Tag Archives: Billable

How Do You Create Predictable Costs and Profit? Seven Suggestions

Situation: A company finds that it’s costs and profitability vary greatly by season and during economic fluctuations. Some of this is due to hourly rate fluctuation and payroll costs. They also have excess capacity during slow periods. However, new projects arise quickly, and the company must be prepared. How do you create predictable costs and profit?

Advice from the CEOs:

  • Here’s the grim reality. In volatile markets, forecasts are meaningless. Instead of fretting over forecast accuracy, focus on increasing billable rates and managing expenses.
    • To generate additional revenue per project, add a flat percentage charge for project management on top of time and materials. This is often treated by clients like a sales tax or a gasoline cost adjustment and may not penalize contract negotiations.
  • Is it possible to build a sustainable revenue source to resolve profit lumpiness? There are options:
    • Application maintenance projects. After building a box add a provision for maintenance/upgrades as new capabilities and technologies are developed. This can cost-effectively extend the life of the box and long-term profitability of the product that the box supports, while gaining an annuity revenue stream.
    • Add a maintenance add-on service to leverage the company’s core competence on an ongoing basis. Provide technology upgrades through a maintenance subscription similar to software companies adding optional access to all new releases over the course of a year for a fixed subscription cost. The cost to the company for upgrade downloads is essentially nothing, but it gains an annual annuity revenue stream.
  • Investigate a help desk service to sell via subscription to small companies. Most clients use less than they anticipate; however, they prefer the security of a flat price subscription service.
  • What additional info can be gathered through sales to better drive sales forecasts metrics? Look at the past several years: is there any seasonality in a multi-year analysis. It may not occur every year, but if you there’s a pattern it may enable the company to proactively reduce costs where there’s a predictable dip in project demand.
  • Are sales people responsible for both maintaining client relationships and creating new business?  Most companies split these functions because maintenance is like farming while new business development is hunting – few sales people excel at both.
  • If, in development, the company develops IP, can this be used? When there’s down-time can capacity be leveraged to develop the company’s IP portfolio? Look at IP licensing opportunities. This provides an additional potential source of annuity revenue.
  • While it is important to figure out an annuity revenue stream, the principal lesson from the discussion is that most CEOs say that margins are better on fixed price projects than on time and materials. The key is to control to client requests for add-ins or adjustments and to include provision for these in contracts.

How Do You Handle a Perfectionist in Your Company? Three Thoughts

Situation: A consulting company has an employee who is a perfectionist. They can bill clients for standard work to complete a project to client specifications; however, this employee wants to continue working unbillable time to perfect the work and considers this to be of research benefit to the company. The CEO wants to impress the individual that the company is a business, not a research organization, without discouraging the employee’s enthusiasm for the work. How have you handled perfectionists within your own organization?

Advice from the CEOs:

  • If the employee possesses skills which are important to the company’s strategic direction it makes sense to work with the individual. One option is to focus this employee on future development rather than current projects.
  • An increasing number of companies allow employees in development positions 10% to 20% of their time to pursue pure research. Both product and software companies leverage employee enthusiasm to build their products or services. At the same time, they create guidelines to assure that the remaining 80% to 90% of these individuals’ time is devoted to current business.
  • Why not allow the employee one day per week to focus on research, but limit the focus on pure research to this one day – as well as any evenings and weekends that they want to devote to this on their own time? This way the individual is encouraged to pursue their ambitions, but within a framework that clearly states that we want 80% of your work week to be devoted to billable work.

Key Words: Perfectionist, Consulting, Billable, Research, Expertise, Enthusiasm, Strategy, Rules, Guidelines, Policy