Think Recurring Revenue

Sep 10, 2007

I have already written in The Zweig Letter that I think times are going to get a little—perhaps even a lot— tougher for many A/E/P and environmental consulting firms. It doesn’t mean I’m not bullish on our industry— I am— but I can see a temporary slowdown out there that’s already started and will probably get worse over the next year or so before it gets better. When work starts to get a little harder to come by and those big projects are fewer in number, smart companies start thinking about how to generate more recurring revenue streams. What can you sell once that keeps on creating work for you? The idea is simple— get this year (and next) nailed down such that no matter what happens in the market, your company won’t be affected. Open-end contracts are certainly one good way to lock in some revenue for the coming year or two. Many government clients hire design and environmental firms under these contracts with a not-to-exceed fee limit of $200,000, $500,000, or, in some cases, millions of dollars. Each project is then authorized by a work order which simplifies the procurement process dramatically. Of course, these jobs are advertised in the Commerce Business Daily. But the private sector, too, has many opportunities for open-end contracts. These are generally NOT advertised anywhere. In fact, you may need to suggest such a relationship with a private-sector client. Show them how it works and why an open-end contract with your firm can help speed things up through procurement and help hold the client’s costs down. Service agreements are something else you should be thinking about. Firms in our business can also sell service agreements if they want to. Whether the service is facilities management, GIS, mapping, roofing inspection, air balancing, or something else, the idea is the same. Get the client to sign up for a multi-year relationship where you will do something for them that they cannot do themselves or don’t want to do themselves. Show the client the economic benefit of outsourcing to your company. The opportunities are limitless! Sole-source contracts with a discount are also a good way to nail down the future backlog now. This is another simple idea. Go to a client and tell them you want ALL of their work (be sure you can handle all of it before making this demand!) Tell them that if you are their sole provider of a particular service or services over a period of time, you will give them a discount on your normal billing rates. This kind of arrangement is good for you and good for your client. Be sure not to overcommit and underdeliver! Plain old repeat clients can’t be ignored. Go back to them NOW. For most firms in this business, your past clients are the easiest place to get more work. For whatever reason, there are companies whose principals seem afraid to contact a past client who hasn’t called them. Perhaps it’s fear that something is wrong with their last project and they don’t want to know— but no excuses other than the client was too difficult to work for or wouldn’t pay are good ones. Tell your past clients that you are in the midst of preparing your 2008 business plan and would like to see how you can help them in the coming year. We live in an uncertain and changing economy. Nail down 2008 now and change the character of your business to one that’s less volatile from this point forward by getting more recurring revenues. Originally published 9/10/2007

About Zweig Group

Zweig Group, a four-time Inc. 500/5000 honoree, is the premiere authority in AEC management consulting, the go-to source for industry research, and the leading provider of customized learning and training. Zweig Group specializes in four core consulting areas: Talent, Performance, Growth, and Transition, including innovative solutions in mergers and acquisitions, strategic planning, financial management, ownership transition, executive search, business development, valuation, and more. Zweig Group exists to help AEC firms succeed in a competitive marketplace. The firm has offices in Dallas and Fayetteville, Arkansas.