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Survival of the Fittest
Efficient and effective support staff adds dollars to your bottom line.
by Eric P. Mott
September 29, 2003
If you didn’t start making changes to your business at least a year ago, preferably two years ago, it may be too late. There are two areas of the business that always need to be monitored during good times and down times: your marketing department and your administrative department.
In good times, when money is flowing into the business, the propensity is to add to the marketing department, hire that second receptionist that you always felt you needed and add more principal and employee benefits. But now some hard choices must be made. The first step some firms take when they come upon rocky times is cut their Director of Marketing. Isn’t that cutting off your nose to spite your face? Typical reasoning includes: “Our principals can handle the marketing,” or “We cut back our marketing department to save on overhead.” Is this clarity of thinking? No. What they don’t take into account is the “cost” to the business: $150 per hour of lost revenue per principal!
Let’s look at some simple calculations. If three principals spend a third of their time on business development/marketing during the week, it appears that a utilization of 66 2/3 percent is pretty good, exclusive of administrative time. But let’s look at the dollar impact of this third of their time. This equates to $150 per hour times 40 hours per week, or $6,000 per week, of lost revenue. Annualize this $6,000 and you have a marketing effort value of $312,000! You could have five or six full-time marketers for those same dollars, and probably five times the contacts, leads, and potential proposals. Those who adjust their marketing department to “cut overhead” might just be cutting their firm’s future fee stream.
You need to look at the lost revenue portion of any marketing or business development opportunity or department. It is not just the “raw” labor cost of billable employees for any proposal effort that matters; it is the lost revenue that drives the cost of the proposal. As an example, a firm spent $150,000 on a design competition at hourly billing rates. The justification? “Well, our actual costs were only $50,000 in raw labor.” How can this be used as justification? Who is trying to kid whom? It actually cost the company $200,000 for that proposal: $150,000 of lost revenue plus the $50,000 of out-of-pocket direct salary costs. It certainly doesn’t take too many billable people working on proposals to eat into or even through profits.
Where are the visionaries of our industry who can see past the “net” cost of salaries for marketers and business development personnel and effect a positive change in their firms by actually increasing their marketing efforts in a down turn? Those who are doing this are successful even in the current flat market. Those firms who have not invested for the future may not be around when the next growth cycle comes around.
There is one caveat. Your marketers and business development personnel need to be true “bird dogs” at the top of their game. They have to be on the edge of all new technology: including software, hardware, and education. They have to take charge and ownership of the firm’s proposals and future. And finally, they have to take calculated chances for the win, without fear of reprisal if the effort doesn’t pay off on the first try.
Now let’s take a look at the administrative department. Do you still have the same amount of administrative employees that you did during the go-go years, even after attrition or deadwood clearing of billable employees? Are you or others creating work for them to justify their position? If you answered yes to any of these questions, act fast to change the status quo. I am not advocating being the hatchet man or woman to administrative employees. What I am advocating is “right sizing.”
According to many A/E industry publications and surveys, the amount of administrative to billable employees is in the range of 15 to 20 percent. That means that a firm of 10 should be eight billable employees to two administrative employees. This is usually the case where you have a receptionist/bookkeeper and either a part-time or full-time marketer/IT. The fuzzy area begins when you are greater than 10, but less than 30 – a “no man’s land” of the 30- to 50-person firm. Once the threshold of 50 is crossed, life doesn’t get easier, but there’s more flexibility in the number of administrative employees. What is the right mix of administrative to billable staff? The answer is quite simple: whatever it takes to make your profit goals!
If all of your billable employees are at 85 percent or greater utilization, you can have more administrative support. If the firmwide number is less than 85 percent, you need to examine what functions you can combine or do without. I am also a firm believer that a routine analysis needs to be performed to examine how the administrative employees do their jobs. At one firm where I was hired to “clean house,” one person is now doing the job of what took three. No, the person is not working 120+ hours per week. In fact, s/he hardly ever needs to put in more than 40 hours a week! This savings of two full-time employees came about by analyzing the way the company does business now versus 10 years ago, and incorporating up-to-date technology.
The statement that we all need to overcome is: “Well, that is the way we have always done it.” That doesn’t make it the right way. For example, look at the practice of tracking long distance phone charges. To what advantage is it to have a bookkeeper code a phone bill, enter the invoice into the accounting system, bill the client the $1.00 – only to have the invoice rejected because they don’t want to pay for the long distance charge or, better yet, they want backup for the charge and why the call was made? My suggestion is to change the process for a better, more efficient and effective result so that we can stop counting pennies and losing dollars.
Streamlining marketing and administrative departments to make sure that they are efficient and effective for the size of your firm is not a panacea for a well-run profitable firm. Are the billable employees – and you – effective and efficient? What are you going to do? Keep it status quo or make an impact on profits?
Eric P. Mott founded Colorado-based Mott Associates in 2002. The firm specializes in developing effective strategies and procedures for professional service businesses. Mott is a past National President of the Society of Marketing Professional Services, and is currently on the National Board of Directors for the Professional Services Management Association.
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