Why the Billable Hour is Killing Accounting Talent (and What to Measure Instead)
Welcome to the CAS Cache, a podcast designed to help accounting firms grow their CAS offering. This episode is sponsored by Full Stadium Marketing, ready to help your accounting firm grow with focus plans that connect you with your ideal clients. Learn more at fullstadium.co. That is fullstadium.co. Now let's dive into this week's insights.
Luke Templin:Accounting firm leaders don't have a people problem they have a measurement. The billable hour has turned accountants into tired timekeepers chasing utilization instead of impact. This system rewards activity not results and it's one of the biggest reasons young accountants are leaving the profession. After over a decade in accounting I've seen how outdated metrics quietly drain a firm's potential. The good news There's a better way to measure performance.
Luke Templin:Every firm I worked in measures success the same way: billable hours. Partners tracked utilization and staff tracked time. We all chased numbers that didn't tell us if the firm was healthy. Hours become a proxy for productivity leading to stress, burnout, and turnover. College students hear the horror stories now and many avoid public accounting altogether leaving firms scrambling to recruit and retain talent who no longer see value in the traditional model.
Luke Templin:I know this firsthand because I left public accounting for the same reason. At one point I even negotiated not to take a raise in exchange for working fewer hours and no weekends. During one audit I was assigned the inventory section halved the budget, and found a material misstatement while taking my weekend to go fishing. The result? I delivered better outcomes in less time.
Luke Templin:Once I stopped being rewarded for time, I focused on getting things done. Goodhart's Law captures the issue perfectly. When a measure becomes a target it ceases to be a good measure. That's what happened to billable hours. Once firms made them the central KPI the number became the goal rather than the guide.
Luke Templin:Efficiency, creativity and client outcomes all took a backseat to time tracking. That's where labor efficiency ratios or LER come in. LER flips the equation. Instead of asking how many hours did we bill it asks how much gross margin did every dollar of labor produce. LER measures the return on labor investment not its cost.
Luke Templin:For example if a firm's LER is $2 every dollar spent on payroll generates $2 in gross margin. LER changes what success looks like inside accounting firm. Instead of measuring time spent it measures value created. Instead of rewarding hours, it rewards efficiency. And importantly LER isn't limited to accounting firms.
Luke Templin:It's a metric you can teach your CAS clients to use in their businesses, making the perfect bridge from compliance to advisory. Moving from billable hours to labor efficiency requires a mind shift from tracking effort to managing output, from utilization to profitability. When accounting firms make this shift their culture changes. Staff stops obsessing over whether they hit their hours and starts thinking about how their work contributes firm growth. The billable hours a lagging indicator.
Luke Templin:It tells you how busy you were not how effective. Labor efficiency ratios are a leading indicator. They tell you how well you turn time and payroll into margin growth and opportunity. If you're accounting for a mysterious about building a modern CAS practice start by changing what you measure. Thanks for listening to the CAS Cache.
Luke Templin:For more visit CAScache.com. That's CAScache.com.
