Origination Credits: I Respectfully Dissent

In a short piece in the ABA Law Journal Friday, Martha Neil quotes a New York Law Journal piece in which it is recommended that origination fees have an expiration date, like a carton of milk. Otherwise, allegedly, having the originator of the business raking in fees year after year creates the "wrong incentives" for everyone else at the firm.

Wrong.

Wrong, wrong, wrong.

Wrong for three reasons:

First, these fees create a powerful incentive for the originator to work like a dog to help the firm KEEP THE BUSINESS. In a service business, clients need to be constantly resold on the value of the firm. As everyone knows, client retention is at least as important as acquisition. It is much, much cheaper, and therefore much more profitable, to service the daylights out of a client you already have and to keep them happy than to go out and bring in a new one. Origination credits create a powerful incentive to do this, which is good for everyone.

Second, as every CEO knows, you want your salespeople to make a lot of money. The first sign of impending doom for a company is when the bean-counters start looking at who makes what and making the argument that the top salespeople -- the ones who really make it happen -- are making too much money. No, they're not. They have a very difficult job, and what they do is the lifeblood of the company. You want them to make a pile of money. Same with attorneys who manage very big clients. You want them to be fat, happy and well-fed.

The final reason is really nicely put in Rule 28 of a free e-book published by G. L. Hoffman, of What Would Dad Say? The rules is this:

"The sooner you realize that, truly, all good salespeople work for the customer, and not for you, you will understand more about salespeople than 90% of all non-salespeople."

Bingo. By paying origination credit, you are essentially giving the client a voice inside your firm. The partner who receives that credit doesn't work for the firm. He works for the client. Which is exactly how it should be.

Comments

[GL HOFFMAN]

Part of the fun of blogging on a semi regular basis is to meet people and find connections. I am not sure how you happened across mine, but thanks for the mention. BTW, my son was at UPENN from 98-01, graduated from Wharton so, even though we live in one of those midwestern square states, we got to spend a lot of time there. Cool place.
best, GL HOFFMAN, Minnesota