Rethinking Rankings: The Top 100 Firms — Adjusted

The Accounting Today Top 100 firms list tells you the wrong information if you’re trying to get ahead in this profession. The list is ranked by revenue, which is great to understand which are the biggest firms, but it doesn’t tell you how to pick a firm or evaluate your practice.

Look beyond the revenue rankings and calculate a Revenue Per Employee ratio. This metric is used across industries, but it's especially important for accounting firms because they are selling people's time, which makes people the most important resource.

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A Deeper Analysis

Total revenue is a vanity metric. Vanity metrics make a team look good, but they don’t show the true performance of a team. There are lots of low-quality ways to grow revenue, like chasing bad clients, undesirable engagements, or non-strategic acquisitions. These activities push the revenue number go up, but they are not signs of a high-performing firm or team. In fact, revenue alone provides little insight into the future prospects of the firm or your growth opportunities there.

Revenue per employee offers a better insight into how effectively a firm is utilizing its most valuable asset: its people.

Top Firms When Sorted by Revenue per Employee

Many firms, even some of the most prestigious ones, don’t look as good when you measure their business strategies and operational models this way.

What the Numbers Really Mean

Revenue per employee can provide insights into a firm's operational heartbeat. Firms with higher revenue per employee ratios have more resources available to reinvest back into the firm through things like higher compensation and better technology. Lower ratios, on the other hand, could point to potential inefficiencies, unprofitable markets, or low-realization engagements.

Box Plot of Revenue per Employee

Over time, this metric can tell a story of how firms adapt, innovate, and maximize their human capital. We can see in the box plot above that the average revenue per employee across the top 100 firms is about $230,000. Firm management might look at a benchmark like this and think that every employee should be contributing to another $230k in revenues, and those people who contribute more revenue are overperformers; those who contribute less are underperformers.

Scatter Plot of Revenue per Employee with Big 4 Labeled

Performing a regression analysis, we see why EY, at almost $384k per employee is a statistical outlier from the sample. For their headcount of 55,900 employees, we would expect about $12.6 billion in revenue, but they far exceed that expectation with $21 billion. Based on that same linear equation, Deloitte is underperforming, PWC is overperforming, and KPMG is just about consistent with expectation.

Scatter Plot of Revenue per Employee for firms with less than 10k people

We can also filter out firms with more than 10k people and get a better idea of expected revenue per employee based on the remaining 93 firms, a more reliable predictive analytic with an R2 of 0.9681, meaning that this equation predicts almost 97% of the sample of firms. For that sample, expected revenue is calculated as $246k per employee minus $13m. For example, a 2,000 person firm would be expected to have revenues of $479m, which is calculated like this: =((2000 * 0.2463)-13.727).

Transforming Insights into Action

The revelations from a revenue per employee analysis of the top 100 accounting firms can be more than just interesting information. It can be a useful benchmark for your practice and your career.

Histogram of Revenue per Employee

There are 75 firms that have between $180k and $270k in revenue per head, so many of us in public accounting probably work in practices with revenues per employee in that range. If you work in a practice that is towards the higher end of that range or has more revenue per head than $270k, you may be paid a salary and bonus significantly above average, and you may find yourself getting promoted very quickly if you work hard. That's good food for thought if you're thinking of transferring out of tax or audit and trying to choose a specialization.

For practice leaders, this metric can inform client culling activities and investment in your team's development. High-quality training and continuous learning opportunities can enhance efficiency and innovation. Technology and standardized processes play a crucial role in improving efficiency as well. Are you keeping up with the competition?

For partners and firm leadership, reassessing your portfolio service offerings and business model can lead to a more profitable path. This might mean focusing on niche markets, providing more consultative services, or enhancing client relationships through advisory roles. Embracing these changes can improve your revenue per employee ratio and position your firm as a forward-thinking leader in the accounting industry.

Time to Rethink Success

Armed with the revenue per employee metric, we can better evaluate our career paths, our teams, and our firms. Look both at the whole and the parts. Conduct an analysis by department and practice of your current revenue per employee and identify where you stand. Then consider how different practices may be reinforcing and improving one another — or distracting and detracting from your more profitable activities.

Consider your whole strategy to gain broader perspective and deeper insights into what’s working and what’s not. Then develop a tailored plan of action that may include investment of time and money into training, technology, and process improvements.

Embracing these changes is not just about improving a metric; it's about nurturing a culture of continuous improvement and strategic growth. That means it will be a journey. Monitor your firm’s performance, stay updated with industry trends, and be agile in adapting your strategies to maintain a competitive edge.

By measuring and tracking revenue per employee and implementing targeted improvements, your firm can achieve new heights of efficiency and success.