How Accounting Firms Can Use Benchmarking to Help Underperforming Clients

Every accounting firm works with clients who struggle to meet their financial and operational targets. But diagnosing the root cause of underperformance isn’t always straightforward. This is where benchmarking becomes a game-changer. By leveraging real data and industry comparisons, accountants can provide clients with actionable insights that drive business improvement.

Jump ahead to read:

1. Identify the Problem Areas
2. Understand the Causes
3. Set Realistic Performance Targets
4. Develop a Strategy for Improvement
5. Monitor Progress and Adjust as Needed

The first step in helping a struggling client is diagnosing where they are falling short. Benchmarking allows you to compare their financial and operational metrics against industry standards or similar businesses. Key areas to assess include:

➤ Revenue and profitability margins
➤ Operating expenses as a percentage of revenue
➤ Staff productivity and wages compared to turnover
➤ Customer acquisition and retention rates
➤ Asset utilisation and efficiency metrics

To get the most out of benchmarking, it’s important to gather as much data as possible from reliable sources. Financial statements, industry reports, and internal operational data can all contribute to a more accurate assessment. Once you have these insights, you can categorize them into areas that need urgent attention versus those that require gradual improvement.

Once you have identified the problem areas, the next step is to uncover the reasons behind them. Some common causes of underperformance include:

➤ Inefficiencies in operations or supply chains
➤ Poor pricing strategies
➤ High overhead costs relative to revenue
➤ Lack of customer engagement or marketing effectiveness
➤ Underutilisation of staff or technology

For example, if benchmarking shows that an industry average gross profit margin is 40% and your client is sitting at 30%, it’s time to dig deeper. Are their costs too high? Are they pricing their products or services too low? By understanding these root causes, you can offer more targeted recommendations.

After identifying problem areas and their root causes, set realistic and achievable performance goals. Benchmarking helps define what ‘good’ looks like in their industry and provides a target for improvement. For example:

➤ Increase gross profit margins by 5% to match industry medians
➤ Reduce overhead costs by 10% through process optimisation
➤ Improve customer retention rates to align with best-in-class businesses

When setting targets, ensure they are both aspirational and practical. Break them down into short-term and long-term goals to make progress measurable. If improving customer retention is a focus, an initial goal might be increasing repeat purchases by 10% over six months, followed by implementing loyalty programs or refining customer service strategies over the next year.

With clear targets in place, you can work with your client to develop an action plan. Strategies may include:

➤ Cost Reduction – Identifying areas where expenses can be cut without impacting quality. This could involve renegotiating supplier contracts, optimising inventory management, or reducing waste in production processes.

➤ Revenue Growth – Refining pricing strategies, exploring new revenue streams, or improving sales processes. If benchmarking shows competitors successfully implementing value-based pricing, your client may need to re-evaluate their pricing model.

➤ Operational Efficiency – Streamlining workflows, automating processes, or investing in technology to increase productivity. Automating manual tasks can free up staff time and reduce errors, ultimately improving profit margins.

➤ Staff Performance – Adjusting staffing levels, providing training, or implementing better productivity tools. Ensuring employees have the right skills and resources can lead to improved output and customer satisfaction.

Each recommendation should be backed by benchmarking data to show how these improvements align with industry best practices. This makes it easier for your client to see the value in making changes.

Benchmarking is a powerful tool for accountants looking to provide deeper insights and practical solutions to underperforming clients. By using data-driven insights, you can help your clients not only identify their weaknesses but also develop a clear roadmap to improvement. This positions your firm as a strategic business advisor who delivers measurable value beyond compliance.

Remember, the key to successful benchmarking is consistency. Use it as an ongoing tool to refine strategies and drive growth. The more data-driven your approach, the more value you bring to your clients.