Nice try GT1, but you didn’t answer the question. Your word count is high though which might impress some, but I’m sure the OP cares about the actual answer to what they asked.
I’m just an associate, but I have somewhat of an idea of how it works. It’s nuanced and tricky to explain, but bear with me:
your salary, benefits, total comp, etc. is a relatively fixed amount.
If I had to guess,90% of engagements are billed on a predetermined fee rather than actuals. Excluding client-caused overruns, out of scope work, etc., the Firm takes in a fixed amount for an engagement. That also means the firm measures its profitability based on hours incurred vs. the hours budget. In effect, your “billing rate” boils down to a cost allocation.
So why does the Firm place so much emphasis on utilization at the same time? First and foremost, it’s not good business to pay your employees to sit on their asses twiddling their thumbs all day. More importantly, if you’re working on billable work, that helps justify the hours budget for a given engagement. That in turn allows the Firm to tell clients “this engagement will require a lot of firm resources so we’ll have to bill you accordingly.
It’s somewhat circular logic, and there’s often other factors in play. But in essence: billables drive future hours budgets, which in turn drive audit fees. The time budget is a key metric of the Firm’s margins. The Firm cares about your utilization because they aren’t paying you to do nothing. Capiche?
Again, I’m just an associate. But if I had to figure out the business of running a public accounting firm, that’s how I’d look at it.
P.S. in this context, interns are a loss-leader for the Firm. While they do provide needed man-hours for grunt work, they serve as an invaluable recruiting tool.
SA1 - Unless you’re a) billing the client actuals or b) bringing in new business, then no, you can’t truly determine “how much you bring the firm” vs what you’re paid.
Gross margin is typically just revenue less direct labor expenses (direct labor/revenue, especially for professional services is driven by headcount). Net (or operating) margin includes expenses for back office people, rent, variable expenses, etc. When you talk about profitability, it’s the net margin that matters. If you’re trying to look at it from standpoint of how much do YOU bring the firm...you can absolutely estimate it. Your revenue will be your bill rate times your hours (you are likely to overstate it though because depending on your level, you have no idea what is actually being billed to the client). Then for costs: take your salary, potential bonus, and other expenses (for example, training). You can come up with a good estimate but it won’t be accurate because you don’t know the true value of your fringe benefits. If you’re lower level, the firm is making higher margins on you (as they should). From a salaried employee standpoint though, you have to look at it from all sides: if you’re not being utilized, it’s not like your base pay will take a hit. It surprises and discourages me that working people have questions like this.
I just interviewed for EY's Assurance Senior Position. I am an ACCA Affiliate having 2 years of experience in audit. What would be an ideal range of CTC for this position? EY EY India
Able to subtract gross from net and see how much you bring the firm more than what you're paid? Just trying to understand the calculations I guess lol
Nice try GT1, but you didn’t answer the question. Your word count is high though which might impress some, but I’m sure the OP cares about the actual answer to what they asked.
No clue how many of those numbers work, pretty sure it’s just all make believe. I just keep an eye on the quartile.
I’m just an associate, but I have somewhat of an idea of how it works. It’s nuanced and tricky to explain, but bear with me:
your salary, benefits, total comp, etc. is a relatively fixed amount.
If I had to guess,90% of engagements are billed on a predetermined fee rather than actuals. Excluding client-caused overruns, out of scope work, etc., the Firm takes in a fixed amount for an engagement. That also means the firm measures its profitability based on hours incurred vs. the hours budget. In effect, your “billing rate” boils down to a cost allocation.
So why does the Firm place so much emphasis on utilization at the same time? First and foremost, it’s not good business to pay your employees to sit on their asses twiddling their thumbs all day. More importantly, if you’re working on billable work, that helps justify the hours budget for a given engagement. That in turn allows the Firm to tell clients “this engagement will require a lot of firm resources so we’ll have to bill you accordingly.
It’s somewhat circular logic, and there’s often other factors in play. But in essence: billables drive future hours budgets, which in turn drive audit fees. The time budget is a key metric of the Firm’s margins. The Firm cares about your utilization because they aren’t paying you to do nothing. Capiche?
Again, I’m just an associate. But if I had to figure out the business of running a public accounting firm, that’s how I’d look at it.
P.S. in this context, interns are a loss-leader for the Firm. While they do provide needed man-hours for grunt work, they serve as an invaluable recruiting tool.
SA1 - Unless you’re a) billing the client actuals or b) bringing in new business, then no, you can’t truly determine “how much you bring the firm” vs what you’re paid.
Gross margin is typically just revenue less direct labor expenses (direct labor/revenue, especially for professional services is driven by headcount). Net (or operating) margin includes expenses for back office people, rent, variable expenses, etc. When you talk about profitability, it’s the net margin that matters. If you’re trying to look at it from standpoint of how much do YOU bring the firm...you can absolutely estimate it.
Your revenue will be your bill rate times your hours (you are likely to overstate it though because depending on your level, you have no idea what is actually being billed to the client). Then for costs: take your salary, potential bonus, and other expenses (for example, training). You can come up with a good estimate but it won’t be accurate because you don’t know the true value of your fringe benefits. If you’re lower level, the firm is making higher margins on you (as they should). From a salaried employee standpoint though, you have to look at it from all sides: if you’re not being utilized, it’s not like your base pay will take a hit.
It surprises and discourages me that working people have questions like this.
@GT1 still not answering the question I see.
@SA1 – I never claimed to have the right answer to OP’s question. That’s just my layman’s perspective .