No one is really talking about how hard it is to change your compensation structure in a Nontraditional firm. At least, I haven’t seen the articles anywhere. By way of definition, Nontraditional here means that you do not bill your time to the client, or you price all work up front, or you may offer services as a product, allowing your client to pay for their services on a monthly recurring draft or invoice.
Note that these are revenue model changes. BUT, changing your revenue model has implications for internal team compensation that are often overlooked, or that surprise the firm leaders making these changes. In a traditional firm that bills its time to its clients, the external way in which that firm is paid by the client matches the internal way in which that firm pays its team. The firm is paid by the hour from the client, and the firm pays the team by the hour for the work too (or at least tries to break down their pay into some hourly form). You may note that some firms pay a salary to their teams (and that is easier), but a large majority of small firms still work with part time providers, and they often pay them by the hour.
So what has really happened in a firm that has become nontraditional and stopped billing their clients by the hour? Essentially, they have separated the work from the pay, and this is a HUGE change, and it often stumps firm owners. Separating work from the pay means you are hyper focused on the value of the work you are delivering to the client, regardless of the input that it took to create that work. This is a good separation. Why? Because not all work input produces good value to a client. Separating work from pay means the client will not be hurt by a bill that represented our poor work input. Separating work from pay also means the work begins to drive the outcomes in the firm. And frankly, most firms are terrible at tracking work, defining results for the teams, and delivering specific outcomes for clients. Our firm struggles with this all the time.
To be successful in revamping compensation in a nontraditional firm means you have to figure out a way to become exclusively focused on the work being produced by the firm. Here is how we do it:
First, we price everything up front, and have very detailed pricing spreadsheets internally that tie the work we are doing to the price we have assigned that work. We must be able to tie the specific work to the price.
Second, we give a client a detailed agreement that defines the scope of our work and the monthly price we will be drafting.
Third, we take the agreement and break it down into very specific small recurring steps that will be performed by a specific person. Assigning work to a specific person is a key to being successful here. In a nontraditional firm, everything revolves around the work, and all work must be assigned to a person. Someone has to be the responsible party.
Fourth, we are learning how Project Management can help (we are still learning this). Project Management in our firm belongs to a person (in our case, it’s my operational partner) that meets regularly with our team, talks through the priority of their work, and how we can help the responsible team member move things forward. We use a product called Solve 360 to manage our work. The team dashboards of the work can become pretty overwhelming in Solve so it’s nice to have someone come alongside our team to help prioritize and keep them out of the weeds.
So, now that we’ve made the point to make EVERYTHING about the work in a nontraditional firm, how do you pay your team? Well, now that we have figured out structures of how to manage our work, and we have assigned specific team members to all work, we can actually take a percentage of our revenue from the client and give it to the team members.
That’s right, since every client in our firm is assigned to a technical CPA, that means we can calculate a percentage of our client revenue and give it to our team that works with that client. Now the pay is not based upon outcomes from the team members, or the number of hours they spend on the work, but on the revenue our clients are paying us. This model has its ups and downs (just like any model) but it is the best way our firm has figured out how to separate work from pay, and how to implement nontraditional compensation models into our firm. If you don’t bill your time to clients, how do you figure out how to pay your team?
Jason is the Founder of Thriveal and the Chief Innovative Officer of his CPA firm, Blumer & Associates. He is the co-host of the Thrivecast and The Businessology Show and speaks and writes frequently for CPAs and creatives, his firm’s chosen niche. Jason loves to watch documentaries on just about anything. He lives in Greenville, SC with his wife and their three children.