What Do The IPA High-Margin Firms Have In Common?

Downward pressure on the top line, and the difficulty in collecting the premium rates that firms have been used to in past years has made high-margin firms a scarce commodity this year. In 2009, 11% of survey respondents had profit margins above 40%. Many of these firms got there by hunkering down, trimming costs and getting back to basics.

How big are they? Five of 23 are Top 100 firms; 13 are below $10 million; five are between $10 million and $30 million. Where are they located? These firms are evenly split among the West, Northeast and Atlantic/Southeast regions. Only two of these firms represent the mid-section of the country.

 They have half as many offices (an average of 2.2 versus 4.3).
 They are less leveraged (3.8 professionals per partner) than peers (5.5 professionals per partner).
 They budget about $500 less per year than average for professional staff CPE.
 Partners do more heavy lifting. At 1,341 charge hours per partner, they get about 244 more billable hours a year from the partner group, or 58.5% billable versus 46.5%.
 Partner compensation – both equity and all partners – is about $100,000 more than their peers.
 Personnel costs as a percentage of net fees are 16% less than the average.
 At $623, they generate 6% more fees per square foot of space than average.
 While the audit and tax practice mix is about the same as the average, service areas they are more likely to specialize in include business valuation and litigation services.
 Niches they are less likely to specialize in are computer consulting, financial institutions, governmental, high tech, hospitals, mergers and acquisitions, and SOX work.
 At 1.6% of net fees, they have one-quarter of the average health care fees as a percentage of net fees.