Client advisory services (CAS) practices saw a 20% growth rate in terms of net client fees per professional, according to the latest CPA.com & AICPA PCPS Client Advisory Services Benchmark Survey. That outpaces the 12% growth rate CAS practices reported in 2018, the inaugural benchmark survey and the last time it was conducted. Respondents reported having more CAS clients, higher net client fees, higher fees per professional, and higher CAS net client fees per client than they did in 2018.
These results "validate what we've been seeing in terms of the growth and profitability of CAS as a practice area," said Phil Quimby, product marketing manager for CAS at CPA.com. The survey defined CAS to include outsourced accounting services and virtual CFO and controller services, as well as handling business processes, such as bill paying and payroll, for clients.
He attributes CAS's growth over the two-year survey period to broader adoption of cloud technology, which makes CAS possible, as well as elevated visibility of the benefits of CAS. "Increased awareness of and focus on CAS has also resulted in better CAS-specific KPIs and metrics," he said.
"CAS has become an increasingly strategic component of CPA firms' offerings, and this was never more clear than during the pandemic," said Erik Asgeirsson, president and CEO of CPA.com. "Looking forward, we see new opportunities in business forecasting, business funding, and other categories that will drive growth and provide greater value for clients."
The survey was conducted online from August to December of 2020 and includes data from fiscal year 2019 as well as the early part of 2020 for 111 CAS practices. Respondents' practices varied in size from under $250,000 to more than $4 million in net client fees in fiscal year 2019. Eighty-one percent of respondents said their CAS practices were part of a CPA firm.
Results from the survey were reported in median values. Practice growth rates were measured in terms of net client fees per professional. This metric was chosen, Quimby said, because it "better reflects CAS success across practices of varying sizes. Other common metrics, such as utilization or margin percentage, may not reflect the unique pricing and staffing structures employed by CAS practices."
Quimby noted that the survey provides one of the most comprehensive sets of CAS practice performance data to date. "Now, after the inaugural survey, we have a second set of data to help us measure and benchmark the performance of CAS practices," he said. "We have insight into what metrics drive performance, and can share that information with firms to help them manage their CAS practices."
The survey also showed signs that the CAS landscape is maturing. Fifty-five percent of respondents said they used the term "CAS," as opposed to 45% in 2018. Seventy percent of the CAS services firms offered "true" CAS: outsourced accounting and advisory services, as opposed to bookkeeping and compliance alone. Forty-three percent of respondents' CAS staff are devoted to CAS alone and do not work in other areas of the business, rather than 22% in 2018.
CAS practices' pricing practices saw a considerable shift over the past two years, with fixed-fee and value pricing becoming more widespread and hourly billing less common. Twenty-five percent of respondents said they used time and materials pricing, compared with 53% in 2018.
Firms are recognizing the advantages of fixed-fee pricing, in which clients typically pay a set monthly fee for an agreed-upon level of service, Quimby said. Under this model, firms are paid consistently and in advance, which can be better for their cash flow than an hourly billing model.
In 2020, the CAS Benchmark Survey included questions about the impact of the COVID-19 pandemic upon CAS practices. Slightly over half of respondents (55%) said their CAS practices' revenues went up during the pandemic, while 29% said it did not affect their revenue. One reason why CAS practices may have remained profitable during the early months of the pandemic, Quimby said, was that they provided critical advisory services, including helping clients with securing forgivable loans through the Paycheck Protection Program.
CPA.com also identified the survey's top performers — the 25% of respondents with the highest net client fees per professional — and examined their attributes against all respondents'. Top-performing firms, they found, were more likely to follow certain practices, such as having dedicated CAS staff and having employees pursue more training.
Top-performing practices also have more clients than respondents overall did (115 median clients versus 68) but are not necessarily larger firms. They are "a mix of large and small to midsized firms," Quimby said, with a median of 10 full-time CAS employees, compared with a median of nine for all respondents. That suggests, he said, they are operating well. "As you become more efficient, you create the ability to serve more clients," he said. "You free up capacity."
CPA.com will field the CAS Benchmarking Survey again in 2022. CAS practices are encouraged to participate. "If firms didn't participate this time around, we'd love to see them take part next year and give themselves the ability to benchmark themselves against other firms," Quimby said.
CPA.com will hold a webinar with free CPE on October 13 at 2 p.m. ET to present the CAS Benchmarking Survey results and recommend strategies to help CAS leaders grow their practices. A recording of the webinar will be made available.
CPA.com is committed to identifying key CAS trends and barriers so it can invest in the right resources and technology to help firms grow and evolve their CAS practices. Learn more at cpa.com/cas.
— Courtney Vien (Courtney.Vien@aicpa-cima.com) is a JofA senior editor.