Find & Stop Revenue Leaks. The operating budget of an Architecture and Engineering firm is dynamic & ever-changing with many interconnected pieces. In the past, these pieces were very difficult to estimate. Firms used patterns from years prior or a ridiculous amount of spreadsheet to make decisions. But day to day, new challenges arise. Business owners may miss opportunities to stop revenue leaks that dilute profits.
NOW, there are advanced, integrated, easy-to-use softwares for architecture and engineering firms that help you budget for success. Start with working on making these five changes. But an industry-specific software will allow you to estimate drivers of the entire budget and keep utilization rates, overhead expenses, billing rates and more in check.
AE Firms, You Can Plug Revenue Leaks!
- Lower Overhead Expense: Of course there are known, and obvious, overhead expenses like employee benefits, rent, office equipment, etc. Categorize costs: fixed, medium term fixed, and variable. Work on variable costs first, then medium term. It is critical that overhead rate is calculated correctly in order to accurately determine AE profitability. Often, tons of spreadsheets and numbers can make it very hard to be sure overhead is accurate.
- Improve utilization: When you obsess about changeability, you can be making detrimental mistakes. You could burn out employees (see#5), force them to work on projects with low fees & bad terms instead of focusing on efficient use of hours charged. “Managing utilization by reviewing last week’s charges is like driving a car by looking out the rear view mirror. Manage utilization proactively.” Use a workable tool for resource planning & workload leveling.
- Improve Billing Rate & Don’t Undervalue yourself: There are over 70,000 AE Firms in the US alone. Remember that someone will always be there to take the job at the lowest price. Set your pricing based on what is best for your firm. Don’t compete with every low price. Improve negotiations & improve project management. Know what you are worth, and take a look at the projects you have been profitable on.
- Improve project management: Each of these fixes affect the other. Improving project management can also improve your billing rate. One way to improve project management is to PMs to participate in fee negotiations. Minimize the # of projects each PM is asked to manage. Get regular evaluations from clients. Establish project review process. Teach project management skills/training. Studies show that the most profitable firms have more capable project managers.
- Employee Engagement has an impact on profitability: In 2020, turnover at jobs are higher. Stats show that boomers are beginning to retire, and millennials are looking for jobs that they love and changing jobs quickly. Think about the culture you want to cultivate in order to keep your employees around and part of a team. Motivations drive the culture, and in turn the profit, of your business.
It IS possible to find & stop those revenue leaks. This list may seem daunting, but work through it as a checklist. Coupled with a tool for resource planing and budgeting & forecasting like 9DOTS’s onePlan, you can be on the road to a very strong, confident organization and profitable business with no revenue leaks.