Do you know the top KPIs for accountant people planning?
Offering your clients people-planning services is critical for their success, and it can add more value to your accounting firm. When your firm partners with an effective people-planning platform such as Gusto, you can use powerful key performance indicators to help your clients improve their businesses and reduce expenses.
Gusto, along with our partners at CPA Academy, presented a webinar all about people planning and KPIs titled, “People Planning: Advising Your Clients with People-Focused Advisory Services.” The presentation was hosted by the Head of Gusto’s Accountant Community, Will Lopez, the Director of Marketing at Jirav, Blake Oliver, and Jirav’s CEO and co-founder, Martin Zych. You can watch the entire webinar here.
In this article, you’ll learn all about six critical KPIs for people planning. These KPIs are salary-run-rate, profit per headcount, revenue-per-FTE, gross-margin-per-operation-FTE, operating-expenses-per-FTE, and spend by department.
KPI reporting and full-time equivalent (FTE)
Will and Blake outlined six critical key performance indicators (KPIs) that your firm can offer clients for people planning, many of which have to do with full-time equivalents.
What is a full-time equivalent? A full-time equivalent is an employee’s number of scheduled hours divided by the number of hours an employer indicates as full-time. For example, if a full-time workweek is 40 hours and an employee works 20 hours a week, their FTE would be 40/20, which is .5. Understanding this simple FTE calculation is important for using KPI tools.
KPI #1: salary-run-rate
The first KPI Will and Blake discussed involved evaluating monthly salary expenses and annualizing them, or converting them into an annual rate. When employers use a salary-run-rate, they gain a clearer picture of their hiring needs. The CEO and co-founder of Jirav, Martin Zych, joinedWill and Blake in their discussion of certain KPIs and he expounded on the importance of using salary run rate in addition to your budget:
“This [KPI is] really key, and we see a lot of people get stuck on this. When they’re planning salaries, you look at your income statement. You say, ‘Hey, I’ve got this wages line,’ or, ‘I can spend $500,000 this year.’ … You’re adding up those 12 months, but what we actually see in practice is [that] hiring people is hard. It’s never … on the right timeline, so what we really recommend is for people to actually look at the annualized wages of the salaries you’re going to hire in order to set that budget.”
– Martin Zych
Salary-run-rates are critical for hiring the right number of people in an organization. If you’re working with a larger business, you would most likely run different salary-run-rates in different departments. Running a salary-run-rate can also make your clients’ hiring more strategic. It analyzes the amount of money based on annualized monthly employee expenses rather than a static budget.
KPI #2: profit-per headcount
Profit-per headcount is a relatively simple KPI that involves analyzing the revenue generated from each employee. Although the revenue of each employee is important, it’s also critical to analyze employee satisfaction in addition to the profits-per headcount:
“If we’re seeing that grow, that’s good. If it’s going down, [it’s] not so good. We want to monitor them all together and think about them holistically [and] not just focus on one [KPI]. If we only focus on revenue-per headcount … [we could] stress our people out, and then they all quit.”
– Blake Oliver
If your client’s organization puts too great an emphasis on profits and not employee satisfaction, they might be working their employees too hard. They may have expectations for their employees that sacrifice employee contentment which can then lead to employee turnover. Avoiding employee turnover is critical because once employees leave, that creates more pressure for the remaining staff. This can snowball and result in mass employee turnover.
KPI #3: revenue-per-full-time equivalent
The next KPI continues dealing with employee revenue. Analyzing revenue-per-FTE can help your clients manage their budgets and hire employees accordingly. Note, revenue-per-FTE will differ depending on the industry:
“[You make] comparisons across industries for what is a typical revenue-per-FTE. … [For example,] a software company versus a restaurant [or] manufacturing company [will have different revenue-per-FTE standards]. Then we can monitor that against the baseline.”
– Blake Oliver
Martin noted that a business’s success depends on more than the revenue-per-full-time-equivalent KPI. If there’s a noticeable increase in revenue-per-FTE, but there aren’t technological or workflow improvements, there could be an issue with employees overworking:
“This is the work that’s being done that’s creating value for customers. If that revenue pressure gets too high, … sometimes that’s great if you’re using technology or something to scale, but if you haven’t changed anything in your process, you might be working your people too hard and … you need to hire [more] folks to get [needed] bandwidth.”
– Martin Zych
Overworking employees isn’t sustainable long-term, so even if your client’s business is improving its revenue-per-FTE, it could have long-term issues with retention if it fails to maintain employee satisfaction. Businesses should consider incorporating employee satisfaction surveys into their KPIs for long-term success.
Additional KPI analysis tools
In addition to the three aforementioned KPIs, salary-run-rate, profit-per headcount, and revenue-per-FTE, Will, Blake, and Martin discussed three other critical KPIs: gross-margin-per-operations-FTE, operating-expenses-per-FTE, and spend-by-department.
KPI #4: gross margin per operations FTE
This KPI is calculated by the operational employee profits minus employee expenses. Martin delivered a few examples of gross-margin-per-operations-FTE in different industries:
“If you are selling physical goods, maybe it’s how many people that the company has in the warehouse that has to ship these things. If you tripled revenue, you need a whole bunch of people to go fulfill these orders. If you are doing a restaurant, these are the cooks, the waiters, and all that.”
– Martin Zych
Your clients need to consider the positions in which they would need to hire more people in order to address an increase in business.
“Think of anyone who you have to hire more of if revenue goes up—that’s someone that you should kind of think about as an operations-FTE in this gross margin [calculation].”
– Martin Zych
In accounting, you would need more CPA employees or contractors to deal with an increase in clients and bookkeeping tasks.
KPI #5: operating-expenses-per-FTE
The goal of this KPI is to keep operating expenses in line as the employee headcount grows. As your clients add on more employees, they need to maintain similar operation expenses or hiring will become too expensive. There are fixed operational expenses and variable operational expenses that businesses need to consider. If variable expenses become too pricey, businesses need to reduce their expenditures:
“They’ve got this discretionary spending that they could do, and if everyone’s [spending too much on] T&E or meals, or maybe you bought too big of an office space for the amount of people you have, this can inflate your [operational expenses]. … When you’re thinking about ways to hone your budget and your finances [consider these expenses]. Think of those discretionary spends, and if they get too [pricey], those are the first parts that you can [reconsider].”
– Martin Zych
Considering both fixed and variable operational expenses can help businesses reduce their spending and overhead costs.
KPI #6: spend by department
The final KPI deals with tracking expenses based on each department within a business. But departmental expenditures can be difficult to calculate:
“It’s always difficult to track spend[ing] overall by department. … When … I think of just these KPIs, I call them ‘fully-loaded people costs.’ I think the fully-loaded people cost by department is a hard metric to get to in order to really compare yourself to industry benchmarks.”
– Will Lopez
Fully-loaded people costs indicate the total expenses relating to employees. This can include salary, benefits, taxes, etc. Although it’s hard to track each department’s expenses, it’s important to compare departmental spending to others within your industry to avoid excess spending.
“Make sure you’re spending the right amount on [departmental] functions, especially [general and administrative expenses]. … Spend by department is a key metric you need to take into consideration when you’re doing any kind of analysis. What’s good about where we are today [versus] ten years ago … is we can now access that fully-loaded person cost to slot them into the proper departments, and then do all other metric [calculations from there].”
– Will Lopez
KPI reporting has improved in the last decade, and businesses are now better equipped to track spending in each department and the operational expenses related to each employee.
Learn more about people-planning KPIs
The six critical KPIs for people planning are salary-run-rate, profit-per headcount, revenue-per-FTE, gross-margin-per-operation-FTE, operating-expenses-per-FTE, and spend by department. A critical note about KPIs is that the profits don’t necessarily reflect the long-term success of a business. If the KPI metrics are greatly improving, but employee satisfaction is decreasing, it can result in mass turnover. Consider advising your clients to implement employee satisfaction surveys into their KPI reports to closely monitor employee sentiment and avoid turnovers.
If you want to learn more about people planning and KPIs, read Part One and Part Three of this webinar article series. You can also watch the full webinar here.
Looking for an effective people platform that provides key performance indicators for your clients? Consider partnering with Gusto. When you become a Gusto partner, you get exclusive access to tools, KPIs, employee surveys, and other resources to support your clients into the future. Streamline payroll and benefits, and start advising your clients in valuable new ways. Join Gusto’s Partner Program today.
