Rosenberg Spars with MP Over Billable Hours

Avatar photoMarc Rosenberg, CPA / Apr 5, 2021

I have had the pleasure and honor of exchanging spirited emails for years with the MP of an amazing CPA firm. We sometimes disagree but when I tell you the metrics of this firm, you’ll understand why I respect him so much. The firm’s revenue is $30M; 7 equity and 6 non-equity partners; income per equity partner is $1.4M. The MP earns $4.5M.


The opening salvoBoxing gloves

I recently wrote a blog entitled, “Proof That CPA Firms Earn MORE Money When Their Partners Work LESS Billable Hours.” I began by stating why some firms erroneously believe they will be more profitable when partners work high billable hours: (1) Partners do the work faster, more accurately and at a higher billing rate and realization, (2) Partners’ work often doesn’t need to be reviewed and they don’t have to spend time supervising staff and (3) It’s easier to meet time deadlines.


Huge problems arise when partners do too much staff-level work

Here’s why having your partners rack up high levels of billable hours reduces profitability:

  1. The more time partners spend on delegable work, the less time they have for critically important duties such as business development, firm management and mentoring staff.
  2. When partners do staff-level work, they shirk one of their most important duties – the training and mentoring of staff, helping them learn and grow.
  3. It promotes a “me” vs. “we” attitude because partners game the compensation system by propping up their billable hours.
  4. Since firms make more money when partners do LESS billable work, partners who work excessive billable hours are tanking profitability.


Proving the point with hard data

To prove that firms earn more money when partners work less billable hours, we harvested data from the annual Rosenberg MAP Survey (now in its 23rd year) of 350 firms. Here’s what we found:

  • For the 50% of firms with the lowest partner billable hours, their partners worked 12-17% of the total time spent on their client bases.
  • For the 50% of firms with the highest partner billable hours, their partners worked 23-31% of the total time spent on their client bases.
  • The group with the lowest partner billable hours posted income per equity partner that was 13-22% higher than the group with the highest partner billable hours.


Response by the MP earning $4.5M

He began by stating “I confess I am a data guy and look at things through a numbers prism.” He compared two different partners, each with a billing rate of $480.  One partner works 800 billable hours and the other 1,600. That’s an 800-hour difference, which at $480 per hour and 80% realization comes to $307,000, which the MP claimed was “lost” revenue. Therefore, the partner working only 800 billable hours would have to generate a remarkably high amount of value from those 800 non-billable hours to bridge this gap.


Rosenberg’s response

I made three points:

  1. An axiom I strongly believe in (that I didn’t invent) is: It’s more important what partners do with their non-billable time than their billable. Partners should limit their client hours to partner-level work while delegating as much as possible to staff.  This frees them up to perform critically important tasks such as management and leadership (not administration that should be done by a firm administrator), mentoring and developing staff, helping them learn and grow and business development.  These activities more than makeup for the “lost revenue” posited by my friend the MP.

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  1. One of the biggest weaknesses in CPA firm management is the lack of partner productivity. In the MP’s example above, the first question that needs to be asked is: For the partner working 800 less billable hours than another, what is he doing with those extra 800 hours? I have always described this enigma as the “black hole of CPA firm management.” If the partner mostly uses these 800 hours to work less, or less hard, or less smart, then this is not acceptable and he should be required to work more billable hours. But if he uses these 800 hours to do the things described in the previous paragraph, then this is a win-win because firm profitability goes up, revenue increases, the firm is better managed, and perhaps most importantly, the firm develops a great, productive staff.
  2. Shame on the firm that allows a partner to work low amounts of billable hours and fails to use his non-billable time productively. This happens because of an egregious lack of leadership by the firm’s management. This is the other major weakness at CPA firms when it comes to their partners: Lack of partner accountability.


The saga continues

Let’s see if my MP friend will continue the discussion. Or maybe those of you reading this might want to join in the foray? I welcome your comments below.


  1. Khozema Anajwalla on April 7, 2021 at 8:12 am

    All what is mentioned in the article to me seems like universal truth – may be because the folks with whom we deal with are aware of these facts and are working to do better each passing day. What I have learnt over the years is that partners have to be accountable and thus your last line is a message that needs to be understood by each and every partner and if that is achieved I guess that firm has arrived!

  2. Buzz Coons on April 7, 2021 at 8:31 am

    4.5M is huge. Where do you think the top 5% and 10% public firm in the south CPA’s comp would be? 800K, 1M ?? Thanks Buzz

    • Micheal Burch on April 7, 2021 at 9:43 am

      I find the stats a bit confusing. For a $30 M bottom line I assume they are doing approximately $90 M top line. With 13 partners that indicates billings per partner of approximately $7 M. These seems like a very high number to me. I need to learn the secret sauce.

      • Avatar photo Kristen Rampe, CPA on April 7, 2021 at 11:04 am

        Micheal – $30M is the top line. 7 equity partners x IPP $1.4M = $9.8M total partner income. That might help clear things up a bit.

      • August Aquila on April 7, 2021 at 12:44 pm

        Hi Michael,
        I think the firms has$30M in fees (revenue) and not profits. That’s how I read it.

    • Avatar photo Kristen Rampe, CPA on April 7, 2021 at 11:01 am

      Buzz – $4.5M is huge! In the latest Rosenberg Survey there were 113 firms from the South. The top 10% of highest-paid partners in that group had and average income of $1.7M. Top 5% was just over $2M. However, average income per partner for all partners (not just the top earner at each firm) was $1.1M for the top 10% of firms. Thanks for your comment! PS – Marc says hello.

  3. Avatar photo Kristen Rampe, CPA on April 8, 2021 at 11:57 am

    The dialogue continues.

    MP of a firm with similar stats replied with:
    “Gee! Sounds like us. I also question what is meant by high billable hours? Roughly 2/3 billable?”

    Our Response:
    As is the case with practice management issues, there is no one answer that fits all. “Highly billable” depends on the size of the firm and the role of the individual partner. Billable hours tend to be higher at smaller firms (say under $3M) than larger firms; partners at smaller firms perceive they have fewer non-billable activities and they feel they need to be highly billable because they have less staff. Regarding the role of the partner, there are many firms that have “technical” partners: They are good at what they do and clients like them, but their skills are greatly limited or non-existent in non-billable areas such as business development, mentoring of staff and firm management. Because these technical partners have little to do with their time except billable hours, they tend to have higher billable hours.

    Statistically, we would say that “high” partner billable hours would be perhaps anything over 1,400 a year; in our survey, of 224 firms with revenue >$5M, only 12% of firms had average partner billable hours of 1,400 or more.

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