MRR

Create Sustainable Growth For Your Accounting Firm

Whether you’re running a tax firm or not, there’s a good chance that your work cycle is centered around IRS deadlines. You can blame it on the IRS and let your firm continue to stagnate OR you can move to a monthly recurring revenue model (MRR) and create sustainable growth for your accounting firm. It may seem like a daunting process, but it’s well worth any of the initial, extra effort because it makes you and your firm valuable year-round and generates consistent profits. 

What Is Monthly Recurring Revenue?

As always, we’re covering the fundamentals before we get into the details… Monthly Recurring Revenue (MRR) is a crucial metric used by all types of businesses to measure the predictable and consistent revenue generated from their customers on a monthly basis. It is an essential indicator of the financial health and stability of a company. MRR represents the total amount of revenue a business expects to receive from its active clients in a given month. It includes the regular subscription fees or charges paid by customers, excluding one-time or non-recurring payments. MRR focuses on the recurring nature of revenue (hence the name), providing a more accurate assessment of a business’s financial standing and growth potential.

HOW DO YOU CALCULATE MRR?

Calculating MRR involves summing up the monthly recurring revenue from all customers. This is done by multiplying the average revenue generated per customer per month by the total number of active customers during that month. The methodology may vary depending on the pricing structure and billing practices of each business, but you get the gist.

Why Is A Monthly Recurring Revenue Important For Your Accounting Business?

Transitioning an accounting firm to a monthly recurring revenue (MRR) model offers several significant advantages, and it’s the reason for some of our most profitable client’s successes. First and foremost MRR creates a predictable and stable income stream for your accounting firm, reducing the dependence on seasonal or one-time services like tax returns. i.e. a monthly recurring revenue model will get you out of the tax deadline cycle. With a steady cash flow, your firm can better plan and allocate resources, invest in growth initiatives, and provide consistent quality service to clients. Moving to an MRR model also enhances client relationships and satisfaction. By offering ongoing services and support throughout the year, you can become a trusted partner and go-to advisor to clients. This proactive approach gives you the opportunity to anticipate clients’ needs, identify opportunities for financial optimization, and provide timely guidance. Your clients will benefit from the continuous support, ensuring their financial matters are well-managed and enabling them to make informed decisions.

Along with increasing client satisfaction, the MRR model also facilitates long-term client retention and loyalty. By engaging with clients on a regular basis, you and your team will build stronger relationships and become deeply ingrained in their business operations. This reduces the likelihood of your clients seeking services from competitors and creates a mutual sense of partnership and success. Last but not least… profit increases. From a financial standpoint, a monthly recurring revenue model can lead to increased revenue and profitability. By bundling services into a monthly subscription, your firm can charge higher rates, compared to one-time engagements like tax prep. And, it’s easy to justify because of the continuous value and comprehensive support provided to clients throughout the year. Additionally, the MRR model enables accountants to serve a larger client base efficiently, leading to economies of scale and improved profitability. Transitioning an accounting firm to a monthly recurring revenue model offers numerous benefits and few, if anym drawbacks. You can still take on one-time tax-filing clients, if you see fit. But if you’re interested in creating stable income, enhanced client relationships, increased client retention, and improved financial performance, an MRR model is the way to do it. It enables firms to provide ongoing support, anticipate client needs, and cultivate long-term partnerships while driving growth and profitability.

How to Transition Your Accounting Firm to MRR

niche CPA
Every firm is different, and every firm owner will have a slightly different approach to transitiong their accounting firm to MRR. We suggest that you start by expanding your tax prep services with existing clients. Offering additional services such as quarterly reviews, tax planning sessions, and ongoing tax guidance, puts you in a position to provide more value to your clients and build proactive, ongoing relationships. Additionally, focusing on a particular industry niche can further differentiate your firm from competitors and maximize the value provided to clients. The next step to transition to a monthly recurring revenue model is to expand all of your services, not just tax prep. Tax preparation may be the backbone of your firm, but it shouldn’t be your only path to creating sustainable growth. Consider offering fractional CFO services, advisory services, wealth management services, or anything else you feel would be beneficial to your clients. 

Transitioning to a monthly recurring billing model offers consistent cash flow throughout the year, increased clarity for clients regarding costs, and reinforces the idea of ongoing support and partnership. While implementing these changes may seem daunting, taking them step by step and seeking client feedback can lead to increased revenue and a more sustainable business model.

If you need help automating your billing processes along the way to an MRR model, check out the Ignition App.