Episode 5 – Determining Your Firm’s Capacity
Determining Your Firm’s Capacity
Simply put – your capacity is the max your firm can produce given your current resources. But, how do you determine or calculate your capacity? Listen to this episode for the tips. Not only is this a great calculation for your practice, but you can also use this calculation with your clients too. So, are you ready to figure out your firm’s capacity?
I’ve done research through the Census and SBA. And, on average, it looks like CPA and Bookkeeping firms can generate $100K in revenue per full-time employee. I can say that I have definitely been able to attain that. Have you?
But, if you are hearing this, don’t think that you are a failure if you haven’t reached that point. It could mean a few things:
- You are happy where you are and what you charge, so turn this episode off now. There is nothing wrong with being happy with where you are!
- You aren’t charging enough
- You have the potential to be more efficient operationally
Let’s talk about capacity
This is something you could be doing for your clients too. So, think about what you hope your average billing rate to be – $50, $100, $150, $500. Whatever that is. Then, multiply it by the number of hours that you can do that billable work in a year.
If you are working full-time, you start at 2,080 hours per year. Then, you start taking hours away.
How much time is that all going to take? Once you’ve figured out your billable hours per year, multiply that by the average rate you want to be making.
80% billable at $50/hr = $83,200
50% billable at $50/hr = $52,000
More often than not, people realize that things don’t match up here. They want X in revenue, but when they look at reality, they are ending up with something much smaller.
How can we increase our capacity?
- Work more
- Hire someone
- Charge more
- Find more time (that’s being more efficient)
Now, the question is what is the right choice for you and your practice? That is something I don’t have an answer to. Actually, there is no wrong answer here.
But, here are some tips.
- Start drinking a lot more caffeine – if you want to work more
- If it is time to hire someone, look at your time and figure out what takes a lot of your time that you can easily delegate? For some people, that means an assistant. Others might need a marketing person. And even others might need to hire another bookkeeper. It’s all up to you.
- You can always charge more per hour, but at some point, the market is going to respond and it will be harder to find clients. I mean $10,000 per hour might be too much.
- You can always take away the hourly charge and charge a flat fee or value pricing instead. All of a sudden revenue isn’t necessarily tied to time anymore – and you don’t have to spend as much time explaining that $10,000 per hour rate – or whatever amount you are trying to attain internally.
- And, to take it one step further, find more time by utilizing technology. The more efficient we are, the more time we have. Add in a flat fee or value price, then you don’t have to be tied to time.
So, what is your capacity? Is it in line with your revenue goals? How are you going to find more capacity in your practice?
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