Saying "Go" All the Time Impacts Your Bottom Line
It’s baffling how firms that are so concerned about tightening their belts and holding to strict budgets are still making ‘go’ decisions that are all over the place. Shot-gunning is one thing, but it might be closer to machine-gun fire, lately. Since GO Strategies is not a financial consulting firm, we partnered with some really smart people who know the numbers in firms, inside and out. We asked three of them for their perspectives on the financial impacts of bad go/no go decision making these days.
First, we talked with June Jewell, CPA, president of AEC Business Solutions. She pointed to the Pareto Principle. “It’s also known as the 80/20 rule. When applied to client selection, this rule says that 80% of your profits will come from 20% of your clients. If that’s true, then why do we treat all clients the same? Intuitively, we know that all clients are not good clients, but we accept less than stellar projects with clients we don’t like, for fees lower than we should.” When we don’t make good, logical, strategic go/no go decisions, that’s exactly what we are doing. ‘Any project is a good project’ is as faulty a logic as ‘any client is a good client.’ Is a client who pays 120 days late, manages like a kindergartener with broken crayons, and has no idea what needs to be accomplished with the project at hand really a client you want to work with?
June went on to say, “Many firms abandon their strategic plans and allow their teams to go after any projects that looks even a little interesting or promising. They waste billable hours, precious time, and the potential to get better projects by going after projects they can’t win or shouldn’t want to win.” The opportunity costs are real. When you find yourself proposing on that project coming out of left field, you are using valuable time and resources that could be spent positioning for and pursuing the great work that your proven, reliable, well-paying clients have on the horizon.
All these machine-gunning tactics have a cost. Often the argument from firm leadership is that ‘we have to pay marketing anyway’ and ‘they’re all overhead people so it’s not that expensive.’ We posed this dilemma to Chris Rickman, FSMPS, CPSM, chief elevate officer at Apex Business Strategies. “When calculating the cost of pursuing a project, firms can be misled on the true cost by only multiplying total hours by the employees base hourly rate. It is important for them to include the cost of overhead when calculating the cost of a pursuit. All employees have overhead attributed to their labor, be it insurance, taxes, benefits, etc. If you are not including these markup costs when calculating the cost responding to a pursuit, you are not able to make the most informed cost-based go/no go decision for the pursuit.” So, whether that’s your marketing staff or the seller/doers working on the proposal – everyone’s time needs to be accounted for accurately.
“There’s no doubt 2020 has been one of the craziest years any of us have seen,” says J. Kevin Hebblethwaite, FSMPS, CPSM, principal consultant with Full Sail Partners. “We still have to be cautious about pursuing work where our chances of success are minimal. Desperation can get the best of us, but the fundamentals of serving and developing your existing clients first, exploring new ideas and potential revenue with them, followed by routine strategic acquisition of new long-term clients, will pay dividends well beyond the current chaos.”
We’ve all seen the following graph or something like it.
In these uncertain times, we must consider the costs (investment) associated with stepping outside of our existing client base. Not only does the effort get more difficult, but the cost escalates exponentially as well. “Easy to difficult” can be replaced with “affordable to expensive.”
In conversations with our clients and other marketing professionals, we estimate that proposals cost around $10,000 a piece to produce. That number easily triples when pursuit efforts go to interview. We searched high and low, but industry averages for proposal costs are not readily available. Admittedly, it is not an easy number to calculate because it varies wildly. The effort to produce an average Department of Transportation proposal is very different than producing a Standard Form 330 for a federal procurement. The cost to write a letter proposal for a private developer cannot be compared to the cost to produce a proposal for a hospital or university building. But difficulty in measuring things has never been an issue for the A/E/C industry. Is this lack of industry calculations an indicator? Does it say that we, as an industry, are afraid to look at it? Is our return on investment (ROI) information accurate? Are we really as profitable as we think?
Regardless of the industry at large, make the time to look at your specific numbers. Marketers! Partner with your finance counterparts. With all the time-tracking technology we have, these costs are calculable. Ask the hard questions.
Who are our most profitable clients? (Are they the ones we like to work with?)
What projects are making money and why? (Are they easier to manage? More efficient payers?)
Which clients/projects are good bread-and-butter work for the firm? (Is it sourdough or rye?)
How much does the average proposal cost us to produce? (Bump it up by a minimum of 25% for the unbilled time when “Karen”, the project manager, worked on the proposal late at night but didn’t put it on her time sheet.)
How much more do we spend when the pursuit goes to interview?
What is our real hit rate? (Proposal to shortlists)
What is our real win rate? (Interview wins)
What is our cost of contract negotiation? (This can be a hidden marketing or administrative cost that is shocking.)
“Bottom-line results can get a big boost by improving your competitive win rate and firing bad clients. In the case of project profitability, often less is more,” according to June Jewell.
Machine-gunning or shot-gunning, whatever you call it, you are spending precious capital that you could (and arguably should) have in the bank during these uncertain times. Ask tough questions, make better decisions, thrive.