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Is it time for a Pareto for Profit analysis?

May 3, 2023
Are you looking for a way to work smarter and less, not harder, and achieve greater success? If so, it may be time to consider a Pareto for Profit™ analysis.
Renew Mindset for CPA Firms
Colin Dunn

Are you tired of tax season hours, working harder in your accounting firm, at the expense of the quality of life you strove for when you started your firm or became a partner?

Are you looking for a way to work smarter and less, not harder, and achieve greater success? If so, it may be time to consider a Pareto for Profit™ analysis.


The Pareto principle, also known as the 80/20 rule, states that 80% of your results come from 20% of your efforts. In other words, by focusing on the 20% of activities that generate the most value, you can maximize your quality of life and minimize wasted time and resources. In over 25 years of working with the accounting profession, we’ve observed that the Pareto distribution is typically closer to 80/30 for CPA firms. That means that 80% of your profits will likely come from close to a third of your clients.  The other clients typically fall in what Renew calls the insanity zone. The Pareto will solve your time and hours worked issues.


Because you spend so much time focused on the TWO thirds, the results is accountants ignore their best clients, endure dreadful tax seasons and they trade dollars… that is, they take on BAD revenue to pay overhead they took on to service the wrong clients in the first place. It’s the epitome of a vicious cycle and if you don’t break it, it gets worse and worse and will drive you insane.


The key to acting on your Pareto for Profit™ is to understand that it’s virtually impossible to successfully balance the profitability you need with the lifestyle you strive if you have multiple business models under one roof.


Why is the Pareto for Profit ™ so important for accounting firms? Here are three key reasons:


Reduce working hours

For example, you may find that a year-round tax advisory service is highly profitable and relatively low touch for your firm. In that case, you may want to focus your marketing efforts on attracting more clients and/or upgrading existing clients to that service. Or, if you find that a particular client is not generating enough profit to justify the time and resources spent on their account, you may want to consider letting them go and redirecting your efforts towards more profitable clients. In our experience, standalone individual tax return clients often fall into this category (and depending on your pricing, some of them may be LOSING money for you).


Eradicating the insanity zone clients


Next, by focusing on the most valuable activities, you can also improve your efficiency. This means that you can get more done in less time, which can lead to increased productivity and profitability – and the creation of capacity…and you can do whatever you wish with that!


For example, if you find that a particular type of work takes up a lot of time but generates very little profitability, but you decide to keep the client because they fit your business model, you may want to consider outsourcing that service or automating the process as much as possible. This can free up your time and resources to focus on more profitable activities.


Improve your quality of life

Thirdly, by embracing the Pareto for Profit™ principle, you can gain a competitive advantage over other accounting firms. This is because you will be able to offer more value to your clients, thanks to your ability to focus on the most valuable activities and provide higher-quality services.


For example, many firms talk a good game about offering advisory services, but because they are so bogged down with low-level tax work, they simply don’t walk the talk. If you can do the opposite and demonstrate the value your clients get by using testimonials and case studies, this can help you attract more target clients, if that’s what you want to do.


About the Author

Colin Dunn is a Co-Founder of Renew Group, a firm that helps accounting firms reduce stress, eliminate chaos, make tax season less daunting and move to an advisory-led model. A Chartered Accountant with 10 years working in the profession, Colin has since spent over 25 years working ON the accounting industry. He has worked with hundreds of firms to help them achieve greater success.


About Renew Group

Renew helps firms thrive as modern, successful businesses. We start with your numbers and give you a roadmap to set new targets customized to your firm, and then you 'weigh in' regularly, providing the accountability you need to succeed.


Our platform is packed with content, applications, collaboration tools, and community engagement, and is underpinned by best-in-industry coaching and lightning-fast, personal support, delivered by real people.


No fluff. Just REAL results. Simply put, we help you achieve more than you ever thought possible…and have fun doing it!


Call to Action

Ready to embrace the Pareto for Profit™ principle and achieve greater success for your accounting firm? Contact Renew Group today to enquire about how our Pareto for Profit™ analysis can kickstart your firm and help you achieve your goals. You can also subscribe to our Renewsletter for valuable tips on how to create a better life and a more profitable CPA firm.

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