In any business that has a lot of moving parts, profit often slips through the cracks. Worst still, it’s often hard to locate the leaks.
In this article, we’ll look at the common places that architecture and engineering firms are losing profit and – most importantly – how to find it again.
Marketing Practices
If you’re trying to locate lost profit, the best place to start is by looking at your marketing practices. Be critical and look at your competitive win rate — as opposed to the clients who regularly give you work. If your win rate for competitive work is low, it could be that you need to look at how you market your services.
A common cause of a low win rate is that the principals or partners who are generally charged with bringing in new business, might not be skilled with presenting the firm as much as they are in presenting their own projects. Or, they may not be comfortable with contract negotiations. Look closely at the win/loss rates for each of the individuals charged with bringing in business just as carefully as you look at the win/loss rates of the types of clients and projects you pursue. Providing training of best practices from experts in the field is an easy remedy which will help increase their ability to win new contracts.
The entire marketing and sales process is critically important. If your firm hasn't carefully considered your processes or there isn't a clear marketing plan, your firm will suffer. Training, documentation, and a good CRM system will help.
Proposal Writing
To add to this, the proposal writing process is another important element of winning the client. Developing a defined and documented proposal process gives your employees some guidelines and teaches them the best way to put proposals together. It also ensures consistency, which makes it easier to improve on each one that’s sent out.
Automation is a great way to give your employees the tools they need to be more effective and efficient in creating proposals. You can automate the more general proposal data then make it easy to set fees, add previous project data, and so on. By having a more efficient proposal writing system, you not only reduce the time spent on each one, but also improve the time taken over sign-off, too.
Estimates
Estimates are tricky because they often don’t — or can’t — take into account a client’s needs, budget or other factors. They are, by their nature, just an estimate. Putting these together is often hit or miss because most are done on an individual basis with no well-established templates.
This can be a time-consuming task, but you can standardize it in a number of ways. First, give staff a list of questions to ask clients to better determine their needs so the estimate can be as accurate as possible. Also, use an estimating system that has set fees, and try and set up templates for different kinds of projects. This reduces the chance of errors. Take the time to do a bottom-up estimate to figure out what it’s really going to take for each of the required phases and the number of hours for all your different labor categories.
Keep an Eye on Scope Creep
The more detailed your initial proposal, the less chance you have of scope creep. But even with the best proposal, a project might go a little beyond what was originally agreed. This is usually caused by one of two things: either the client is continually asking for things outside of the scope of the contract, or employees are overdelivering to keep a client happy.
To tackle the former, there needs to be a clear process in place when a client requests a change. This means you need to ensure there are the right forms available that outline the change in scope and additional costs or time tracking requirements. This can then be used to gain client approval before any changes are made.
It’s important that staff are properly trained on this. By creating a culture among your employees where they understand how important it is to manage scope creep, profits will increase. Your team will understand why they just can’t keep giving money away to your clients.
Ensure Project Managers Are Trained
The number one way to make sure your project managers become more successful is to train them. Not just project management training, but also business management training, as often they just get placed into PM roles without additional practical and admin skills. They need to learn how to monitor their project budgets, ensure they’re accurate, and stay on top of them.
Having a trained project manager in charge of the budget will help avoid scope creep and running over budget, allowing you to maintain profit margins. However, for a trained project manager to best do his or her job, there needs to be automation, administrative support, and bespoke reporting in place to help them keep a keen eye on each project.
Resource Management
Your employees are your most valuable resources so it’s important to make sure they are being utilized as effective as possible. A clear reporting and time-tracking system will let you see who is underutilized and who might be working to the point of burn out.
If there is an imbalance in resources, you could be losing money. Plan your projects as far into the future as possible. If you can look several months ahead, you can see where you need more resources or more work.
Look at Your Invoice Cycle
Make sure you have good payment terms in your contracts — you might need to charge interest or late fees. This will help with cashflow in the long run. Part of a healthy invoice cycle is the addition of daily timesheets, too. Studies out there show that companies that use daily timesheets invoice for 10-15% more billable time. This means your bills are going to be more accurate, and you can reduce your billing cycle because you’re not going to have as many corrections at the end of the month.
Additional Processes and Systems
Alongside daily timesheets, there are other processes and systems you can implement to ensure the smooth running of your business. If you feel you could be losing profit somewhere along the way, examine your employees’ use of the current systems and software for possible roadblocks.
Once you’ve taken action to smooth out these wrinkles, look at all your manual processes and consider if some of these could be automated. For example, if someone is manually processing an invoice ready to send to a client, you could use software such as BQE CORE to help automate this process.
The bottom line is this: locating the areas your firm is losing profit means taking a wide sweep of all your processes to ensure efficiency. By taking the time to look over how your business runs, you’ll be able to see where the leaks have sprung, and extra training or adding the right tools is usually the fix.
