A Renew member called me this week about a senior tax person on his team. He had stopped following up with clients, ignored review notes, wasn’t productive enough, didn’t take personal responsibility and had become a cultural drain. These conditions weren’t new but now were taking too much of a toll on the firm. Any of this sound familiar? His question was the one we hear often from partners: what do I do?
In our experience, we have blinders on related to the true cost of an underperforming team member. Don’t you think your team knows who is underperforming, who you make accommodations for (e.g., do their work) and are a drag on firm vibes?
Because it’s difficult to find people (particularly good people), onboard people and face the truth, we tolerate underperformers for far too long. A Renew mantra is hire slowly and fire quickly. Easier said than done. Another point, underperformers are often unhappy, so when we hold on to them, we are enabling their unhappiness (and ours). A key question when we work with firms on their people issues: How would you feel if they quit tomorrow? If the answer is relieved, you know what you need to do.
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How much work are you doing as the partner, technical, client communication because the underperformer just isn’t pulling their weight? A not so hidden cost for firms that have tax people that underperform is making up for the underperformer by working more, doing more prep and review than they should etc. yuk! In short, not getting enough leverage.
As a reminder we only get leverage in 3 places in the accounting industry: price, people and technology.
Here is what the firm looks like: around $3.4M in revenue, 2 partners, 10 on the team, roughly 680 client groups, team labor north of $1.2MM. Solid on paper.
The disengaged accountant bills about 750 hours a year. Their target is 1,200 hours. At a charge rate of roughly $300 an hour, that gap is $135,000 a year in revenue, on the same salary. And that is the generous view, because the 750 hours he does bill still needs review, and the review notes are the thing he has decided not to read. His client bedside manner isn’t great so other team members pick up the slack.
At Renew, we find that many firms trade dollars before they come to us. Trading dollars is effectively paying someone the same amount that they generate for the firm. Here’s a common example in the “senior” tax person space. You pay someone $100K, you get $110K or $120K back, and it’s often to serve clients who don’t fit your model. You still must manage the person, take on the payroll risk and there’s no profit (or leverage) there, just stress and frustration.
The partners worked 60-plus hours a week last tax season. A lot of it is them covering for those who were not doing what they are being paid to do. One of the core tenets in our industry is we make up for poor pricing and underperformers by working more. Another Yuk.
Back to the phone call. Two team members told the Managing Partner flat out that the underperforming colleague adds nothing to their day. A players do not want to work with C players. Seth Fink made the same point on our 40-Hour Firm masterclass. The people you most want to keep are the ones with the most options. Every month the wrong person stays, the right person is deciding whether to.
The real cost of an underperforming member is not only salary. It is the partner's hours, the best performer's patience, and the clients not being called back.
We did not tell him to fire anyone (yet). We told him to build two org charts with numbers attached.
Chart one: Terminate the underperformer. Can the hours be allocated to performing team members?
Do we need to hire someone? Could we let go of some underperforming clients since we are reducing capacity? Client count, average revenue per client group, total revenue, labor, profit. As a side note many firms hold onto clients because they are attached to revenue (not profit).
Chart two: current revenue kept, terminate the underperformer, a new senior tax person hired, work reassigned.
With this exercise, the emotion drains out. It stops being "am I a bad leader” (and all the self pity that comes with the question) and becomes "which firm do I want to run in 2027." That is Make the Firm the #1 Client applied to people, not just pricing.
The charts also expose client mix. In this firm, about two-thirds of the client groups pay under $5,000 a year and produce roughly a quarter of the revenue. Subtraction is stronger than addition (another Renew truism).
The value of getting things on paper and out of our heads (or 3am wake ups).
Do the analysis, take action...and things open up.
Team attrition in Renew member firms falls from 21.0% in year one to 7.9% at 3 or more years. Not because members got lucky with recruiters. Firms with the right clients, the right prices and partners working insane hours are firms good people stay in.
Finding and keeping people is the number one issue for most firms I talk to. The firms that solve it put a number on the cost, design the firm they want, and act before the next tax season locks it in.
If someone on your team is getting "one more season," do the math this week. Run both charts using the Renew Model Firm Planner.
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Text us at 317.496.2192 if you want to talk it through.
