Top 7 Cloud Metrics for Value-Based Practices
It’s no secret that the days of hourly billing in the accounting industry are coming to an end. So, as fixed fee and value pricing become more and more prominent, and time no longer represents a metric of success, accountants must find other metrics to focus on. These new success metrics are called cloud metrics. With the help of cloud accounting software, such as QuickBooks® Online, and integrated cloud apps, such as Practice Ignition, real-time reporting and cloud metrics are now very easily accessible for accountants and bookkeepers.
The following 7 cloud metrics, when used correctly, can ignite growth in a firm, enable better decision making, and make the move to fixed fees and value-based pricing 100% worth it:
1. Monthly Recurring Revenue (MRR): Accountants sum the monthly fee paid by every customer to calculate the MRR. This is unquestionably one of the most crucial metrics to be tracked over time because once a new customer is acquired, there is no ongoing cost to acquire new customers or sales expenditure. Generally, MRR is a very predictable source of ongoing subscription revenue and a major source of revenue for major accounting businesses.
2. Cost to Acquire (CAC): The CAC is the price paid to acquire a new customer. It can be worked out by dividing the total costs associated with acquisition by total new customers within a specific time period. This metric is generally used in conjunction with the lifetime value of the customers to calculate how much money is being made from each customer, relative to the cost of acquisition. Accountants, therefore, usually also work out a cost to acquire versus lifetime value ratio. Generally, this can be displayed by the following:
- A ratio of less than 1:1 means that the business is actually losing money for each customer it acquires.
- A ratio of 1:1 means that the business is only breaking even with each customer acquisition.
- A ratio of 3:1 means the business is thriving and has a solid business underlying business model.
- Greater than 4:1 the business is performing well, but underinvesting. More clients could be acquired.
3. Lifetime Value (LTV): The lifetime value is the total financial benefit from the future relationship with a customer. It can be summarized as the dollar value of each customer. This is an extremely important metric because it allows business to determine the maximum they they should spend to attract new customers. Customer lifetime value also emphasizes the importance of having a long, healthy and stable consumer relationship, rather than trying to focus on short-term earnings. One of the most important components of identifying customer lifetime value is identifying that not all customers are created equally. Segmenting the lifetime value of specific groups of clients can allow the company to predict its most profitable group of customers and focus on them more, rather than on less profitable customers. Accountants increasingly find that focusing on high-value customers can enable them to bolster their business relationships and reduce customer churn.
4. Non-Recurring Revenue: This comprises of earnings that are once-off events, which are unusual in nature for a company. Extraordinary earnings are said to be non-recurring when they will not generally take place again in the future. These are separately disclosed as infrequent items, which are unrelated to the typical operating activities of a firm, or of a contract nature (a one-off deal, for example).
5. Churn: With regard to accounting services, this refers to the number of subscribers who discontinue/downgrade their services within a specific period. Churn is inherently negative, as it reduces a firm’s revenue stream and total earning power. For a company to sustain its earnings, the number of new clients that it acquires must exceed the churn rate.
6. Average Revenue Per Client: The average revenue per client is a measure of the average revenue generated per client. This helps businesses to segment their client base and work out which clients are generating the most/least revenue and the respective sources of revenue. This helps accounting firms measure the effectiveness of their service offerings.
7. Net Promoter Score: The net promoter score measures customer business experience and serves to predict business growth. The net promoter score currently commonly serves as a metric for customer experience management around the world. The net promoter score is calculated using a 0-10 scale: How likely is it that you would recommend the brand to a friend or colleague?
- 9-10: These are very loyal customers who keep purchasing, as well as referring others, helping the business expand even further.
- 7-8: Satisfied clients, although they are unlikely to promote and may be vulnerable to competitive offerings.
- 0-6: These are known as detractors and are unhappy clients who may speak out negatively against your brand, thereby hurting firm image.
With help from the Practice Ignition dashboard, many of these cloud metrics are now at the fingertips of accountants. They are now able to make better strategic decisions, spend more time servicing their clients than doing tedious calculations and scale their firms at a much faster rate than that of a traditional practice.
Find out more about Practice Ignition and how it can not only automate the onboarding of your clients and eliminate your receivables, but also calculate your cloud metrics in real time.