Turning Labor Efficiency into Advisory Gold

How to Use LER with Clients

Author

Luke Templin
November 05, 2025

Read Time: 4:20 minutes

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From Theory to Practice

Once you understand why Labor Efficiency matters, the next question is:

How do you use it to make better decisions inside your firm and with clients?

That’s where the real value of LER shows up. It’s not just a smarter metric. It’s a bridge that takes you from compliance to advisory.

Let’s break down how that works.

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  • All Things CAS Roundtable - Have you got a question, challenge, or idea about running and growing your CAS service? Join our live, unrecorded monthly roundtable in The Kick C@$ Community. A space to ask anything and hear what’s working (or not) from fellow CAS leaders in real time on the second Tuesday of every month at 3 PM CST.

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Breaking Down the Three Versions of LER

In the last article, we explored using LER to measure efficiency instead of hours.

Now, let’s get practical.

I use three variations of Labor Efficiency:

dLER (Direct Labor Efficiency Ratio) – Measures efficiency at the service delivery level. It’s perfect when you have clean data separating client-facing work from admin time. Targets vary company by company. Assessing historical dLER is essential, and seeing how contribution margin (“CM”) and net operating income (“NOI”) shake out are key. I have found $3.00 or better to be good targets in professional service firms.

mLER (Management Labor Efficiency Ratio) – Focuses on leadership efficiency. It helps identify when a firm or client’s management team is getting too heavy relative to production. Management labor is where I typically see entrepreneurs of $1M-$5M in revenue over spending, so assessing mLER can be very impactful. Again, evaluating historical mLER, CM, and NOI is how I set targets, but I have found $3.50 or better to be a good target for professional service firms.

Overall LER – Combines everything. It’s what I use with every client, especially smaller ones, to assess whether the whole operation is scaling efficiently. The target for most industries should be $2.00 or better.

Setting Targets That Make Sense

LER is simple math, but the art is setting the right expectations.

Start by assessing the client’s historical LER.

Then layer in a few considerations:

  • How sophisticated is the owner? Too many KPIs can overwhelm, so you might track all three (dLER, mLER, LER) but report only one.

  • Is direct labor split out cleanly? If not, work with the bookkeeper to resolve the issue first.

  • Are owners heavily involved in delivery? If so, apply an “owner allocation” to estimate replacement cost before setting targets.

This approach grounds your advisory work in reality. You’re not just analyzing numbers; you’re teaching clients how to interpret and use metrics to make confident decisions.

Balancing Profitability with People

Here’s the caution: don’t let LER become another billable-hour monster.

Goodhart’s Law still applies. When a measure becomes a target, it ceases to be a good measure.

If you push LER too hard, you risk prioritizing efficiency over team satisfaction and client experience.

That’s why I pair LER tracking with quick-pulse feedback.

For example, at the end of client meetings, I often ask, “On a scale of 1–10, how effective was this meeting for you?”

If a client gives a low score, it opens the door to a healthy conversation about value and communication.

Inside firms, I’ve seen partners run simple “how happy are you at work?” surveys to track team morale alongside LER.

It’s not about perfection. It’s about balance.

A happy team with a strong LER drives sustainable growth.

Bringing LER into Advisory Conversations

Once you’ve built confidence using LER internally, it’s time to make it part of your client advisory workflow.

Here’s how I recommend phasing it in:

  1. Start with Reporting. Include LER in financial statements.

  2. Move to Scenario Planning. Use LER to answer practical business questions, like:

    • Can we afford to hire another team member?

    • What amount of cuts do we need to make to achieve a healthy margin?

  3. Lastly, integrate LER with forecasting. This enables you to demonstrate to clients what happens to labor efficiency, profit, and cash if they adjust their staffing levels.

LER moves the conversation from “What happened last month?” to “What should we do next?”

The Takeaway

Labor Efficiency Ratios transform financial reporting into advisory storytelling.

They help accounting firms and clients see the “why” behind their performance and build a smarter, more scalable business.

Start by tracking it internally. Then teach it to clients.

It’s one of the simplest yet most powerful ways to move beyond compliance and into strategic advisory services.

If you want to dive deeper into LER, I have created a video in The Kick C@$ Community that walks you through my process, including ready-to-use templates

Thanks for reading, Luke Templin!

P.S. There are four ways I can help you grow your CAS offerings when you are ready:

  1. Join my How to Start Offering Advisory Services Cohort.

  2. Cannot wait until it starts? Check out the pre-recorded version here.

  3. Join The Kick C@$ Community to grow your CAS offering alongside others doing the same.

  4. Automated white-labeled financial digests for your clients with FinDaily.io