Going from breaking even to a 10% profit
There are lots of firms that feel stuck in the mud today. They’re just muddling along, treading water, at a break even at best. Some owners think this is a fine position to be in. After all, “things could be much worse.”
“B.S.,” is what I want to say to them. Things could be a lot better, too! A 10% profit seems like a reasonable goal in this economy. Sure— some firms will do better. But a 10% bottom line is one heck of a lot better than break even.
So, what can you really do to make things just a little bit better and get to that 10% profit? Here are my thoughts:
Take one more look at your non-labor costs. Whether it is rent that can be cut back, cheaper vehicles, or shopping your professional liability insurance, everything should be looked at again and shopped. There are always non-essential costs that can be reduced. And, there are always suppliers and providers who don’t want to lose your business. Have everyone you buy anything from fill out a “vendor statement.” Tell them it is your new policy for 2010. It is simply a form that asks for their name, address, tax I.D., as well as the discount they’ll give you and payment terms. This makes everyone think they are competing for your business.
Do something new marketing-wise. That means something that is really different so you can grow the top line. Is it using Facebook to promote your firm and its projects? Or should you have open houses every three months in each location? New tactics must be tried out! Be creative. Stop being so reserved in the name of “professionalism!”
Implement a slight billing rate increase. It’s always a good idea to raise billing rates every year. Make it a small increase this time— say 2% or 3%. You probably won’t lose a single client and the increase will fall straight to your bottom line.
Take a little more risk and convert some hourly projects to fixed fee. I love hourly work just like you do, because I dislike estimating and don’t like managing a budget. That said, the way to make money in this business is to commit to do something for a price and then do it as efficiently as possible. Everyone can win— both your firm and your clients— with this approach.
Move out one non-productive higher level person. The deadwood at the top is a cancer. Not only do they cost more than the rank-and-file workers, but their poor example is terribly harmful for morale. There is probably one more expensive manager or principal who needs to go or take early retirement, as most companies tend to cut staff from the bottom when they need to cut. And who hasn’t already cut staff?
Put the brakes on ALL non-billable travel. Visiting every office for no good reason has to stop. Also, marketing travel that is not absolutely necessary should probably be questioned. The non-billable travel is a huge cost for many firms in our business.
Cut back on all non-billable meals and entertainment. Taking employees out to lunch every day, or worse, principals who take themselves out to eat and charge it off to the company need to stop. You cannot afford it if your company isn’t profitable.
Fewer meetings. We sell time for a living. Yet, every morale or efficiency, or communications problem is attempted to be solved through another meeting. Don’t do it! Your profit dollars are evaporating. A single one-hour meeting for everyone in the company each week could represent two or three percentage points of profit. That is what you have to keep reminding yourself. If you sell time, you can’t waste it. Start acting like it is valuable and your people won’t waste time in other areas of their work, either.
The difference between breaking even and making a 10% profit is huge, but what it takes to get there really isn’t that difficult. Stop rationalizing your mediocrity (and it’s easy to do). Get out and make the small changes now while the year is still young so your business makes some money this year.
Originally published 2/15/2010