What Counts as Business Origination?

Generating business is essential to all CPA firms. Even during times when firms are more desperate for staff than they are for new business, clients leave. Ideally, you will replace those clients with work that is even more profitable or better aligned with your niche. Business development still matters.

Many firms generate new revenue from referrals made either by clients or other external sources. And many partner compensation systems pay attention to business origination as an important contribution. Those who bring in more business are typically compensated more for that portion of their income allocation.

But deciding how to reward a partner for bringing in new clients isn’t always straightforward; for example, what does it mean to originate business? Who gets credit for a specific client or engagement? How long is it fair to compensate for this contribution?

This is a complex issue, and we see our clients taking many different approaches.

Who gets credit?

Here are options we see firms choosing:

1. The partner who generated the lead. For many but not all situations, the sales process itself (taking a prospect from lead to client) isn’t as difficult for CPAs as lead generation is. Therefore, this version of “finding” (as it’s called in the popular Finder–Minder–Grinder formula system) rewards lead generation. In this scenario, a “house” account may be used to account for leads not generated by an existing partner (e.g. from a retired partner or a phone call to the front desk/internet inquiry not attributable to an existing partner relationship), allowing the firm’s total billings to tie out to total “findings”.
2. The partner who closed the sale. This is a more recent perspective used by firms when lead generation isn’t an issue because the phone is ringing off the hook. If this method is used, often the total compensation attributed to finding is reduced.
3. The people who participated in the lead generation or sale. We’ve seen some firms cap the finder earning credit at 50 percent of billings to encourage partners to bring others (including non-partners) into the sales process, and then each of them being rewarded. Yes, this leads to non-partners receiving some commission if they are involved in sales, but this is often a desirable training ground and benefits the firm overall by encouraging teamwork and nurturing business development skills.

CPA Partner Compensation: The Art and the Science explains ►Partner comp 101 ► the 12 systems used by all firms ►how to design your firm’s system ►open vs. closed systems ►the role of “book of business” ►differences between large and small firms’ systems ► the MP’s compensation ► trends and controversies and ►overall best practices.

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How long is credit granted in consideration of a partner’s compensation?

1. Some firms grant credit for new business development in perpetuity. As long as that client is generating revenue for the firm, the finder receives credit. The thinking here is that if they hadn’t brought in the work, the firm wouldn’t have the revenue. It also rewards long-term partner contributions to the growth of the business.
2. Others grant finding credit for a limited period, say between one and ten years, with shorter periods typically having higher current-year rewards than longer periods. The thinking here is that while the finding work is valuable, it’s the client service team (minders) who sustain the client’s connection with the firm. It also encourages partners to continue to bring in new business versus resting on a client base developed in years past.
3. Some firms do not grant specific credit for originating business at all. One rationale for this is that it is difficult to say there was really one person involved in the lead generation or sale, especially if the firm has a strong brand in the community and many clients are engaging the firm based on its reputation rather than the connection of an individual partner.

Another is that it can create divisiveness between partners who end up having to lobby for who’s “their” client when the situation isn’t 100 percent clear, and can feel counter to a one-firm approach.

For firms using a formula, decisions about what counts as business origination feel even weightier because of the direct impact on individual partner income. This highlights once again the challenges of using a formula to allocate income, which appears to give “the answer” but instead reminds us of the nuances inherent in professional services work.

Whether you’re using a formula, compensation committee or other system like MP Decides or All Partners Decide, do you factor new business development into your partner income allocation system? If so, for how long?