Calculating ROI on Partner Business Development Time

Partners are expected to generate new business, but they don't have the time or desire to bring in new files.  It's essential that the time actually spent on business development shows a worthy return-on-investment.  The July issue of Inside Public Accounting published a handy formula to determine if a business development initiative is really paying for itself:

Use average partner income plus a factor for partner expenses on the financial statement.  Take that cost times the number of hours you spend with growth activities. Compute a 20% return on that investment and then consider the margin on the average dollar of revenue the firm produces to determine the revenue that must be generated from the time investment in business development activities.

Here's an example:

• 300 hours per year on growth @ $150/hour
• Cost per partner = $45,000
• 20% ROI on partner time = $54,000 ($45K + 20% of $45,000)
• Revenue at 30% margin = $180,000

In law firms, partners may bill much more than $150 per hour, and a law firm's margin is typically 40%.  However, typical lawyers spend much less than 300 hours per year on business development.

What should we do with this information? This scenario demonstrates how important it is to focus on the right activities. Once a partner sees the need to bring in $180,000 in sales this year, he or she will likely concentrate on activities that produce results. After thinking of ROI on business development in this way, partners should ask themselves:

• Am I spending too much time but not getting the results? If so, maybe I need training. 
• Am I positioned with the right centers of influence to attract this much annual volume?
• How am I going to accomplish this goal? Should I spend all of my time promoting one-time project work, such as single transactions or litigation, instead of pursuing clients who will pay $25,000 per year for an average of 10 years?

Comments

[investment property]

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