Proof CPA Firms Make MORE Money When Their Partners Do LESS Billable Work
QUESTION FROM A CLIENT: “As the firm’s MP, I’m trying to encourage our partners to delegate as many billable hours as possible to the staff instead of doing it themselves. What is the benchmarking metric for how much of partners’ billing responsibility should be performed by themselves?”
ROSENBERG RESPONSE: There is a natural tendency for partners to perform high levels of billable hours, perhaps in the 1,200 to 1,500 range annually. Several reasons for this: (1) Partners can do the work faster, more accurately and at a higher realization rate, (2) Partners’ work often doesn’t need to be reviewed, (3) When partners do the work instead of staff, it’s charged at a partner billing rate instead of much lower staff rates, (4) It’s easier to meet time deadlines and (5) Partners’ compensation may be higher if their billable hours are higher.
Three huge problems arise when partners do too much staff-level work.
- First, the firm makes more money when partners do LESS billable work. Therefore partners who do more billable work are tanking profitability.
- Second, the more time partners spend on delegable work, the less time they have for business development, firm management and developing new services and niches.
- Third, and perhaps most important, when partners do staff-level work, they shirk one of their most important duties – the training and mentoring of staff, thereby helping them learn and grow.
This can make the difference between a firm having great staff with upward potential and a mediocre staff with little leadership skills or interest. When partners hog the work, they spend less time developing staff, which hinders staff growth.
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To prove the first assertion – that firms make MORE money when partners are LESS billable – we went into The Rosenberg MAP Survey Data Library and did some analysis. We computed the following statistic for three different firm size ranges: Percentage of typical partners’ client base that was performed by themselves. The numerator of the fraction is partner billable hours times standard billing rate times realization percentage. The denominator is a typical partners’ client base. Here’s what we found – pay attention to the effect on our key profitability metric of Income Per Partner:
From a financial standpoint, as measured by income per partner, firms’ profits are higher when partners are less billable.
But I will make the more important observation that even more valuable than higher earnings, firms’ partners should err on the side of being less billable so that you have time to developing technical, client relationship, servicing and leadership skills in your staff. The more partners turn themselves into delegators, trainers, and mentors of the staff, and do less “doing,” the stronger will be their team, making the firm infinitely more successful.