United States 2018
Accounting and Bookkeeping
Industry Performance Report
A performance comparison of the three
accounting firm business models
A
Cover: Wendy Davies, Moore Stephens, Australia | Xero partner
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Foreword
We’re pleased to share the 2018 accounting industry report for the United States.
This year’s report presents a detailed review of how accounting firms perform in accordance
with three different business models: compliance, simple advisory and complex advisory.
We’ve included the details of client development, advisory services and go-to-market
propositions at the request of accountants who’ve read our earlier reports.
We produced detailed benchmarking reports for accounting firms in our major markets –
United States, Canada, Australia, New Zealand and Singapore – in 2016 and 2017. Over 5,500
firms have provided the rich data that helps accountants compare their firms with other
similar practices, and validate the business objectives for their firm as they navigate their
unique path forward.
This report includes several areas of interest to accountants:
• Performance results. While revenue growth rates are very good for all three accounting
firm business models (figure 2), firms who’ve adopted the complex advisory business
model are far ahead of others in terms of revenue per employee (figure 5), lower costs to
service clients (figure 7) and high-value client retention (figure 8).
• Business development. This section reveals the sources of new clients (figure 14) and
provides results for firms with different go-to-market propositions (table 7).
• Advisory services. The detailed review of advisory services highlights the revenue
opportunities available to US accounting firms (figures 16 to 18).
As you read the report, I encourage you to think about your current business model, compare
your firm to other practices and consider the implications for your 2018 – 2019 priorities and
objectives. By seeing how other firms perform with the same or different accounting firm
business models, you can cross-check your plans, priorities and investments.
As always, the Xero team is eager to help you move your firm forward. So be sure to speak
with your account manager to learn more, and for a host of additional resources that we
couldn’t fit here.
As always, please continue to share your questions and feedback as we plan for 2019
and beyond.
Doug LaBahn, Ph.D
doug.labahn@xero.com
Xero Practice Leadership Team
1
Contents
Highlights.................................................................................................................................. 4
Participant profiles.................................................................................................................... 8
Accounting firm business models........................................................................................... 10
Pacesetting accounting firms................................................................................................. 21
Business development............................................................................................................ 24
Advisory services opportunities............................................................................................. 30
Ingredients for success........................................................................................................... 34
Different size firms: a close-up look....................................................................................... 37
How we can help..................................................................................................................... 44
We love building reports like this to help you plan for
the future. Thanks for reading.
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List of figures
Figure 1. Proportion of clients on Xero
Figure 2. The three accounting firm business models
Figure 3. Advisory service revenue
Figure 4. Firm revenue growth
Figure 5. Revenue contribution per employee
Figure 6. Revenue per small business client
Figure 7. Hours (cost) to serve one client
Figure 8. Regretted high-value client departures
Figure 9. Hours committed to learning business applications
Figure 10. Employee compensation increases
Figure 11. New small business clients compared to pacesetting firms
Figure 12. Regretted high-value client departures compared to pacesetting firms
Figure 13. Hours (cost) to serve by age of the firm
Figure 14. Sources of new clients
Figure 15. Growth in small business client numbers by age of firm
Figure 16. Advisory revenue by accounting firm business model
Figure 17. Composition of simple advisory services revenue
Figure 18. Composition of complex advisory services revenue
List of tables
Table 1. Role and seniority of participants
Table 2. Participants by accounting firm business model
Table 3. Priorities for each business model
Table 4. Growth in firm size and revenue over time compared to pacesetting firms
Table 5. Overall go-to-market propositions
Table 6. Billing options
Table 7. How firms performed by go-to-market proposition
Table 8. Distinctive go-to-market propositions by business model
Table 9. Most attractive areas for firm revenue growth
Table 10. Comparison of different size accounting firms
Table 11. Profile of sole practitioners
Table 12. Profile of small firms
These stats are based on an online survey of US accounting and bookkeeping firms. Information is presented
as clearly and concisely as possible; however, rounding or other errors may appear. Insights and commentary
are just a guide and should not be taken as taxation, financial or legal advice – you should always check with an
independent expert that what you’re doing is right for you and your practice.
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Highlights
Results across all practices
14.9%
Average revenue growth rate for US Xero accounting and
bookkeeping practices in the 12 months to December 2017*
$6,300
Average annual billing per small business client**
$182,200
Average total advisory revenue
224 hrs p/a
Cost to serve one small business client***
* 238 US accounting and bookkeeping practices in December 2017.
** Small businesses are defined as businesses with up to 20 employees.
*** Total employee hours including all aspects of serving clients.
4
Results for pacesetting practices*
22.6%
Average revenue growth rate for US Xero accounting and
bookkeeping practices in the 12 months to December 2017
$8,720
Average annual billing per small business client
$333,250
Average total advisory revenue
139 hrs p/a
Cost to serve one small business client
* Pacesetting firms are the top 15% of firms in terms of high growth and
revenues relative to firms of the same business age.
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6
“Xero’s allowed us to grow, very quickly.
We’ve grown at about 100 percent a year
for four consecutive years now.”
• Mike Pinkus, ConnectCPA, Toronto
ConnectCPA team, Canada | Xero partner
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Participant profiles
Definitions
TYPES OF FIRMS
For the purposes of this study, we defined:
• sole practitioners as having no employees other than the owner
• small firms as having 2 to 9 employees including the owner
• midsize firms as having 10 to 19 employees including partners
• large firms as having 20 or more employees including partners
Where there were only a few responses, we’ve omitted the results from this report.
SMALL BUSINESSES/SMBS
When we talk about small businesses or SMBs, we mean those with up to 20 employees.
Participants role in their firms
This table shows the role and seniority of the 238 survey participants in their accounting firm.
By and large, they hold senior positions.
Number of
Owner/Managing
Senior manager/
participants partner/Partner/CEO Team leader
Not
disclosed
Total
Sole practitioner
40
100%
0%
0%
0%
100%
Small firms
93
99%
0%
1%
0%
100%
Midsize firms
9
78%
22%
0%
0%
100%
Large firms
11
73%
9%
18%
0%
100%
Not disclosed
85
4%
0%
0%
96%
100%
63%
1%
1%
34%
100%
Average
Table 1. Role and seniority of participants
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Accountant or
bookkeeper
Participants by accounting firm business model
This table shows the number and role of survey participants, categorized by accounting firm
business model.
Number of
Owner/Managing
Senior manager/
participants partner/Partner/CEO Team leader
Accountant or
bookkeeper
Not
disclosed
Total
Compliance
79
89%
1%
1%
9%
100%
Simple advisory
70
64%
1%
1%
33%
100%
Complex advisory
57
61%
2%
2%
35%
100%
63%
1%
1%
35%
100%
All firms
Table 2. Participants by accounting firm business model
Proportion of clients on Xero
This figure shows firms’ use of Xero as measured by the percentage of their small business
clients who are currently using Xero for their accounting. The participants represent a good
cross section of US accounting firms at varying levels of experience with Xero.
No clients on Xero
2%
1–9% on Xero
13%
Not disclosed
34%
16%
17%
10–59% on Xero
18%
60–95% on Xero
More than 95% on Xero
Figure 1. Proportion of clients on Xero
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Accounting firm
business models
Based on our experience of working with thousands of accounting firms over the last ten
years, we’ve identified three business models that accounting firms use. Each has its own
unique characteristics, strengths and vulnerabilities.
Simple advisory
The three accounting
firm business models
Compliance
Complex advisory
Figure 2. The three accounting firm business models
The compliance model
The compliance business model focuses on helping clients meet their compliance obligations
on time, accurately and efficiently. Firms choose this business model because they want to
deliver a highly repeatable set of services based on meeting government requirements.
Firms achieve improved practice performance through incremental gains in process efficiency
and by accumulating knowledge on compliance requirements and their application to
different small businesses types.
The simple advisory model
The simple advisory business model is adopted by firms who pride themselves on offering a
superior client experience easily and efficiently, through using the latest technology. They
recognize that clients need more than compliance work, such as cash flow forecasting,
budgeting and planning at reasonable prices. This requires both automation and accounting
insights. An important precondition is that clients have their core accounting information
well organized and available online.
Firms achieve improved practice performance by providing modern accounting technology
and offering services that establish regular, ongoing engagement between clients and
accounting staff.
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The complex advisory model
The complex advisory business model is common in larger, well-established firms and
boutique advisory businesses. These groups excel at navigating clients through intricate
transactions or complex multi-jurisdictional regulations. Firms invest in experienced,
specialist advisors – a clear requirement for success – who can be called on when unusual or
complex challenges arise.
Thse firms streamline processes and market reputations to achieve improved practice
performance. This ensures a steady flow of complex, interesting and often closely related
cases where clients value and rely on deeply specialized accounting.
Coexistence of the models
The three business models are common in all markets and naturally coexist. For example,
firms with a complex advisory model can choose to ‘partner’ with compliance or simple
advisory firms, both to source new clients with complex challenges and to outsource
compliance work that can be done more efficiently elsewhere.
Transitioning from one model to another
Based on our experience, firms operating the compliance business model can easily change
to the simple advisory business model – provided that they invest in learning and adopting
new technologies across their teams. In contrast, the switch to the complex advisory
business model is more difficult because of the highly-skilled employees required to
complete the intricate work. However, making the change up can drive significant revenue
growth, as complex advisory is a hugely valuable and in-demand service. It’s become an
attractive option as margins for compliance-only practices shrink due to the margins for
compliance-only practices are shrinking due to the advent of cloud accounting software.
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“We've grown so much
with Xero that we send
away about 60 percent of
incoming leads to other
Xero partners, because
we only serve the higher
end of the market.”
– Chad Davis, LiveCA
Advisory service revenue
For the purposes of this report, we classified the participating accounting firms into
the three business models, based on their 2017 advisory revenues. Figure 3 shows the
average advisory revenue for each accounting firm business model.
Average advisory revenue in the last 12 months
Simple advisory revenues
Complex advisor revenues
$600,000
$500,000
$400,000
$314,000
$300,000
$200,000
$100,000
$30,000
$24,000
$49,000
$195,000
$85,000
$0
Compliance
Simple advisory
Complex advisory
Accounting firm business model
Figure 3. Average advisory service revenue in the last 12 months
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Priorities and the way forward
We asked participants about their priorities and what they saw as the essential actions
they need to take to perform at their peak.
Top priorities are different at each stage with just two exceptions. All firms give high
priority to improving and engaging with existing clients, and to use technology and
client development to enhance and build their practice.
Accounting firm
business model
Compliance
Priorities for 2018
Essential actions needed to be
efficient and best-in-class
• Implement automated data capture apps
• Eliminate paper-based methods of sharing
and changes to reduce time wasted chasing
documents with clients and storing records
clients for information and documents
• Rethink and replace outdated compliance
• Document and revise processes to
workflows with lean methods
eliminate wasteful and non-essential tasks
• Shift all bookkeeping to online including
• Identify one or two industries in which to
services to automatically capture client
build up expertise and to offer industrybills, statements and documents
specific services
• Establish as standard practice that
employees identify how relevant budgeting, • Implement practice management software
forecasting and basic tax advice are for
to deliver accurate up-to-date data and
each client
one source of truth
Simple advisory
• Identify and implement the best three to
five apps for running an efficient online
practice
• Scale advisory services so that at
least 50% of clients are signed up for
compliance and advisory services
Complex advisory
• Move to a single online client and job
management system
• Build staff knowledge and expertise at
configuring and using financial and cash
flow forecasting apps
• Identify and implement firm-wide methods
• Build out industry specializations and scale
to collect and monitor client and employee
up business app consulting
feedback
• Retain talented team members with the
• Increase the revenue from providing clients
knowledge and ability to be business
with business app setup, configuration and
advisors
support
• Provide education and development
• Launch successful strategies to improve
opportunities for employees to build client
office culture, workplace collaboration and
engagement skills and advisor capabilities
employee retention
Table 3. Priorities for each of the three accounting firm business models
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“What’s interesting is that
we haven’t really grown
from a staff perspective,
so we’ve been able to
service more clients and
bring in more revenue.”
– Lil Roberts, Xendoo, New York
14
Firm revenue growth
Firms operating the complex advisory business model report the highest rate of revenue
growth. The strong growth across all three models reflects the strong favorable market
conditions in the US and suggests that firms participating in this study are above average
performers. It’s encouraging to see that accounting firms can achieve strong growth across
Accounting firm business model
the three models.
11.5%
Compliance
Simple
advisory
15.3%
Complex
advisory
19.2%
0%
5%
10%
15%
20%
Revenue growth rate in 2017
Figure 4. Average revenue growth in the last 12 months
Revenue contribution per employee
These findings show that revenue per employee increases dramatically as firms shift to
business models that feature advisory services. This contrasts with the more similar revenue
Accounting firm business model
growth across the three models.
$78,800
Compliance
Simple
advisory
$88,400
Complex
advisory
$150,100
0
$50,000
$100,000
$150,000
$200,000
Average annual revenue contribution per employee
Figure 5. Average annual revenue contribution per employee
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Revenue per small business client
These results show an increase in revenue per client as firms shift to business models that
Average annual revenue per small business client
feature advisory services, with a large jump up for firms providing complex advisory services.
$10,000
$8,000
$8,420
$6,000
$5,310
$5,680
$4,000
$2,000
$0
Compliance
Simple advisory
Complex advisory
Accounting firm business model
Figure 6. Average annual revenue per small business client
Number of hours (cost) to serve each client
The calculation of total hours per client is simply the number of employees times the number
of working hours per year, divided by the number of clients served. This metric was proposed
by accountants who read prior reports. It’s compelling because it captures the total cost to
serve clients inclusive of all ordinary administrative time spent on tasks like chasing clients
for information, scheduling appointments, filing documents, printing/folding/mailing invoices,
and compiling all billable hours.
The average number of hours that firms spend (and therefore the cost) is fairly even across
the three accounting firm business models – with simple advisory practices demonstrating
the greatest efficiency. This is consistent with the higher priority that simple advisory firms
place on automation. It’s also consistent with the common practice of firms with simple
advisory service business models choosing not to take on new clients that require significant
hours of manual work, or insisting that new clients switch to online accounting.
Average staff hours per client per year
250
200
242
hours
222
hours
212
hours
150
100
50
0
Compliance
Simple advisory
Complex advisory
Accounting firm business model
Figure 7. Average number of hours (cost) to serve one small business client
16
“Becoming heavy Xero users has let us
foster deeper relationships with app
providers like Receipt Bank, Hubdoc and
Expensify. That’s been pretty rewarding.”
– Chad Davis, Live CA
Mike Pinkus, ConnectCPA, Canada | Xero partner
17
Regretted high-value client departures
Firms with business models featuring advisory services typically use technology to drive
process efficiency and provide real-time information as the foundation for their advisory
services. Even so, it would be easy to assume that the decrease in time spent per client
could cause clients to feel short-changed, underserved and inclined to switch accountants.
However, figure 8 shows that, rather than clients switching accountants, advisory firms
are doing better at retaining high-value clients. This is a valuable reminder that it’s not the
number of hours accountants spend on clients, but the value the client receives from them
that generates client satisfaction and willingness to stay with the same accountant.
Percentage of regretted client departures
12%
11.7%
10%
8%
7.5%
6%
6.0%
4%
2%
0%
Compliance
Simple advisory
Complex advisory
Accounting firm business model
Figure 8. Average number of regretted high-value client departures in the last 12 months
“We were nervous about making the change to
Xero. We asked ourselves, what if our clients didn’t
want to make the switch and left us? We decided
as a team to just go for it. We soon found, after
demoing to prospective clients, that everyone was
eager to jump in – and our current clients loved the
software. It was a huge win for us.”
– Cristina Garza, Accountingprose, Denver
18
Average hours committed to learning business apps
An interesting finding is that while firms using business models featuring advisory spend
similar total hours servicing clients (figure 7), they’re spending more time learning business
applications (figure 9). They manage administrative hours to free up time for their staff to
develop their business application and advisory knowledge – in effect, they’ve gone from
working in their business to working on their business. Business models featuring advisory
services require substantial ongoing investment in employee learning. So it’s smart to
reallocate the hours saved through automation to training and development.
Hours learning business apps
per employee per month
10
9.2
hours
8
6
7
hours
6.3
hours
4
2
0
Compliance
Simple advisory
Complex advisory
Accounting firm business model
Figure 9. Average hours per month per employee committed to learning business applications
Employee compensation increases in 2017
Consistent with the increasing premium placed on accountants’ experience and specialist
skills, employee compensation increases across the accounting firm business models. This
suggests that firms are rewarding accounting staff who build up their advisory, business,
and application capabilities. It may also be that the demand for advisory skills is high, and
staff compensation is being driven upward as firms compete to attract and retain skilled
Average employee compensation increases
accountants and advisors.
6%
5.5%
5%
4%
3%
3.0%
2%
2.4%
1%
0%
Compliance
Simple advisory
Complex advisory
Accounting firm business model
Figure 10. Average increases in employee compensation in 2017
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“We’re able to work very efficiently, using tools and
processes to get things done quickly and accurately.
We were also able to increase profitability, which
we’ve passed along to staff through raises, bonuses,
extra time off and upgraded equipment.”
– Cristina Garza, Accountingprose, Denver
Mimi Hanley, Powder, San Francisco | Xero customer
20
Pacesetting
accounting firms
Growth in size and revenue over time
Accountants considering starting their own practice or navigating the early years of their
firms can use the figures below to benchmark their performance against that of their peers.
This will help to establish revenue, staff and client goals for 2018 and 2019. The figures
for the pacesetters (the top 15%) as well as for all respondents are shown, which can help
you set your goals for 2018 by knowing what both the top and average firms of a similar age
have achieved.
All respondents
Total
no. of
business
clients
New
clients
in the
last 12
months
Firm
revenue in
the last 12
months
2017
16
9
2016
20
2015
Pacesetting firms
No. of
employees
% of
regretted
staff
departures
Total
no. of
business
clients
Firm
revenue in
the last 12
months
No. of
employees
$171,000
4.3
5.2%
27
$260,000
6
13
$215,000
2.8
0%
35
$353,000
3
35
15
$224,000
2.1
3.2%
68
$415,000
3.5
2014
29
15
$261,000
5.3
0%
55
$597,000
11
2013
60
13
$383,000
6.7
6.3%
181
$655,000
14
2010–
2012
79
13
$424,000
4.7
10.5%
312
$1,207,000
7
2005–
2009
44
9
$408,000
4
11.6%
120
$794,000
5
2000–
2004
53
16
$616,000
7.4
3.8%
102
$1,332,000
15.
1990–
1999
179
25
$2,402,000
10.5
1.7%
650
$9,561,000
35
Before
1990
257
26
$2,124,000
25
7%
637
$5,654,000
38
Average
(all firms)
82
15
$742,000
7.2
6.0%
216
$2,051,000
13.5
Year the
firm was
formed
* Top 15% of firms with high growth and revenues relative to firms of the same business age.
Table 4. Growth in firm size and revenue over time and compared with the pacesetting firms
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New clients by size of firm
This figure shows the average number of small business clients for all firms of different sizes
as compared with the pacesetters.
Average number of new small business clients
Pacesetting practices
All other practices
600
588.6
500
400
300
249.5
200
208.6
100
0
44.5
97.3
18.9
Sole practitioners
108.3
31.6
Small firms
Midsize firms
Large firms
Figure 11. New small business clients in 2017 by size of firm compared to pacesetting firms
Regretted client departures
The graph shows the average number of regretted high-value client departures for all firms
operating according to the three business models as compared with the pacesetters.
Pacesetting practices
All other practices
% of high-value clients whose departure
last year was regretted
15
13.1%
12
9
9.5%
6.7%
6
5.7%
5.1%
3
0
2.8%
Compliance
Simple advisory
Complex advisory
Firm stage of accounting transformation
Figure 12. Regretted high-value client departures compared to pacesetting firms
22
Hours spent to serve one client, by age of firm
Figure 13 shows the hours firms spend on average (and therefore the cost) to serve each small
business client, broken down by the age of accounting firm. Firms of all ages find ways to use
technology and adopt lean processes to become efficient and achieve a low cost of serving
clients. Pacesetters are nearly 120 hours per client per year more efficient at serving their
clients with an overall average of 139 for pacesetters compared to 257 for all other firms.
Pacesetting practices
All other practices
400
Average staff hours per year
350
353
300
250
323
320
270
260
259
250
229
200
208
177
162
150
165
100
0
2017
2016
2015
163
86
73
50
155
2014
2013
72
49
47
2010–
2012
2005–
2009
2000–
2004
1990–
1999
81
Before
1990
Year the firm was formed
Figure 13. Average hours spent to serve one small business client, by age of the firm
“With Xero, we are more
focused on clients and
how to add more value,
rather than dealing with
software issues, manual
data manipulation, and
other tasks that don’t add
value to clients.”
– Mohamed Ismail, Shift Accounting
23
Business development:
signing up and retaining
small business clients
Sources of new clients
This page shows the sources of new clients for accounting firms in 2017:
• Former DIYers. Small businesses who no longer want to do their own books were the
source of most new clients.
• Clients changing accountants. This reflects the migration we’re seeing as small businesses
move to firms with larger cloud practices – which are also the ones that have much higher
client retention rates. We were surprised by the sheer number of businesses – estimated
at 390,000 – switching accountants in 2017.
• New business startups. These owners are often surprised by the range of compliance rules
and regulations they face during their first year as a business.
Other
4%
Switched from another firm
New business startups
24%
44%
Were doing it on their own
28%
Figure 14. Sources of new clients
24
Growth in client numbers by age of firm
The graph shows growth in clients for pacesetting and all other practices in our survey. It
compares the number of small business clients across all respondents with the numbers for
the best group in each age group. These details can help you set revenue, staff and client
goals for 2018 by knowing what firms similar in age to yours have achieved.
Growth in small business client numbers
Pacesetting practices
All other practices
800
700
650
637
600
500
400
312
300
257
200
16
0
179
181
68
100
27
20
2017
35
2016
35
2015
29
120
55
2014
60
2013
79
2010–
2012
102
44
52
2005–
2009
2000–
2004
1990–
1999
Before
1990
Year the firm was formed
Figure 15. Growth in small business client numbers by age of firm
“There’s no doubt about it –
we’ve grown tremendously,
and much of that is due to
the Xero platform, as well
as the resources they’ve
provided us with since we’ve
become a gold partner.”
– Paul Johnson, Atlasphere
25
Overall go-to-market propositions
PRACTICE APPROACHES
We asked participants to select the best fit for their practice from the options below, then
looked at the performance of practices with each approach.
Overall proposition
Options from which participants chose
Business mentor/counselor
Our firm provides the wise, experienced advice and counseling that
helps businesses navigate the best path forward for their business –
both now and far into the future.
WeWork shared community,
talent, team
Our firm provides services as if we are employees or members of
their team with all the experience and benefits (and without the
high costs and effort of hiring full-time employees).
Specialized surgeon
Our firm provides the highest level of expertise in a select number of
important areas. We deliver exceptional service in a few areas.
Personal fitness trainer/coach
Our firm provides the regimentation that helps businesses and
business owners excel at work and in life.
Holistic health center
Our firm provides great accounting (fitness) and holistic business
coaching services (nutrition and lifestyle).
Tech-loving accountants
Our firm is filled with qualified accountants who are also tech geeks
or front-runners.
All inclusive ‘Amazon’ shopping center
Our firm provides a full set of services that cover virtually every
business need
Fast and effective service center
Our firm provides great value and service to businesses that want to
get the job done – get in and get out – quickly and economically.
Urgent care center
Our firm provides high quality service when businesses get stuck,
are in too deep and need fast, smart resolution of their issues.
Table 5. Overall go-to-market propositions
BILLING OPTIONS
The way accounting firms price their services and bill clients is an important decision for
practices. To investigate how firms bill their clients, we looked at what percentage of client
were billed by each method in 2017. The options were:
Billing option
Description
Service plan
Clients are on a fixed-fee monthly or quarterly service plan and the
agreed rate is automatically collected.
Service plan plus projects
Clients are on a monthly service plan and they expect to pay for
additional project work.
Bill by project
Clients are quoted a fixed amount for the service (eg, tax return,
general ledger setup) and billed when the work has been completed.
Bill for time
Clients are billed for the number of hours (and partial hours) of
service provided.
Table 6. Billing options
26
RESULTS FOR PRACTICES USING DIFFERENT GO-TO-MARKET PROPOSITIONS
See how practices taking different approaches performed and the numbers using each billing
method.
% of clients on each billing option
Revenue
growth
in last
12
months
Annual
revenue
per
client
Bill
for
time
% of
employees
required to
complete
timesheets
Popularity
of the
approach
16.1%
$7,500
23%
20%
14%
50%
16%
$7,200
26%
16%
28%
56%
13.4%
39%
15%
24%
19%
47%
25
65%
21%
4%
10%
25%
12%
48
46%
25%
13%
16%
52%
$5,200
4%
209
8%
50%
18%
24%
55%
14.7%
$4,800
6%
267
7%
37%
18%
19%
34%
Fast and effective
service center
5.4%
$4,700
9%
35
55%
22%
15%
8%
15%
Urgent care center
20%
$2,800
1%
10
15%
0%
80%
5%
50%
Average
15.1%
$6,300
83
35%
25%
19%
18%
46%
Service
plan
Service
plan
plus
projects
91
31%
31%
19%
46
29%
$6,200
21%
84
29%
$5,900
4%
16.5%
$5,800
20%
All inclusive ‘Amazon’
shopping centre
Best fit for the practice
Business mentor/
counselor
WeWork shared
community, talent, team
Specialised surgeon
Personal fitness
trainer/coach
Holistic health center
Tech-loving accountants
Total no.
of small
business
clients
Bill for
project
Table 7. How practices performed by go-to-market proposition
Partners often ask us what small businesses seek in an advisor when they search for
an accountant or bookkeeper. These results show that practices that provide business
mentoring and counseling are realizing the highest revenue per client ($7,500) and strong
revenue growth (16.1%). They have most of their clients either on service plans (31%) or
service plans plus projects (31%). They also track the time spent on jobs by the majority of
their employees (50%) to be certain that they are delivering services efficiently. Partners
taking the ‘WeWork’ team approach also had very strong performance but with fewer clients
on service plans and more employees completing timesheets.
27
It’s clear that firms can achieve success pursuing different approaches. We encourage
practices to align their pricing and employee strategies to support the approach they
determine is best for them.
* For business mentor/counselors, 4% of their clients are billed using other billing options
such as being billed on agreed dates rather than monthly for a fixed monthly or quarterly
service plan.
Go-to-market propositions for each business model
Table 8 provides insight into the go-to-market propositions that are common to – and distinct
to – firms who’ve chosen a particular business model.
Accounting firm business model
Distinctive go-to-market overall proposition
• Specialized surgeon (27%): Our firm provides the highest level of
expertise in a select number of important areas. We deliver exceptional
service in a few areas.
Compliance
• WeWork shared community, talent, team (22%): Our firm provides
services as if we are employees or members of their team with all the
experience and benefits – and without the high costs and effort of hiring
full-time employees.
• Specialized surgeon (22%): Our firm provides the highest level of
expertise in a select number of important areas. We deliver exceptional
service in a few areas.
Simple advisory
• Business mentor/counselor (17%): Our firm provides the wise, experienced
advice and counseling that helps businesses navigate the best path
forward for their business – both now and far into the future.
• Holistic health center (17%): Our firm provides great accounting (fitness)
and holistic business coaching services (nutrition and lifestyle).
• Business mentor/counselor (47%): Our firm provides the wise, experienced
advice and counseling that helps businesses navigate the best path
forward for their business – both now and far into the future.
Complex advisory
• WeWork shared community, talent, team (22%): Our firm provides
services as if we are employees or members of their team with all the
experience and benefits – and without the high costs and effort of hiring
full-time employees.
Table 8. Distinctive go-to-market propositions by accounting firm business model
28
29
Advisory service
opportunities
Advisory revenue by accounting firm business model
This chart looks at the type and size of the advisory services revenues across the three
business models.
Average advisory revenue in the last 12 months
Simple advisory revenues
Complex advisor revenues
$600,000
$500,000
$400,000
$314,000
$300,000
$200,000
$100,000
$30,000
$24,000
$49,000
$195,000
$85,000
$0
Compliance
Simple advisory
Complex advisory
Accounting firm business model
Figure 16. Advisory revenue by accounting firm business model
“The other thing that changed is the way our clients
view us – they look at us as systems and technology
advisors. A big part of what we do is help automate
their workflows, which means we're providing much
more value than pure compliance services.”
– Ryan Lazanis, Xen Accounting
30
Composition of simple advisory services revenue
This chart shows how simple advisory services revenue is made up. The largest share (60.2%)
comes from providing cash flow forecasting, budgeting and planning. These services are a
natural next step for accountants once they have set up clients on online accounting. The
other two services reflect that opportunity to bring on new clients by providing startup
advice, conversions or implementations for businesses wanting to change their accounting
software. These three services are at the core of the simple advisory business model, and are
highly valued by small businesses.
For-fee implementations of accounting
software for businesses that are unlikely
to become long-term clients
17.9%
Startup mentoring,
advice, and networking
or assistance with
business development
60.2%
21.9%
Advisory services,
eg, budgeting,
cash-flow forecasting,
business planning
Figure 17. Composition of simple advisory services revenue
Composition of complex advisory services revenue
This chart shows the mix and range of complex advisory services. Virtual or outsourced
CFO services and business app setup, configuration and support make up two-thirds of
the revenue. A range of other specializations contribute fairly evenly to the rest of
advisory revenue.
Succession planning services
HR advisory services
Business performance
benchmarking
5.1%
5.9%
Virtual or outsourced
CFO services
10.0%
46.5%
Capital-raising or assistance
with financing decisions
10.5%
22.0%
Business
app/software services
Figure 18. Composition of complex advisory services revenue
31
Most attractive advisory services for revenue growth
This table shows the areas rated most attractive for advisory services revenue growth in
2018. The top two favorites are those commonly known as “compliance plus services.” The
next three – app/software setup and support, startup mentoring, and business performance
benchmarking – are ones we’re watching to see how quickly they become large service lines
for Xero partners.
Advisory services
Rated as the
top service
Rated as one of
the top three
Rated as one of
the top five
Advisory services, eg, budgeting, cash flow forecasting,
business planning
56%
88%
96%
Virtual or outsourced CFO services
16%
57%
70%
App/software (other than accounting) setup,
configuration and support services
9%
34%
68%
Startup mentoring, advice and networking or assistance
with business development
7%
38%
73%
Business performance benchmarking
6%
40%
68%
For-fee implementations of accounting software for
businesses that are unlikely to become long-term clients
5%
25%
48%
Capital-raising/assistance moving to better interest
rates, terms or financing options
0%
8%
20%
HR advisory services, eg, assistance setting employee
compensation, planning to add or reduce employees
0%
5%
19%
Succession planning services
0%
1%
11%
Table 9. Most attractive areas for firm revenue growth
32
“People see us as a non-traditional firm.
But with Xero, they see the collaboration and
now look to us as an extension of their team.”
– Wanda Medina, Maventri, New York
33
Ingredients
for success
The survey results suggest four factors that
lead to positive outcomes and higher growth
for accounting firms.
1.
2.
Firms need to be
thoughtful and
rigorous in selecting
the right accounting
firm business model
that best fits their
clients, employees and
ambitions.
Firms that provide
complex advisory
services earn
considerably more
revenue per employee
than compliance firms
do; however, employee
compensation rises
faster too.
34
33..
Hours (cost) to serve
small business clients
are significantly lower
for pacesetting firms
and firms filled with
tech-loving accountants
– and high-value client
retention is superior.
Given these results,
firms may benefit
from reviewing the
technologies they use to
pinpoint specific areas
for efficiency gains.
44..
Firms that choose
to shift from the
compliance business
model need plans,
processes and
technologies which
greatly reduce the
time and cost to serve
small businesses. For
best results, practices
should start with apps
that save hours by
automating the capture
and entry of client
information, bills and
documents.
35
“We’ve always wanted to be a proactive firm.
That’s what clients want. Xero is enabling us to
take more of a consulting role – be that proactive
advice person, versus just bookkeepers.”
– Terry Cleveland, Turner + Cleveland, Austin
“We’ve definitely grown from a client perspective.
But what’s interesting is, we haven’t really grown
from a staff perspective, so we’ve been able to
service more clients and bring in more revenue.”
– Tate Henshaw, Polay Clark, Atlanta
Nicholas Cho, Wrecking Ball Coffee Roasters, United States | Xero customer
36
Different size firms:
a close-up look
In this section, we profile different size firms, from sole practitioners to large firms, as
measured by the number of employees and contractors they employ.
Comparison of different size firms
This table compares firms of different sizes, allowing you to see things like how your
practice’s operations, marketing and performance measure against your peers.
Practice size
Number of
respondents
Revenue growth in
the last 12 months
No. of smaller
businesses* served
in the last 12 months
Not disclosed
85
15.1%
21
Sole practitioners
40
6.7%
20
Small firms
93
17.5%
49
Midsize firms
9
23%
164
Large firms
11
15.6%
527
14.9%
82
% of clients already
using online
accounting
No. of new clients in
the last 12 months
Firm revenue in the
last 12 months
Average
Practice size
% of clients already
using online
accounting
Not disclosed
67%
15
$147,000
Sole practitioners
64%
6
$119,000
Small firms
78%
12
$426,000
Midsize firms
63%
34
$1,106,000
Large firms
62%
60
$5,544,000
Average
71%
15
$742,000
* Businesses with up to 20 employees
Table 10. Comparison of different size accounting firms
37
Profile of sole practitioners
All the sole practitioners in our survey provide compliance services and operate in
accordance with the compliance business model. This table profiles them according to their
number of online business clients.
Firms by number of business clients
using online accounting
0–5
6–35
25
13
1
1
$50,200
$62,300
4.2%
9.8%
12
28
56%
79%
$4,182
$2,223
189
50
17.2%
6%
3.4
7.9
$1,004
$754
Fixed-fee monthly or quarterly service plan and automatic payment
30%
47%
Monthly service plan and clients pay for additional project work
17%
8%
Bill for the number of hours (and partial hours) of service provided
29%
27%
Quote a fixed amount for a service and bill when the work is complete
20%
18%
Another method of billing
4%
0%
Timesheets completed for any purpose
21%
38%
Timesheets completed for billing clients
13%
29%
Number of in-person or online client chats in a typical day
1.8
2.1
Practices actively looking to add staff
19%
53%
Practice profile
Number of firms participating
Number of employees including owners
Practice revenue
Practice revenue growth in the last 12 months
Number of small business clients served in the last 12 months
% of business clients using online accounting today
Practices with 6-35
online clients are
growing faster and
making 24% more
money.
Client profitability, development and retention
Annual revenue per small business client
Cost to serve (number of hours per client per year)
Regretted client departures in the last 12 months (as a % of all clients)
Number of new clients in the last 12 months
Marketing investment or spend in the last 12 months
Practices with fewer
online clients are
losing clients nearly
three times faster
and signing on few
new clients.
Pricing and billing
Practices with 6 to
35 online clients are
providing monthly
service plans to
more than 50% of
their clients.
Time tracking and client engagement
38
Practices with 6 to
35 clients are doing
a much better job at
tracking hours and
the costs to serve
clients.
Practices by number of business
clients using online accounting
0–5
6–35
Approach/positioning in the marketplace
Specialized surgeon
26%
18%
Business mentor/counselor
22%
18%
WeWork shared community, talent, team
22%
18%
Fast and effective service center
17%
9%
Holistic health center
4%
18%
Personal fitness trainer/coach
4%
9%
Tech-loving accountants
0%
9%
Urgent care center
4%
0%
All inclusive ‘Amazon’ shopping center
0%
0%
Bookkeeping
92%
77%
Payroll services
64%
85%
Accounting
60%
85%
Tax preparation services
44%
46%
Accounts receivable management
20%
15%
Advisory services, eg, budgeting, cash flow forecasting, business planning
64%
85%
For-fee implementations of accounting software for businesses that are
unlikely to become long-term clients
40%
46%
Startup mentoring, advice and networking or assistance with business
development
36%
23%
Virtual/outsourced CFO services
40%
8%
App/software (other than accounting) setup, configuration and support
services
24%
46%
Business performance benchmarking
12%
8%
Capital-raising/assistance moving to better interest rates, terms or
financing options
8%
0%
HR advisory, eg, assistance setting employee compensation, planning to
add/reduce employees
8%
23%
Succession planning services
8%
0%
Compliance services offered
Simple advisor services offered
Services offered
Table 11. Profile of sole practitioners
39
Profile of small firms
This table profiles small firms (those with 2 to 9 employees including the owner) according to
their accounting firm business model. It shows averages for the firms in each group.
Accounting firm business model
Compliance
Simple
advisory
Complex
advisory
Practice profile
Number of firms participating
36
32
25
Number of employees including contractors
4.0
4.4
5.2
$193,000
$206,000
$678,000
16.9%
15.3%
21.3%
43
40
70
78%
74%
83%
$65,900
$76,600
$149,500
Increase in employee compensation in most recent cycle, excluding
partners
4.5%
2.7%
6.8%
Regretted staff departures in the last 12 months (as a % of total employees)
6.3%
11.0%
8.4%
$6,650
$5,540
$8,980
252
256
228
Simple advisory revenue in the last 12 months
$24,700
$80,700
$129,900
Complex advisory revenue in the last 12 months
$35,200
$51,700
$199,500
6.4
6.5
8.6
8.9%
18.1%
5.8%
10
11
14.8
$2,860
$2,840
$5,650
Fixed-fee monthly or quarterly service plan and automatic payment
45.5%
36.2%
23.4%
Monthly service plan and clients pay for additional project work
14.5%
30.1%
41.3%
Bill for the number of hours (and partial hours) of service provided
17.1%
16.3%
17.8%
Quote a fixed amount for a service and bill when the work is complete
22.5%
13.8%
17.2%
Other method of billing clients
0.4%
3.6%
0.3%
Employees required to complete timesheets for any purpose
39.5%
58.7%
62.2%
Employees required to complete timesheets for billing clients
31.9%
35.4%
50.1%
Number of in-person or online client chats in a typical day
2.3
3.1
3.3
Practices actively looking to add staff
77%
73%
82%
Practice revenue
Practice revenue growth in the last 12 months
Number of small business clients served in the last 12 months
Business clients using online accounting today
Revenue per employee including contractors
Complex advisory
firms have the
highest percent of
clients online and
the highest revenue
per employee.
Client profitability, development and retention
Annual revenue per small business client
Cost to serve (no. of staff hours per client per year)
Hours per month staff members are committing to learning business apps
Regretted client departures in the last 12 months (as a % of all clients)
Number of new clients in the last 12 months
Marketing investment or spend in the last 12 months
Complex advisory
firms are achieve
the enviable result
of much higher
revenue per client
and substantial
lower rates of
high-value client
defections.
Pricing and billing – percent of clients billed with each approach
Simple advisory and
complex advisory
firms have the
most clients on
service plans, but
complex advisory
firms are capturing
more revenue from
project work.
Time tracking and client engagement
40
Complex advisory
firms are the most
conscientious
about capturing
time for billing and
understand costs to
serve clients.
Accounting firm business model
Compliance
Simple
advisory
Complex
advisory
Approach/positioning in the marketplace
Business mentor/counselor
15%
8%
50%
WeWork shared community, talent, team
24%
21%
21%
Specialized surgeon
26%
29%
0%
Holistic health center
12%
17%
21%
Fast and effective service center
12%
13%
0%
Tech-loving accountants
3%
4%
4%
All inclusive ‘Amazon’ shopping center
3%
8%
0%
Personal fitness trainer/coach
3%
0%
4%
Urgent care center
3%
0%
0%
Bookkeeping
92%
97%
88%
Payroll
83%
81%
92%
Accounting
81%
91%
96%
Tax preparation
75%
72%
52%
Accounts receivable/control
42%
41%
56%
Advisory services, eg, budgeting, cash flow forecasting, business planning
81%
94%
88%
Startup mentoring, advice and networking or assistance with business
development
19%
53%
60%
For-fee implementations of accounting software for businesses unlikely to
become long-term clients
36%
47%
52%
Virtual/ outsourced CFO services
53%
50%
100%
Business performance benchmarking
28%
34%
60%
Business app/software setup, configuration and support services
39%
50%
60%
HR advisory
11%
19%
40%
Succession planning services
6%
3%
28%
Capital raising: assistance moving to better interest, financing options
3%
16%
20%
Compliance services offered
Simple advisor services offered
Complex advisor services offered
Table 12. Profile of small firms
41
Profile of midsize and large firms
This table profiles midsize firms (those with 10 to 19 employees including the partners)
according to their accounting firm business model. It shows averages for the firms in each
group.
Accounting firm business model
Compliance
Simple
advisory*
Complex
advisory
Practice profile
Number of firms participating
4
5
11
Number of employees including contractors
20
27
39.5
$954,000
$1,537,000
$4,724,000
Practice revenue growth in the last 12 months
14%
21.2%
19.7%
Number of small business clients served in the last 12 months
187
327
445
Business clients using online accounting today
28%
89%
63%
$52,900
$66,800
$138,100
Increase in employee compensation in most recent cycle, excluding
partners
1.9%
5.0%
6.7%
Regretted staff departures in the last 12 months (as a % of total employees)
3.3%
5.3%
7.5%
$4,250
$7,250
$10,270
484
188
273
Simple advisory revenue in the last 12 months
$32,600
$177,200
$334,600
Complex advisory revenue in the last 12 months
$34,700
$50,800
$514,600
5.5
10.2
9.4
10.3%
2.7%
6.8%
28
47
56.8
$9,210
$4,130
$47,160
Fixed-fee monthly or quarterly service plan and automatic payment
17.5%
61%
8.2%
Monthly service plan and clients pay for additional project work
41.9%
11%
42.2%
Bill for the number of hours (and partial hours) of service provided
7.5%
17%
7.3%
33.0%
11%
24.1%
0%
0%
18.2%
Employees required to complete timesheets for any purpose
15%
79.2%
72%
Employees required to complete timesheets for billing clients
13.8%
69.4%
66.6%
Number of in-person or online client chats in a typical day
3.3
8.6
5.8
Practices actively looking to add staff
85%
92%
89%
Practice revenue
Revenue per employee including contractors
Simple advisory
firms have the
highest growth
rates. Complex
advisory firms
have the highest
revenue per
employee but
also the highest
regretted
employee
departures.
Client profitability, development and retention
Annual revenue per small business client
Cost to serve (no. of staff hours per client per year)
Hours per month staff members commit to learning business apps
Regretted client departures in the last 12 months (as a % of all clients)
Number of new clients in the last 12 months
Marketing investment or spend in the last 12 months
Simple advisory
firms have the
lowest cost to
serve clients and
are making the
highest investment
in employees
learning business
apps.
Pricing and billing - percent of clients billed with each approach
Quote a fixed amount for a service and bill when the work is complete
Other method of billing clients
Simple advisory
firms have nearly
3 out of 4 clients
on service plans
and are capturing
additional project
revenue.
Time tracking and client engagement
42
Simple advisory
firms have the
highest level of
client engagement
and are the diligent
about capturing
time to understand
cost-to-serve.
Accounting firm business model
Compliance
Simple
advisory
Complex
advisory
Approach/positioning in the marketplace
Business mentor/counselor
0%
50%
36%
All inclusive ‘Amazon’ shopping center
67%
0%
18%
Specialized surgeon
33%
0%
27%
WeWork shared community, talent, team
0%
25%
9%
Holistic health center
0%
25%
0%
Tech-loving accountants
0%
0%
9%
Bookkeeping
100%
100%
73%
Accounting
100%
80%
91%
Payroll
100%
60%
73%
Tax preparation
75%
60%
91%
Accounts receivable/control
25%
60%
27%
Advisory services, eg, budgeting, cash flow forecasting, business planning
100%
60%
100%
For-fee implementations of accounting software for businesses unlikely to
become long-term clients
75%
60%
9%
Startup mentoring, advice and networking or assistance with business
development
25%
40%
45%
Virtual/ outsourced CFO services
50%
40%
64%
Business performance benchmarking
0%
0%
45%
Succession planning services
25%
0%
45%
Business app/software setup, configuration and support services
50%
60%
36%
Capital raising: assistance moving to better interest, financing options
0%
20%
18%
HR advisory
25%
40%
9%
Compliance services offered
Simple advisor services offered
Complex advisor services offered
Table 13. Profile of midsize and large firms
43
How can we help
Once you decide that Xero is the way forward for your practice, a Xero account manager and
Xero practice consultants will help you get going. It’s their job to guide you throughout your
transition to Xero. If you’re not already a Xero partner, sign up for the Xero partner program at
xero.com/partners or email partnerteam@xero.com
Become Xero certified
After you become a partner, it’s time to get you and your team Xero certified – which helps
you best understand how Xero can help your clients. Our most successful partners have their
entire teams certified and well prepared to provide excellent client service. Many practices
adopt a model that allows staff to dedicate work hours – such as 3 to 5 hours per month – to
become Xero certified and to learn the apps that clients value most. And certified staff are
much more effective when helping clients or working on Xero-related tasks in the business.
Migrate with ease
Making a significant change within your practice isn’t easy, which is why we’ve launched
migration certification. This includes the guidance, resources and tools to support the switch
– and is perfect for those responsible for migrating their practice to Xero.
Talk to a Xero account manager today about your 2018 plans
We want to help you find the way forward for your firm. From getting started in the cloud to
developing cutting-edge advisory services, Xero account managers and practice consultants
are ready to help you create a business plan for moving your practice forward in 2018 and
beyond.
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45
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