results-based compensation

Posted by & filed under Accountant, Bookkeeper, Growing Your Firm Podcast, Growth, Marketing, Marketing for Accountants.

 

Greg and Jessica Daley built their accounting firm, Xcelerate Business Solutions, while they needed to scrap together $10,000 to adopt a new child. Their revolutionary use of contractors under “results-based compensation” will change how firms pay their workers.

Their practice has been called a “Firm of the Future” by Intuit.

They’ve found a unique way and win-win for contractors and firm owners to build a better, healthier, faster-growing firm where everyone is motivated.

In this episode of Grow Your Firm Podcast, David Cristello and Greg and Jessica Daley discuss:

  • The way results-based compensation works
  • How to make contractors and employees highly motivated to grow the firm
  • Building a virtual team and helping them mesh even when they’re all over the world

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Building a practice out of a need:

Greg and Jessica Daley worked regular jobs and had a beautiful 6-year old to round off a great family. They decided it was time to expand their family and sought to adopt.

The problem?

It cost $10,000…Money that wasn’t easy to come by back in 2011.

Jessica was an employed accountant at the time and decided, like any “kitchen table entrepreneur,” to start an accounting firm from her house. It was how they were going to hit their $10,000 goal.

At first, she ran a simple, hourly-based bookkeeping practice, and quickly hit their $10,000 goal. They kept going.

As a full-time, employed accountant, she had to travel to various clients and it cost her time and efficiency. She wanted to be there for her 6-year old and newly adopted one. When she opened up her practice, her sole focus was building a business around her, a “Full-time Mom.”

Her first clients was her church. There, she received referrals and got leads through the ProAdvisor site at Intuit.

In 2011, they had 2 large clients. By 2012 + 2013, they had bolstered their roster to around 12 clients. Today, they continue to multiply each quarter thanks to their team and the focus on efficiency.”

Unique hiring that worked:

As Greg and Jessica mulled over how they could expand without having to get an office like a normal, same-old firm, they thought about the reason they built the firm again — help their family.

The light bulb flickered and they decided to work with a virtual team comprised of other “Stay-at-home Moms who need the flexibility of time but able to put in the work.” Great contractors not bound by a rigid schedule, because of their scrambled schedules.

They hired two ladies after a couple years, and the practice grew.

At this point, Greg and Jessica came to the conclusion:

If we keep doing hourly pricing, our payroll is all over the place, plus, in order to grow, we would need to hire more and more.

To combat this, they started with value-based billing for clients. This allowed them to have predictable revenue.We had to be willing to lose clients…” in order to be more efficient in the practice. Efficiency was the key.

They held onto all their clients even with the radical shift. Now, they needed to reign in on the erratic payroll. With hourly compensation, it posed two problems:

  • They couldn’t budget compensation as it could go up and down depending on the time of year.
  • The workers, as they became more efficient, would get paid less and probably quit. They would have the temptation to “take their time,” with the work in order to increase their billable hours.

That’s when “Results-based compensation” was born.

How it works:

The clients pay a flat-fee per month (based on value billing), and each “Accounting Specialist” [(as the bookkeepers are known internally) get a piece of that fee based on their work.

As the Accounting Specialists got more efficient and found better apps, they could dramatically boost their hourly rates.

It works like this:

  • Greg and Jessica determine “The client work should take X amount of time/effort. We are charging the client $X per month. With the time allocation, the Accounting Specialist gets XX% of that revenue per month.”
  • The Accounting Specialist keeps their time in TSheets not for billing but to make sure Greg and Jessica estimated the workload correctly. They are happy to adjust if there’s a major discrepancy and compensate the Specialist more if the bid was way under.
  • As the Specialist gets more efficiency, they can open up their capacity to take on more clients and thus getting more work.

Example:

If Xcelerate charges Client ABC $1000 per month for work. Xcelerate estimates it will take a Specialist 20 hours per month. Xcelerate calculates at $15 per hour, the Specialist will get compensated $300 for their work.

If the Specialist gets more efficient and does the work in 10 hours, they will still get $300. The 10 hours they saved can then be invested in a new client where they can make another $300 on a client, and so on.

 

Why Results-Based Compensation works:

For many, this might sound like a hybrid hourly and salary based compensation, and they could be right. It takes out the worst in both.

Hourly — If you get more efficient, you lose money because it takes less time.

Salary — As you take on more work, you don’t get paid anymore.

Results-based compensation solves this. In addition, Greg and Jessica added a “profit-sharing” element to the picture. As Specialists get better, they can take advantage of the profits they create and see bonuses. Even though they are contractors, Greg and Jessica see them as “stakeholders.”

As the Specialists gain more efficiency and make more money, they are motivated to continue to get better. With salaried work, “you get paid regardless of how you did that month.” With Results-based compensation, if you start slacking off, your pay drops.

It keeps workers motivated to grow, learn and help the firm.

 

Better virtual teams:

As all their contractors work remote, it can get tough to build a cohesive group. Working virtual is becoming more and more common and accepted, but the growing pains still exist.

Greg and Jessica set up monthly calls with all the Specialists. It’s not for a “meeting” but pure discussion. New topics, problems, points of interest, ideas, and more are all available to tackle.

They’ve instituted “Accounting Specialist Leads” to peel off some of the review work and compliance from Greg and Jessica and put on other Specialists. This allows them to interact and learn together plus solve issues. This build a closer team.

Greg and Jessica want to help YOU:

Greg and Jessica built their firm learning from other owners who spent years building their practice. It wasn’t easy and some firm owners even shut the door in their faces when they simply asked for some advice.

They live their motto in the business “Helping Families Thrive,” and they do this by giving their time to firm owners like you and giving their time and money (when they pay-out profit sharing percentages, they match the percentages given and donate that piece to charity).

They are happy to talk to you and give you help as you grow your practice. Greg and Jessica believe your business should center on creating a better life for you. To do that, you need to work ON your business and not IN your business.

They received these tips and much more from one book…”Making Money is Killing Your Business” by Chuck Blakeman.

To help you, we’re doing a special offer and it’s free today.

EMAIL ONE BIG TAKEAWAY YOU GOT FROM THIS INTERVIEW TO DAVID AT JETPACKWORKFLOW.COM AND HE WILL SHIP YOU A FREE COPY OF “MAKING MONEY IS KILLING YOUR BUSINESS” AS A SIMPLE ‘THANK YOU’ FOR LISTENING

 

Will you try results-based compensation in your firm? Let us know in the comments.

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