The Wize Way

Episode 188: How to Run Your Firm in 5 Metrics

• Wize Mentoring for Accountants and Bookkeepers

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Are you tracking dozens of numbers but still unsure how your firm is really performing? More data does not equal more clarity. What matters is knowing which five metrics actually drive decisions.

In this episode of The Wize Way Podcast, Wize Mentor Thomas breaks down the Fab 5, the five high-level KPIs every firm owner should be watching if they want clarity, control, and sustainable growth:

✅ Why revenue and profitability only matter when viewed through the right lens
 ✅ How fees won and lost reveal your future hiring needs months in advance
 ✅ The hidden story behind WIP, lockup, and cash flow
 ✅ Why client and team NPS quietly drive referrals, retention, and performance
 ✅ How to use benchmarks to spot problems early without getting buried in numbers

If you want to stop tracking everything and start focusing on what actually moves your firm forward, this conversation will give you a practical framework to lead with confidence.

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3. Book a 1:1 Wize Discovery Session – Spend 30mins with our Wize CEO, Jamie Johns, a $7M firm owner who is ready to give you his entire business plan to build a firm that can run without you – Find out more here

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SPEAKER_01:

Welcome to The Wise Way, the show for accounting and bookkeeping firm owners who want more time, profit, and freedom and a business that can run without them. I'm Brent Ward, your host, and each week we deep dive into the real stories, proven strategies, and battle-tested tools from successful firm owners just like you. Our wise mentors want to share their journey of how they've scaled and systemized their way to freedom so you can too. If you're stuck in the grind or you're ready to scale smarter, this is your blueprint. Let's get into the episode.

SPEAKER_02:

Alright, so today we're going to be diving in today's uh topic of uh driving success with the right metrics. Uh specifically, we're talking about the Fab5 metrics. All right, and we'll be going over them at a high level, and then I'll share some interpretations and some examples of uh different ways I've seen the Fab Five appear to me in my mentoring sessions. So hopefully we can have like a deeper discussion on the Fab Five for all those that you know are really well acquainted with it already as well. Okay, but uh um yeah, I'm gonna start from a high level. And uh yeah, it'll be really great if everyone uh kept their cameras on and uh keep yourself muted for now and use the chat uh box for any questions and comments. Okay. All right, uh, and thank you for joining us today, uh Yvette, Justin, and Chris. Good to have you here. Okay, and for all of those who are um uh who haven't met me before, I'm Thomas. I'm a WISE mentor at WISE and have been for almost six years now. It's crazy. It's crazy. Uh but yeah, uh happy to take you through a very crucial topic today on the Fab Five. All right, so we're going to be breaking down the five key KPIs that define an accounting firm. Okay, and uh, you know, just just before I go into these uh specific five KPIs and explaining them, you're probably wondering why these five? Why why these particular five KPIs? How about all the other KPIs, like number of returns completed this week, or number of returns lodged this week, or recoverable rates, or um uh uh whatever else, why these ones specifically? Well, uh the best way I've interpreted this and explained this to others, uh other firms is uh it's all about the role uh that you hold and sit in within your accounting firm. And these five KPIs in particular, they're meant for partners, they're meant for owners, they're meant for general managers, managing partners, CEOs, and um the board of directors. Okay, so these KPIs sit at a high level and they pretty much cover the full spectrum of uh what is happening in the firm. Uh think of it like a rainbow. How many colors are there in the world? Infinite. I mean, not infinite, but heaps, okay? There's millions. But when you think of the colors of the rainbow, you go, I don't know the colors of the rainbow. But because what is it? Blue, yellow, red, green, I think there are like five or six of them. I'm not sure. But we don't go and list out every single color combination. But within each of those main colors, it describes within them, it has millions of other subcolors. And that's what the Fab Five KPI is. When we're looking at revenue, within it, it represents productivity, it represents billable rates, it represents recoverable rates, it represents your billing, it represents so many different things. So these five KPIs, each of them, they sit at a really high level. And the way we use them is if any of these KPIs fall below a certain benchmark, then we begin going in and unpacking it. Okay, then we go into it and we start drilling in and taking a look at the details, trying to get to a specific person's productivity levels. But what we can't do as owners is stay across 100 KPIs constantly. It's it's impossible. It's really hard. I don't know. I don't know if anyone can really do it. Um, I don't know if anyone's traded shares or followed sports. You can't keep track of 100 different sports sporting teams at the same time. You can't keep track of 100 different shares at the same time and uh intimately remember their prices. Uh same goes for the Fab Five. We need to keep things lightweight. We essentially need to abstract the low-level, small details into a higher state so that we as owners don't get paralyzed uh by the information. Uh it needs to stay high level so that we can be decisive, that we can make it's it comes down to the 80-20 rule. Okay. Uh, you know, you you it's not important, it's 20% of the KPIs uh uh produce 80% of the impact when we make decisions on them. And these are what they are. Okay, so that's look, that's just a bit of an intro into the KPIs because you know, a lot of people have asked me why these ones specifically? Can't we tailor them? Why now another overview just to the Fab Five is it doesn't just cover financial data, okay, in the sense of the PL. Okay, it's not just covering the income and expenses and profitability. We're also tracking the fees won and lost. We need to be able to track uh how the business is changing overall, not just what it is in its current state. Are we converting people? Are clients happy? It gives us the ability to have foresight. Okay, and that kind of just goes back to being decisive as uh a leader. All right, so I'll just get right into it now. And um, we'll have Raul here to take us into the Fab Five itself uh uh soon after uh to uh give us uh a bit of a demonstration on uh what it looks like inside the wise hub. So the Fab5 uh it stands for the revenue, profitability, fees, won and loss, leads to new clients, and the client NPS. Now actually, what I might do here is Raul, do you mind sharing your screen to the five actually? And I'll go over the explanation because can you see my screen?

SPEAKER_03:

Yep, I certainly can.

SPEAKER_02:

Alright, beautiful. Okay.

SPEAKER_00:

This is Tom uh an executive uh view. So this is how every single owner should be looking at the when they open their Fab Five.

SPEAKER_02:

Yeah, this is a really great new view. Uh uh let us know if um you're anyone's having trouble uh viewing this, but yeah, this is our new business intelligence view for the Fab Five. Okay, so let's just start going into it. The first KPI here is revenue, okay? Everyone can see here, we're going to be focusing on uh revenue here. And with revenue, we're keeping track of what our year-to-date revenue is and we're comparing it against two numbers, okay? We're comparing it against the last years to date, okay? And as you can see here, let me know if anyone's um having trouble uh seeing this, if it's a bit too small, but uh that's two million, and the last year to date was 1.7 million. And what we're trying to get out of this, yeah, thanks, Raul. That's that helps. Okay. Yep, perfect. Okay, so what we're trying to get out of this is looking at how much have we grown so far this year. Okay, what's our current growth rate so far? And for this particular example, 23 degrees accountants, we've grown by 21%. Now, that's excellent. 21% is a great growth rate, but everyone here might have a different growth rate depending on what you planned inside your growth plan in the Wise Hub. Um, and just to explain that we all have an ideal lifestyle in mind, and we all have an ideal income that we want to achieve in order to fund this ideal lifestyle. We all have a starting point. And when we know what our ideal income is, we can work backwards into figuring out what revenue does the company needs to be in order to fund that lifestyle. And from what I've seen in most firms, when they've planned their ideal uh income, usually they'll say something like 500,000 a year, 600,000 a year in dividends. And they usually give a time range of about say five to six years in order to achieve it. Often that is around a 15 to 20% growth rate. And if a firm wants to achieve it, achieve their goals any earlier than five years, they tend to have to do an acquisition uh in their second or third year. But 20%, 15 to 20% is what I often see uh as the growth rate in order to achieve uh your ideal income goals. So this is really important. We need to be tracking our growth uh with respect to our ideal income goals. And also, we need to be tracking our growth because our employees want promotions, our employees want uh more wages, you know. They they want uh a salary increase of 5%, 7%. Our employees in the Philippines, they want to go from 80,000 pesos to 120,000 pesos. That's a that's like a 50% increase. I I looked at it last year. I gave like six, I increased my Philippines wages by like 50 or 60 percent. It's been growing the fastest it's ever been. And we need to be able to track our growth rate to make sure that are we are we going to be able to afford that? Are we able to meet the market demands of the labor costs uh at the moment? So that's the growth rate, and that's what we're getting inside revenue. The other thing that we're comparing the year-to-date with is the year-to-date budget. Okay, so this year-to-date budget is a reflection of what we achieved last year plus some growth, okay, plus the new fees that we've won. Right, and we want to make sure that we're tracking along uh uh to our budget uh as we move through the financial year. And in this case, we are at February, okay, for the Australian financial year, July to February. Right, and in this scenario here, we are 544,000 uh uh beyond our budget. We have a surplus, and this is great. Looking at this, we can tell that the firm is billing well, performing well, they're getting work into the office, or their direct debits are nice and healthy. Okay, that's the first Fab5 KPI, and that's just one point of view that we're taking a look at. All right, now the second KPI, profitability. With profitability, we're tracking our cost of goods sold, our year-to-date IBIT, and year-to-date IBBIT as a percentage, our right ons and off, and the percentage of right ons and off versus the the year, uh, the year-to-date IBIT itself. Okay, with profitability, we're always aiming for a cost of goods sold of 40%. That is our benchmark. And what you don't see here is the overheads. Okay, but the overheads are we're looking to achieve uh between 35% if you have an office to 30% if you're a fully remote firm. And that means that the IBIT that we're trying to achieve is 25% to 30%. It's typically 25%. So for this firm here, we can see that they're kicking all their goals. We've got under 40% cost of goods sold, we have over 25% IBIT, and they're right-ons and off uh well, they're they have that they're in a write-on situation, and that's great. Okay, what does profitability tell us? Profitability tells us that our accountants and bookkeepers in the production team, they're being well utilized. Okay, cost of goods sold is the one expense that we have the most control over. We can either assign more work to our team, we can let go of accountants if we have a surplus capacity. Okay, or we you can choose to hold on to them if you're preparing for growth. In this case, we've got 39%. That's nice and healthy, they uh within uh the benchmark there. Okay, and for the write ons and off, this tells us that what we're charging is greater than the total billable uh charge out that the team is putting into the work, and that's excellent. If we were perhaps looking at a negative number here, like a write off, that would indicate we could be undercharging our clients. Often it is that we're undercharging the clients, uh, or that the team is inefficient, uh you know, or any combination of those. Okay, and I'll I'll go through some examples, um, you know, different variations that I've seen here. But so far, you're we're looking at a high-performing firm. This is the image of an ideal firm. Okay, for lockup. Lock up, we're looking at whip balance, debtors, and then these lockup days. Whip balance is very simply the amount of work that is in progress in the office at the moment and what the total value of it is. Uh, there are many different uh interpretations of whip balance. It could be the total value of it could be the total fixed value of the jobs in progress. It could be the amount of billable charge out rate uh charged into a job at the moment that hasn't been invoiced yet. And that's going to depend on whether you're an hourly rate firm or a fixed fee firm. So with balance, together with the debtor's balance, they go together to calculate lockup days for us. Now, lockup days is more or less an indicator of cash flow. We're measuring this revenue and profitability typically on an accrual basis. Okay, so as you're invoicing them as it happen as it happens, we're recording it. So oftentimes this revenue that we've achieved so far of 2 million, it doesn't mean that we've we've fully earned it just yet. Okay, it means we've billed the client for it, but it doesn't mean that we've earned it just yet. And often if we haven't earned it just yet, that's going to show itself in the whip balance. So if you're ever wondering, you know, are we doing in this in cash or accrual? Uh we do this in accrual and we see what the current situation is by looking at the lockup itself. Okay. So again, this is an ideal firm. Their whip balance is low. And some might argue that it's too low. Okay. We generally want about two to three weeks' worth of work in front of us. Um, and maybe$100 is just not enough work in front of the front of the firm at the moment. So it's not that zero is the best for the whip balance. It's what makes sense for your firm. What I've noticed is for bookkeeping firms that do month end work, they typically will end the month when they're doing reporting on this Fab 5 with close to a zero whip balance because you're they're closing out the whip pretty much at the end of the month. They're they're done with everything. For tax firms or advisory firms, what I've noticed is that the whip balance can be a pretty substantial number. So, how much whip is too much whip? For me, from what I've seen working with firms, it's relative to the average monthly budget of your firm. So, for example, let's say you're a$1 million firm, and that means that on average your monthly budget is about$83,000. You generally don't want your whip balance to be greater than half of that, like$41,000. Okay. Because what that means is if a new job comes into the office and you're already at$80,000 worth of work, that client might wait one month before they get their work back. So whip balance is really interesting to us because it's also an indicator of uh turnaround time. Okay, so uh, and it's off it's often whip balance and write ons and off, from what I've seen, have been the hardest KPIs to get uh for a firm. Uh okay, and so that's lockup and sales. Now, with sales, we have uh we measure it in essentially two main parts. We have a conversion rate part and the net fees one and loss. For the prospects to client percentage one, we are comparing the prospects percentage that they turn into clients. So, what is a prospect? And how is it different to a lead? A prospect is someone who has had a booking, okay, and they have been presented a proposal. Okay, so a prospect is someone who has had a booking with you or at least done a meeting with you and they've been presented a proposal. A lead is someone who hasn't. Okay, so we're not comparing the leads to client percentage one because some of those leads could be tie kickers, some of those leads could be undesirable people. We haven't qualified them yet. Okay. Um, we only want to count the people that we've qualified, and we uh definitely want to send a proposal, and those are our prospects. Now, a general uh benchmark for prospects to kind of percent. One for us is 40%. So in this scenario for this firm here, they're a little bit under. Their prospects to client percentage one is under this benchmark of 40%. So what does it mean? It could mean several things. It could mean that their qualifying process for the leads aren't good enough. And they should address that because you don't want to waste precious senior client managing time. You don't want to waste precious uh discovery meeting uh appointment slots uh with people who aren't desirable. Okay, so it could mean that um we're uh you know meeting people that don't really suit us. It could also mean that uh we don't follow up these clients. Maybe we aren't very good at closing them, perhaps they're all qualified and we don't do a good enough job of uh capturing uh capturing them and getting them to accept the proposal. Okay, so as you can see, these are all high-level KPIs, like I mentioned. But when a KPI falls below our benchmarks, we begin to ask questions. Okay, then we start drilling into it. Okay, but we're starting from a high level, we're not uh keeping track of all these different points and arguments and facts and numbers uh constantly at the top of our head. It's just an indicator for us to start uh getting into it. And that if there were within our benchmarks, if everything if everything looked uh pretty good, where ahead of budget, uh the profitability is good, our cost of goods sold is under 40%, then there's really nothing to drill into. Like you could you could go into it if you wanted to, but there really isn't any point. Following the 8020 rule, it's just fine. There's nothing really to worry about. We really should be putting our attention to things that look worrying or aren't at the benchmark. Okay, so that's um that's sales here, and now with the fees won and loss. So, of course, we want to be winning fees more than we are losing fees. But what does this KPI do in terms of decision making? Well, it does two things. And you won't be able to see in this view, but we're tracking each of these Fab Five KPIs on a per team basis. Okay, we want to be able to track that which team is losing a lot of fees, and is that correlated with any of the other KPIs? For example, if one team's wit balance was really high, something like two months worth their average budget, and they were also losing fees, and then their client NPS was a seven out of ten, what does that mean? It means that their clients are unhappy because they're taking too long to finish their work. Okay, it tells a story once we look at one poorly performing KPI and we correlate it with others. It gives us a complete story to take a look at. And they never really truly make sense when we look at it on their own. Okay. Um so in this case, we're judging senior client manager performance, a team's performance in being able to retain clients. And then secondly, the fees won and lost, these net fees, they help us capacity plan. So suppose we're already at February. We're only a few more months until the end of the financial year. So we're looking at this in March, so we've got six more months until the the next financial year. And so far we've won$27,000 worth of fees. Well, now we have to go and check for the team that this uh that has which team has won these fees, do they have the capacity to meet uh to service these fees in the following financial year or not? Okay, so net fees won and loss, it helps you gain the foresight in order to make hiring decisions six months out, one year out. And you might think it sounds ridiculous. Why, if I have to hire someone, surely eight weeks is enough time to be able to find the right person. I think I think everyone just shook their head. It's not. Uh, but they there was a time around, I'd say around 2020, 19, where eight to 12 weeks seem like a reasonable amount of time to uh get a senior accountant as a hire. Um nowadays it's just taking way longer. Okay, so we need to be able to see further out when do we actually need to start hiring the next person. Okay, so that's one reason why you're that's one uh hiring point on why you need to be tracking the net fees. The second reason you need to be tracking the net fees in regards to hiring is because you're getting a lot of net fees. There are some firms that I've worked with, and I uh there are some firms that I currently work with where their net fees one are 300,000, 400,000 uh a year. There are I I from memory there was one firm many years ago, she was growing by 1 million dollars in fees every year. That is that is an insane level of growth. And as you can imagine, when they're planning their next, when they're planning the capacity, they're not planning for one or two hires, they are planning for whole new teams. And when they are planning, it's not just oh, I'm gonna plug two people in, or maybe three people. What they're doing is they're thinking, this person has to be promoted, that person from the other team has to be promoted, they will go and see the new team, and then I'll grab this existing production person and throw it into that team, and then hire another person to go back into that team. It is it is like a gigantic puzzle, and it's happening very fast. And you imagine when you have a year to try and put an entire team together, uh, how how quickly you have to move and how precise your decisions have to be. So your net fees one here are probably the most important uh KPI you need to track in order to see your capacity plan deep into the future. Okay. All right, and the last KPI here, uh NPS. And NPS stands for net promoter score. And it's for all those that don't know what the NPS is, it's very simply the question where they ask on a scale of zero to 10, how likely are you to recommend our services to your friends or family? So that's for the client NPS, and for the team NPS, it's asking that very same question, but uh in terms of would you recommend people to work at our company? Okay. Now for both of these KPIs, we want to be achieving realistically, we want to be achieving an 8.5 or higher. Uh, but really you want to be aiming for nine or tens. Nine or tens are promoters. It means that people who are giving you a nine or a ten, they're going out of their way to speak good things about you. People who are giving you a seven or eight, they're happy with you. They might recommend you, but they're not really going out of their way to sing your praises. And anyone who gives you a six or lower, they're ranging from unhappy and keeping their mouth shut to they're about to leave you and they're actively telling people they how much they hate being a client of your firm or how much they hate being a team member of your firm. Okay, so we need to be tracking this, and that helps us determine whether the client managers of a team are looking after their clients. Are the clients happy with that client manager? Now, studies have shown that customers expect businesses to make mistakes. That's a no-brainer. We expect businesses to make a mistake as well. Uh, but what makes a difference is how the business responds and handles those mistakes. Now, some businesses do it terribly, and then the clients are obviously unhappy. But some firms do a good job of it and they really turn the client around. They go, look, sorry for the mistake. Um, you know, uh, we'll take the fees off for you this year, uh, and you know, next year we'll give you a discount, or how about I throw this in for you, or let's do an extra meeting uh to go over it. And especially if they're an A or B client, uh, you want to be doing that because you want those people to refer you clients. So why we're aiming for a nine or a 10 client NPS is in addition to knowing if the client managers are managing the clients well, uh, we need to be able to uh we need to be encouraging and working towards getting referrals for the firm. And referrals and word of mouth are by far the number one source of growth for a firm. Okay. Uh you can experiment with SEO, you can do email marketing, you can do social media, you can do anything. Those forms of marketing are great. It brings a lot of people in from the outside, but what does that matter if the clients that stay with you aren't even happy with your services? So, this is what we need to make sure that we uh get right uh before we start marketing uh elsewhere. And then uh lastly, we have the team NPS, and of course, you want a nine or a ten as well. You want you want employees to be happy working for you. Happy employees tend not to bug you for pay increases, happy employees tend to be pretty cooperative. Uh happy employees tend to uh uh yeah uh sorry, Raul. Yeah. Um yeah, happy employees tend to uh they they tend to be able to tell other good employees that uh this is the right firm to work for. So you'll find that as it's really hard to hire people, you are going to rely on your existing team members to refer people to you. Okay, so these are the five the five KPIs from a high level. And as you can see, calling them the Fab Five can sometimes be uh it can kind of give the wrong uh uh impression that it's just five simple KPIs. But as we can see here from Raul showing us this wise hub and the business intelligence found in every wise hub, there is a lot of detail to it, and this only scratches the high-level surface of the Fab Five. We haven't, you know, we haven't even gone into digging into uh any of the sub-KPIs that we need to look at to actually address these specific things, and that's something that we do uh within the wise growth uh mentoring sessions itself. So, but uh we're but we're probably going to run out of time soon. So uh we'll you know, probably head we might be heading into a uh breakout room. Uh so I'm just gonna go back to sharing my screen, uh Raul, to the slides.

SPEAKER_03:

Yeah. Yep.

SPEAKER_02:

Okay, so just to cap this off, it there's a lot to the Fab5 and how it makes us efficient as a leader is it stops us worrying about every single KPI. Only when an KPI is falling under the benchmark we start asking questions. Okay. Now I'll all give us one action point that I suggest uh taking away uh in order to start getting the benefits of these Fab Fives and KPIs within your firm, and that is log into your Wise Hub and start setting it up for yourself. Every firm's journey in setting up the Fab Five is different. Some firms find getting their revenue and profitability are easy, some firms find it hard. Take the exercise of setting up your Fab Five as a way to determine, you know, what actually needs implementation within your firm. If you can't get your whip balance, is it because you don't have a workflow management uh tool that's currently being implemented for you to be able to figure this out? If you don't have a client NPS, is it because you haven't implemented one? And maybe you do. Okay, so go through the steps of setting up each of these Fab Five KPIs and you'll start to find gaps within your own firm and purely just aim for just trying to get the Fab Five first before you start doing anything else in your firm. It's really the only place where you can tell whatever you're doing is actually working uh or not. All right. And there are three useful uh resources for you to um review uh in the WISE vault, and that is 12.1, the live metrics and management reports, uh the live metrics, fees, one and loss that I went through, and as well as the fees, one and loss policy and procedures and the wise uh budget planner. Okay, so uh take a look at these and implement them within your firm. They're found in the WISE vault. Uh Ms. Selena will link to them. And yeah, look, let's uh let's go into the breakout rooms now, and uh we'll have three breakout rooms here. Uh I'll be uh look uh uh taking the Wise Growth mentoring room. So if you have any questions around uh your firm's growth or challenges that you're facing, I'm happy to answer any and all questions. Uh if you have questions about the Wise Hub and setting up the Fab 5 in the Wise Hub, maybe there's something that you're maybe you already started doing it and you're running into technical issues or uh you want tips on how to get certain KPIs easier, uh please go into Raul's breakout room. And if you have any questions on hiring, you have if your net fees one are making you nervous, if you're feeling like, oh, uh, how am I going to keep up with capacity? Uh how am I going to keep up with all this growth? Or maybe I want to grow. I just I just don't know how to get this hiring thing right. Um, please uh uh go into breakout room three and uh talk to Danny about your hiring strategy, okay, and ask her questions about that. So um thank you everyone. Let's go into the breakout rooms and uh I'll see you back here at uh the uh at the hour. Welcome back, everyone. Uh hope you had a great breakout session with your breakout uh hosts. So uh just to wrap things up, if you felt that um any of my insights into how firms run, uh uh uh you know the experiences I've had uh working together with firms to be helpful to be able to help them solve their issues and work on their strategy and then scale up.

SPEAKER_01:

Uh thanks for tuning in to this episode of The Wise Way. If today's episode sparked an idea or helped you see things differently, please don't forget to leave us a review. And if you haven't subscribed to the podcast on your favourite platform yet, please go ahead and do that as well. Let's continue the conversation here through YouTube or any other social platforms that you can find us on. And just remember, if you're not a subscriber to our weekly Friday tip newsletter, you can get that to your inbox every week going forward. Whether you're starting out or scaling up, you don't have to do it alone. Let's build a business that works for you, the wise way. We'll see you in the next episode.