Why is there such a big difference between the industry average and benchmark profit margins?

Why is there such a big difference between the industry average and benchmark profit margins?
August 13, 2018 admin

One of the questions we often get asked by accountants is “why is there such a big difference between the industry average and benchmark profit margins for accounting practices?”

To achieve benchmark performance (top 20%), there are three key benchmarks categories you can focus on:

  1. Revenue & services – mix, margins and growth rates;
  2. Partner and key staff – utilisation, productivity and performance;
  3. Material fixed operating costs.

Benchmarking is only as good as the quality of data entered and being able to compare your practice performance to ‘like’ practices.

Why is there such a big difference between the industry average and benchmark profit margins?

When we benchmark accounting practices, we adjust the financial accounts profitability. For example, our guidelines for notional salaries (Partner/Directors), in associated practice fee ranges are listed below:

  • $0 – $1M: $150,000;
  • $1M – $5M: $250,000;
  • > $5M: $350,000.

If you are planning to use benchmarking information for your practice or your client’s businesses, I encourage you to source accurate industry benchmarks as we have some real concerns in relation to tax office and GLS system benchmarks. Click to learn more.

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