Work on the Right Side of the Equation
Dec 05, 2005
The longer I’ve worked with A/E/P and environmental firms, the more clear it has become to me: Most firms are working on the wrong side of the equation when it comes to boosting effective multipliers achieved on raw labor. Instead of working to RAISE PRICES, they remain pre-occupied only with CONTROLLING COSTS.
There’s a limit to how low one can drive down costs before jeopardizing quality of service and the long-term viability of the enterprise. Labor can only go so low; you can cut back on marketing and IT expenditures only so long. Yet, this is what firms in our business seem programmed to focus on, almost as if their management is some kind of robot!
Where there’s far more promise of gains is in simply charging more. Get more for what you do, and you can hire the best people, invest in new services, diversify to new geographies and client sectors, enhance IT, outspend competitors in marketing and recruiting, and more.
I saw the results of a firm this year that clearly understands what I’m talking about. Their effective multiplier was almost 4.7, and their profitability in excess of 30% While not every firm will be able to achieve these kinds of results, many more could (and should) do a heck of a lot better by taking the following steps:
Ask for more. It really starts here. We are gutless. Too many people in our business don’t have the nerve to ask for a good fee in the first place. Ask and you may get it.
Dump the clients who won’t pay good fees. You are probably growing. If so, there’s your chance to slow up on growth if need be and push up fees.
Stop justifying your fees to your clients on the basis of cost. This is a trap.
Don’t get into what it costs you to produce it. Tell the client what it will cost them for your services, period.
Give your clients the best you have. Don’t lead with mediocre design and PM talent while your highly qualified principals work as ineffective and poorly trained administrators. That makes no sense whatsoever!
Embrace the market-driven organization structure. Clients will only pay top prices to specialized firms who really grasp their needs. Be one of these firms! Abandon your office and discipline profit centers and organize standing teams around individual clients or client-types. This is the only way I know of to build the specialized knowledge that commands top prices.
Mark-up reimburseables. Charge 15% instead of 10%. You know clients are slow to pay and it’s a hassle dealing with all these charges internally, so why not get paid a little better for doing so?
Spend more on marketing. You have to look like a name brand instead of a generic brand. Clients pay more for a name brand than they do for generic.Get off “the bottom shelf” by much more brand-building marketing, direct mail, e-marketing, public relations and publicity, and better graphic and web design. These things make you LOOK like you are worth more and can pay off huge dividends
Raise prices now. Send out a letter today informing all your clients that billing rates are going up on the first of the year. All new jobs signed up after that point will reflect the new rates. Of course, if they want to hire you today, before prices go up, they can, and are encouraged to do so quickly!
Originally published 12/05/2005
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Zweig Group, three times on the Inc. 500/5000 list, is the industry leader and premiere authority in AEC firm management and marketing, the go-to source for data and research, and the leading provider of customized learning and training. Zweig Group exists to help AEC firms succeed in a complicated and challenging marketplace through services that include: Mergers & Acquisitions, Strategic Planning, Valuation, Executive Search, Board of Director Services, Ownership Transition, Marketing & Branding, and Business Development Training. The firm has offices in Dallas and Fayetteville, Arkansas.