All Market Sectors Are Not Created Equal

A client of ours recently boasted that they are in 13 market sectors (within a six-person firm). The bottom line didn’t reflect 13 sectors, though, because not all market sectors performed equally well. For example, the tenant improvement market they serviced (engineering) lost money for any project less than $150K in fee. Conversely, the engineering projects they did for schools were not only profitable, but they had the right team and resources to do the work. In between the TI work and the schools work was every permutation one could imagine—somewhat profitable ran by junior staff to reasonably profitable with a mix of managers and staff.

I asked if the firm pursued new business equally across all of the market sectors. The answer was yes. Then my question was, “Why?” Let’s assume it costs $10,000 to pursue one proposal in each sector. Let’s also assume that in a year, the firm proposes on one opportunity in each sector: that’s $130,000. If 1/3 of the sectors perform marginally to poor, that means $39,000 a year is spent in the pursuit of work that under performs. Not only do they lose money on that work, but the return on investment for the business development dollars expended is also poor.

What happens if they abandon the pursuit of those marginal and poor performing sectors? Well, proposal costs go down to $91,000 per year, and the business development return on investment increases (with ROI defined as the net fee earned divided by the cost of the pursuit).

Before you think that all market sectors are created equal, do the math. Understand the sectors that provide the highest levels of client satisfaction, define the size of projects that tend to make or lose money, define staff experience relative to the size and complexity of work and then be prepared to modify your pursuit strategy accordingly.

We can all agree that every dollar is equally hard to make, but all market sectors are not created equal!

Karen Compton, CPSM. Karen Compton is principal of A3K Consulting (Glendale, CA), a business development and strategic planning firm specializing in the architecture, engineering and construction industries. Ms. Compton is also the founder of Industry Speaks™, a web-based business-to-business portal that connects AEC firms with experienced consultants, provides peer reviews of consultants, reports on key industry trends, and publishes expert reviews of professional courses and books. Contact her at kcompton@a3kconsulting.com.