WHY IS BUILDING MRR A KEY FOR YOUR FIRM?

08 Dec 2020  |  718
WHY IS BUILDING MRR A KEY FOR YOUR FIRM?

The key for you to achieve better lies in a beautiful 3 letter word called MRR - Monthly Recurring Revenue i.e. moving your clients to a ‘monthly fixed fee’ that keeps coming in every month, regardless of how busy you are or what season it is.  

OFFSHORE STAFFING + ADVISORY = MRR

The sustainability and success of any business including accounting firm practice is based on how much revenue it consistently brings in every month. But looking at the sporadic nature and seasonality of the profession, how much of that revenue can you predict generating repeatedly each month? The ultimate solution is to bring in clients for a monthly fixed fee and this is where one must consider bringing MRR into picture.

 

What is MRR and why is it so important?

MRR stands for Monthly Recurring Revenue. This is the revenue that you can reliably expect to receive at the end of each month regardless of how busy you are or what season it is. And that will happen if you’re building a subscription model with your clients as most technology companies do.

Perhaps the top reason why technology companies are highly valued is because thanks to their subscription models they have predictable MRR. The DNA of SaaS companies has subscription revenue at its core; following a simple, ‘golden rule’: scale clients, increase revenue and reduce the costs to acquire those customers. Should accounting practices be any different?

Accounting firms are typically valued at 1X revenue. Theoretically, if you had more MRR your valuation would be higher. Most accountants wouldn’t disagree—they want to attract more of their ‘ideal’ clients, they want to upsell and cross-sell more of the services that they provide, and they don’t want to spend too much money doing so.

Also, through MRR there is more to it than your own valuation. It’s better for your clients too. If want to know how:

  • They are paying a fixed monthly fee that is easier to absorb than a large one off fee. 

  • Invoicing becomes easier and automatic and so do the collections.

  • You end up with negative WIP and minimal receivables so your cash flow improves out of sight. 

Although, not all revenue can be converted but if you reckon, the goal is to get at least 80% of your regular annual revenue as MRR. You commit to deliver specific value to your client at the end of every month or quarter, may it be a report, meeting, advise, filings, compliance, update etc.

 

So what should you do to build an MRR pool?

You can do it by simply integrating Advisory and Offshore Staffing in your firm. Here’s why:

  • Offshore Staffing will help you build capacity to give deliverables and at the same time help you manage your cost.

  • Advisory Services helps your clients in a real way and add real value to their business and life, may it be business health check, Cash Flow management, Budgeting & KPI monitoring, Tax Planning, System and Operations Review, Cost Control Measures & Recommendations etc.

How does offshore hiring fit here?

It’s true that compliance is a vital area of every accounting firm. But from the business perspective, this is only a basic-level group of services. The best Accountants out there don’t let their whole business boil down to just what the government wants them to do but also shift their focus towards advisory. That no longer remains just a nice-to-have service but something that every firm must have on their list to offer.

 

In ideal situations, you can package the regular compliance work, assign them to your team and look back into them just for review purposes. But first, you need to review your team structure. More work means more people required, that further means lesser profit out of the revenue. So relying on just building local teams will only put limits to your MRR.

As talent is worth the money, it’s getting increasingly hard and expensive to find local talented people in developed countries. All you have to do is look beyond your own country for a high performing and inexpensive workforce. Since offshore staff can be hired at fraction of the cost you can bring in more people for the same price of what you would hire locally and your A-team will have all the support it needs to focus on delivering exceptional value to the clients.

While it certainly doesn’t mean that the local team is no longer required. Instead, the offshore team is meant to help them with the back end and admin work while letting your local team focus on what they do best. 

 

Building Advisory Services with Offshore Staffing

One way to increase revenue is to upsell new services to your existing clients. It's much cheaper to sell more services to existing clients who knows you and trust you, than it is to try and bring on a new customer. With lower priced offshore staff in your teams you can sell the lower priced compliance services and bundled give away more value added advisory to your clients. 

 

Being that valued advisor opens the possibility for premium pricing which means getting paid for results, not just hours. Rather than hoping for marginal increases in hourly rates, you can step into a new realm of possibilities where prices can be much higher than what you might charge now. You just lead with your value, and the compliance work follows.

 

It is well worth for business owners because you are helping them achieve impacts in their businesses, and often their lives. Such work is incredibly rewarding, and on top of that you get to enjoy huge increases in income, without having to drop less profitable work, and have a lot more to acquire more clients or expansion.


Concluding:

Offshore staffing + advisory services can help enjoy higher MRR. Getting on board with this theory will provide you with predictability, improve your unit economics, and help you boost the value of your practice.


Entigrity™ is a trusted offshore staffing partner to over 500+ accountants, CPAs and tax firms across the US and Canada. Our flexible and transparent hiring model gives helps firms of all sizes to hire staff for accounting, bookkeeping, tax preparation or any other task for 75% less cost. As a firm 'run by accountants, for the accountants', Entigrity captures the hiring needs of accounting firms most precisely, providing staff that works directly under your control and management, still you are left with least to worry about compliance, payroll taxes, overheads or any other benefits. 

 

About The Author
Director, Client Relations

Christopher Rivera, Chris serves as a Director of Client Relations and Business Development at Entigrity. He is an expert at leading and managing teams actively from the front. His expertise in sales, training, coaching, mentoring and influencing combined with his competitive nature makes him a strong leader.  Chris has traveled through the length and width of the country and has spoken with more than five thousand CPAs, understanding their challenges and limitations. On the grounds of that, he can now easily provide opinions and solutions that can be immensely helpful to the professionals. He has also represented Entigrity at a number of major accounting conferences and networking events.

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