At this moment, do you know which of your projects are performing well and which client types are bringing in more revenue to your Firm? In this blog, we are going to take a look at your Client Project Fit. We’re going to see how well your Clients and Projects fit your Organization and take a look at a few tools you need to identify your best-performing projects.
Make Sure You Have These KPIs
To begin, we're going to take a quick look at four Key Performance Indicators, also known as KPIs. These KPIs will help you easily identify how well your projects are performing.
Net Revenue
This is the money you get to keep to run your Firm. How is much revenue are you getting from your various segments of projects and clients? You get this number when you take your total revenue and then you subtract out the consultants and the direct expenses.
Net Multiplier
To get your Net Multiplier, you're going to take your net revenue and you're going to divide it by your direct labor cost. Click on the button below for a more detailed explanation on how to calculate for your Net Multiplier.
Profits and Profit Percentages
You always want to calculate your operating profit percentage based on your net revenues. Once you do this, it is time to do some analysis. You can do this by comparing two different years, different segments of projects, or individual projects. Click on the button below to get a more comprehensive explanation of how to calculate your Operating Profit Percentage.
Net Multiplier Minus Breakeven
With your break-even being one, plus your overhead factor, anytime that calculation is greater than zero, you're making a profit. When it's below zero, you're losing money.
Analyze Your Projects by Segments
The best way to get started is to analyze your projects. In this example, we’ll look at six different types - these can be different projects from churches to schools, grocery stores, barbershops, etc.
For the sake of this post, we’ll simply label projects as letters from A through F.
On the Net Revenue column, you can see where your revenues come from. See what percentage of your net revenue comes from each of these segments. And we've got operating profits, percentage of total profit coming from each segment. And finally, you can see the net operating profit percentage as a percentage of your net revenue.
Now, let's take a look at rows D and E.
We see that with D, you've got $60,000 of revenue, 9% of your revenue comes from that segment. It's generating operating profits of 18,000 or 15% of the total firm profits. And it's running at a 30% profit percentage, which is really good. E, however, is running much lower and only hitting an 8% operating profit.
Doing an analysis like this helps you identify where you need to focus your efforts when you're bringing in new work. It also shows you places where you have room for improvement, such as in segment E. Maybe you can look at projects like these and find something that you can correct. Or perhaps you could study the highly-profitable projects and see what's working really well, and implement them across your projects that can use more improvement.
Analyze By Funding Source
You can also do the same analysis by funding source. You could track your projects by state-funded, county-funded, federally-funded, school district, etc. It can also be applied to private-funded, developer-funded, and nonprofit projects. This type of analysis can help you find your firm’s sweet spot.
Let's take a look at this board and focus on funding sources two and four.
Here we can see very different behaviors based on the funding source. Yours might be even across the board, or you might find some very large differentials. Take a look at your projects and analyze which types of projects need more attention.
You can also analyze by project manager. But be careful - sometimes project managers don't get to decide which projects they get to work on. Your best project managers might be given the most difficult projects, which makes it harder for them to hit the profit targets you want for your firm.
Segments to Consider
Here's a list of segments that you might consider when analyzing your projects.
A couple of segments that weren't included in this list are:
Delivery Method
Did we do better with design-build or design-assist, plan spec, feasibility studies?
Regions and Locations
Did our firm make more money in Northern Nevada or Northern California? Did we do better in town or out in the rural parts of the state?
These are all segments that you can use to determine where you are making your greatest profits.
After we had analyzed ours, we discovered that design-build office buildings were our sweet spot. We made more profit on those than any other segment.
Analyze By Your Net Multiplier and Breakeven
In the prior analysis of segments, we used your net revenues and profits. Here we're doing a similar analysis using your net multiplier and break even. And these make it really easy to hone in on exactly where you're doing well. When your net multiplier is above three, you're doing great. And when the net multiplier minus your breakeven is negative, you know you're losing money.
Note: The Overhead Factor and Breakeven are displayed only to show how we got the results for NM-BE. Breakeven is always 1 + Overhead Factor.
The Rule of Thumb is 3
If you can bill out at three times what you pay, or if you can hit a net multiplier of 3.0 or better, you're making money. But don't limit yourself to that. Really good firms are hitting four and five on that net multiplier.
Pivot Table of KPIs
Now, the power of this analysis really comes in when you build a pivot table. Basically, you've got two different segments. You have one segment across the top and one segment down the side. And this can be any of your segments.
In this example, we've got project type and client type. Take a look and see where the intersection points are with the best numbers. You can do this with profitability or any of your KPIs.
Here we see the client type three and six with building type C is a home run for our firm and we're not doing too bad with project type D and client type four is doing okay for us as well. So now with this type of analysis, you can see exactly where you need to focus your efforts when bringing in new work. You have now discovered your client project fit.
What’s Next?
Once you have identified your best fit, what you want to do is become the expert in that industry. You need to study the industry, join and become active in the associations and possibly even attend the conferences and trade shows so that you understand what those clients are dealing with on a daily basis, what they're thinking, and what their hot buttons are. Plus, you become the expert on designing their facilities. Once you have this information then you can start to implement your strategic marketing.
If you found this post helpful, please share it with your colleagues and associates. We want to help as many people and firms as we can reach new levels of success.
