Project Profitability
Building Projects Profitably
Agency profitability is dependent on project profitability. The Operations Process insures profitability – on time/on budget! It will help differentiate you from your competition, will help you retain clients, will help build recurring revenue, and much more. Operational excellence must be a mantra – management must be committed to its implementation. BUT, you must be careful not to over process.
Many of today’s engagements are fixed/project priced (which does incent efficiency). The key factors to delivering successfully starts with the size of client’s budget and your ability to scope (price) effectively. This is not easy especially if it’s not clear what the client’s expectations are.
So completing discovery and aligning on the deliverable (usually with a solid SOW) is imperative. When client expectations are unclear, the agency should either:
- Propose Discovery separate from Execution/Delivery
- Propose T&M (can incent inefficiency)
In your pricing, make sure you build in project management time (usually 20%) and fat (minimum 10%) to whatever you propose.
Now the fun begins. I always recommend both an internal (team) and external (client) start-up meeting be scheduled to clarify any issues and determine the right amount of communication. You should determine how you will communicate with the client throughout the process – status reports, weekly calls, an extranet, etc.?
You must build, communicate, and hold the team accountable to the budget. The tendency is always to over deliver (especially with creative). Having strong project management that maintains the vision of the project, excites the team, manages budget, and delivers on time is imperative. Project management must hold the client to the SOW and cannot be afraid to require change orders. The team must track time correctly – management should communicate the importance, and incent compliance.
Having a strong time tracking system (Like Harvest) often linked to the financials (like QuickBooks) is encouraged. Many clients use Base Camp to build/track budgets. Whatever you use, insure that projects are tracked throughout the engagement not just at the end. The moment you go off budget an alert should be sounded.
Staff utilization rates (billable hours) must be a minimum of 75% to be profitable. Ensuring that staff understands this objective and monitoring/measuring performance to meet this objective are necessities.
With appropriate time tracking and utilization in place, coupled with revenue projections, resource planning (hiring, contracting, etc.) can be anticipated.
When the project is completed I always recommend both an internal (team) and external (client) wrap-up meetings. This is great learning time and a great selling time. You learn what went well, what could be done better, etc. and you have the opportunity to present new ideas for add-on business.
This is just the tip of the iceberg on how you can build profitability into every project – there is so much more!
I have helped 50+ agencies face these challenges and built a Strategic Plan for Growth. You may be in a position to do this organically, maybe it’s by being a general contractor (i.e. Partnering), or maybe there is an interesting Roll-Up scenario. I have helped agencies do all the above.
Contact me at bob@agencyventures.com, at 610-416-5806, or visit my website/blog www.agencyventures.com
I will show you how to be more PROFITABLE!
