Please note: in this guide, we use the term 'consultants' to define any project-based business that offers a service to clients and needs to track time and project progress against estimates.
With the wide array of tasks and considerations that need to be juggled on a daily basis, alongside the additional requirement to keep one eye fixed on the long-term, there’s little doubt that running a consultancy is a complex task.
From dealing with demanding clients and tight deadlines to managing complex projects and constrained resources, a successful business requires a wide variety of processes to be pulled together profitably.
Fortunately, while it’s true that there are a multitude of interrelated aspects to consider in increasing profitability, there are some tried and tested routes that any business leader can learn from and act upon to make their journey smoother.
If you want to boost the profitability of your business, you need to make accurate estimates. And to make accurate estimates you have to clearly define and categorise all the types of project your company carries out.
Unfortunately, this is not always straightforward – indeed, defining and managing a project and its scope is among the most significant challenges for any consultant.
Once you know the kind of work a project entails, it becomes easier to draw up your estimates. There are many ways to do it, but one source has created an interesting set of approaches to fees, based on Block’s project definitions. Let’s expand on those approaches here.
Learn from experience
As you work with different clients and pricing structures, you should learn from your successes and mistakes. Keep accurate records of projections and estimates, and compare them with the results at the end of the project. In fact, speaking about the need for experienced consultants, even Richard Branson has written about the importance of learning from mistakes:
With Synergist, it’s easy to compare actual performance with the estimate of previous similar projects to learn from mistakes, prevent previous inaccuracies from being repeated, and develop a more commercial and evidence-based approach to future pricing.
In addition, Synergist makes it easy to carry out Win-Loss analyses for all work bid for, providing an ever growing and readily accessible knowledgebase of in-house intelligence that becomes more valuable month-by-month.
Profitability relies on an even relationship between you and the client – unfortunately, this often isn’t the case in practice. Sometimes, too much work is being done compared to what the client is paying for. At others, there are situations where you simply have to ‘sack’ a client for the longer-term good of your business.
Unbalanced relationships between your and client are extremely common. However, if you have too many clients that aren’t delivering profit, you could soon find that what looks like an impressive client-roster isn’t necessarily helping you move forward.
After all, as Caroline Johnson, a partner at mergers and acquisitions specialists Results International, has stated, many consultancy businesses make most of their profit from their top ten clients, only to then lose much of it working for clients 20 to 40. At the same time, however, the Harvard Business Review has found that it can be around 11 times easier to win work from existing clients than new ones – meaning businesses are unsurprisingly reluctant to end even the most difficult of relationships.
No matter which way you see it, when the goal is profitability your client relationships need to balance with the books. Below we outline two common difficulties in dealing with clients, as well as tips on how to spot, and ideally, fix them before they get out of hand.
Know when to discuss an ailing relationship
Perhaps you’ve been collaborating with a client for a while and the pre-existing fee structure isn’t suitable anymore. Even though they’re a long-standing partner, you still feel like you’re constantly fighting for work, justifying costs, or losing money on jobs. Having the data to be able to continuously monitor client profitability is a powerful tool to help you see when profit attributed to a specific client is consistently below target.
If so, it’s time to re-evaluate how you work with the client. Having the objective facts to show them helps enormously.
Synergist tracks over-servicing in a simple numerical manner from task level, right up to overall project level. In addition, the system provides an overall picture of all activity and investment with a specific client through a dedicated report, making it easier to assess if a trend of continual over / under servicing is evident.
If you’re going to be profitable, you’ve got to be efficient with time. One way to do it? Decent timesheets. Thing is, consultants generally get into the job because they like the work. They’re less likely to care about recording time.
And it’s not just the staff in your office, the problem is on a global scale. Recent research referenced by Harvard Business Review has estimated that a total of $7.4 billion a day is lost in the US economy alone due to poorly filled out times sheets – and that’s including top tier professionals such as lawyers, doctors and consultants.
How come bad timesheets make such a huge loss?
Well, without accurate information of billable hours, you can’t accurately bill clients. Add to that issues of productivity, or working out retainers, and other daily tasks, and the importance of the much maligned timesheet becomes clear. So how do you tempt staff to do this universal chore?
Cut unnecessary categories
Over time, one-off job types creep into timesheet categories. It gets to the point where one of the team tries to record their travel, and they don’t know whether to use ‘meeting (to/from)’ or ‘travel to client’.
While many consultancies seek to control their admin costs, these sort of duties only add extra time and work. Then somebody has to go through the timesheets, and then realign any errors or mistakes. This could quiet easily become a routine and expensive job. According to reports, admin tasks cost small firms 28 hours a week, accounting for a £5bn annual shortfall to the UK economy.
In fact, one client ‘conservatively estimated’ that Synergist saves them 41 hours a month, increasing profit margins across all areas of their business.
Most outsiders would assume that the easiest question any business could be asked is “Which of your projects are profitable, and which aren’t?” Yet the answer turns out to be elusive for so many businesses. One Synergist user summed it up neatly. “Proper data... pulls everyone together, shows which projects are going to be profitable and which aren’t”. We’re not sure if we’ve seen a more concise reason for getting a business management system than that...
To see the other two guides in the series, click the links: