Implementing these 8 easy changes can help your firm work smarter, not harder, and reap the monetary rewards.
I have always felt that, if A/E and environmental consulting firms spent as much time on getting better fees as they did trying to manage marginal ones to make a profit, they would come out far ahead. We just don’t try HARD enough to get paid decently for what we do.
Here are some ideas you might be able to use to increase your fees (and your profits):
- If you are working on hourly jobs or cost plus jobs, charge every single thing you can to the job. Is management working on the job but not billing it to the job? A common problem in A/E and environmental firms is not getting paid for supervision.
- If you are working on hourly jobs, try to get more of them on a fixed fee. You might assume that, just because your client has always paid you hourly, they won’t go for a fixed fee, but have you asked? Many clients would be completely comfortable knowing what kind of fee you are committing to do the work for, as long as it wasn’t more than they were planning to spend. Fixed fees give you incentive to use less and cheaper labor, which can make you more money.
- Raise your hourly rates. This is the time of year to do it! Inform all clients on November 15 that on January 1 rates are going up. Then raise them. Do it every year. Even a $1 per hour billing-rate increase in a company with 100 employees and a 65 percent firm-wide utilization rate will bring in another $130,000 in profit for the year! Two dollars per hour would make $260,000 over the year. Ponder that.
- Use billing-rate classifications. For example, bill all “senior engineers” at a set billing-rate. Then use your lowest paid ones the most on billable work. The result is higher effective labor multipliers.
- Mark-up all reimbursable expenses. Start writing into your contracts a 10 or 15 percent markup on all reimbursable expenses. Many firms get away with this. A firm with $500,000 in reimbursables that marks them up by 10 percent will make an additional $50,000 in profit.
- Charge for travel time. It’s amazing to me how many firms don’t do this. If you can’t be doing anything else and are going somewhere for a client’s job, it’s billable. If it’s an hourly job, you can get paid for it. Bill it.
- Charge travel mileage on local jobs. I have seen this, too. At $0.575 per mile, just driving 20 or 30 miles a day can make another $11-17 per person, per day. It all falls to the bottom line.
- ASK for a higher fee. I saved the best for last. Stop being preoccupied with what it will cost you to do a job and instead think about how much someone will pay you to do it. Listen to the cues your client sends off. Be specialized and better than your competitors. Go the extra mile in every way. And then don’t be afraid to ask for a proper fee to do the job – one you know will net you a profit. Nine out of 10 people quoting fees are thinking “what will this cost us?” It’s a good question to know the answer to – but not the most important one.
If demand keeps outpacing supply like it has been doing in so many markets, you’re going to see everyone in the A/E and environmental consulting business raising prices in 2016.
MARK ZWEIG is founder and CEO of Zweig Group. Contact him at firstname.lastname@example.org.