How a Professional Service Firm Tightened Strategy After Tax Season

​Professional service firms often have strong topline performance but unclear margins, hidden scope creep, and outdated compensation models that reward the wrong things. This case study shows how one firm used their post-tax financials to reset expectations, realign incentives, and prepare for strategic growth—with a clear view of time, talent, and profitability.

The Company Profile

• Type: Legal and compliance advisory firm
  
• Size: 20 employees, including 5 partners
  
• Revenue Model: 70% retainer-based services, 30% project work
  
• Primary Financial Constraints:
  
  • Partner comp not tied to engagement profitability
    
  • Lack of visibility into time allocation by service line
    
  • Frequent scope creep in fixed-fee engagements
    
    

The Approach: Redefining the Business Model With Data

Engagement Profitability Analysis

Solution: Time-driven analysis of service delivery by engagement type
Key Actions:

• Implemented time tracking across project and retainer clients
  
• Modeled cost per hour (fully loaded) per team member
  
• Flagged high-effort, low-margin engagements and restructured contracts
  

​Result: Reduced unbilled time by 28%, improving blended engagement margins

Partner Compensation Restructure

Solution: Shifted from equal distribution to performance-based equity draws
Key Actions:

• Introduced compensation tied to billable realization, origination, and client margin
  
• Linked draws to firm-level KPIs including client satisfaction and EBITDA contribution
  
• Provided quarterly reporting to support transparency
  

Result: Increased accountability and reduced partner conflict over resource allocation

Scope Control and Client Communication

Solution: Built a scope change workflow embedded in client communication
Key Actions:

• Trained client-facing teams to flag and escalate scope changes
  
• Implemented pre-engagement profitability projections
  
• Added quarterly business reviews with retainer clients to recalibrate expectations
  

​Result: Reduced margin erosion and improved client retention metrics


Key Takeaways

• Post-tax data can reveal deeper structural issues that hurt profitability—even in firms with strong revenue.
  
• Aligning compensation with financial and operational goals strengthens internal cohesion and reduces partner misalignment.
  
• Scope control isn’t just about saying “no”—it’s about setting expectations, measuring impact, and communicating clearly.
  
• Professional firms grow best when they scale insight, not just workload.