to make that happen is one way to do that.
Dan Hood (27:52):
And that is one of those things that is also another sort a standard part or has to be a standard part of CAS, is standardization as much as possible because you need this to be able to deliver this service. So these services the way you really want to need to have it as much as possible, you're delivering it the same way to everybody in exactly the same format. One element of that for a lot of firms, and I I'm getting to a question on this one, I promise is that I, I've sort of had this notion that the receive wisdom, which really only had one, have one gl and to get all your clients using the same GL cuz that way you can be an expert in GL and that's in that particular accounting platform accounting software and that's not necessarily the case. Is that fair to say? Because, and that was one of the things I was fascinated by in your presentation was people were talking about it's certainly possible to have more than one gl. The question you only wanna have one. The question is you only wanna have the ones that are right. Is that, maybe you can explain that better than I've tried to, but
Amy Bridges (28:52):
One of the things that we looked for was this idea of is there a certain pivot point of the number of general ledger systems? And what we are really seeing is that it makes a lot of difference when you let go of the systems that aren't serving your clients. You've got to have staff that can handle what you're doing. So if you've currently got four or five general ledger systems and a fairly small staff with a fairly small number of clients, that's not really going to be as efficient as two general ledger systems or even one for a fairly small number of clients. What we do see though with those top performing firms is that they have really decided to get specific about who their clients are and once they know who their clients are, they've developed a deep expertise in those client areas, then they look for the technology that best matches that client industry.
(29:50)
So if there's industry specific software, you want a general ledger system that matches that. But I think at the end of the day, one of the things that's so important, and as you said, these are things we talk about all the time, it seems like it would be common sense, but you want your staff to have the expertise in that. So if you're going to ask your staff to be experts in five different general ledger systems, it's probably not a best practice <laugh>. It's probably a best practice to split it out and have enough staff to support more than one general ledger system if that's the way that you're going to approach this. So it's not necessarily fewer gen general ledger systems equates success, but I do think that we could probably tie the number of staff and the number of general ledger systems in that top performer performing quartile and start to see how that lines up.
Dan Hood (30:44):
Gotcha. Yeah, it's about having the right gls for the right clients, but then at that point, as you say, you want the software that fits a particular industry but in that case, you may also have staff that are specialized in that industry, so they're going to wanna be specialized in that software, et cetera, et cetera, et cetera.
Amy Bridges (30:59):
If I can make another point about the technology though, one of the things that we have seen is this idea of planning your technology for where you're going. And we saw that in a number of different points in the survey. It's about the staff, it's about the technology, but it's planning for where you want to be in three to five years and not necessarily just planning for the clients that you have right now. So when it comes to the technology, you may be serving a particular type of client or a particular size client right now, but you may need to think about investing in that next system that will get you to the clients that you want. It's a little bit like trying to make the shift to dedicated cast staff for the clients you have right now. You may not need that, but if you want to get to that top performing level, we are seeing that dedicated staff is a best practice. Same with technology.
Dan Hood (31:54):
Excellent. All right. I think that's going to be a great place to end on because as we've mentioned a couple of times, the growth potential here is enormously. You need to be starting now, planning for being able to serve that larger and infinitely more profitable client base that's coming your way right now. Excellent. Alright. Amy Bridges let's remind them of the URL where they can find the survey right now.
Amy Bridges (32:17):
Yeah, I hope you'll all go to
Dan Hood (32:54):
Awesome. 28 pages, chock full of data and excellent insights. Fantastic. Amy Bridges of CPA.com. Thanks so much for joining us.
Amy Bridges (33:00):
Thank you very much for having me. It was a great conversation, Dan. Yeah,
Dan Hood (33:03):
Great stuff. I wanna thank you all for listening. This episode of On the Air was produced by Accounting Today with audio production by Kevin Parise. Rate or review us on your favorite podcast platform and see the rest of our content on accountingtoday.com. Thanks again to our guest and thanks for listening.