Where Does Your Time Go?

Small firms are often overwhelmed by the task of focusing time and attention on everything from building their business to servicing their clients and even developing new markets. How can small firms gain perspective and use time effectively?

The most common metric used to determine the distribution of time is utilization, defined as the amount of billable time spent on project work. Small firm architects, engineers and practitioners are in business to deliver the design and construction goals and objectives of our clients. Our utilization, or billable time, may be as high as 63% (or more) depending upon the level of staff person, size of the project, demands of the client organization, and complexity of the project. A senior project manager may be 100% billable to a project, while a principal may only be 32%. What’s important is that your organization has utilization goals for each staff member, because utilization effects profitability. Unbillable time is charged to overhead which comes out of the firm’s profits.

For that small firm (less than 5 people) with 63% billable time, the 37% of staff time remaining needs to provide the firm with a high return on investment. As much as 20% should be invested in the development of new business, with the remaining 17% invested in management and administration.

What constitutes “development of new business”?

• Meeting with potential clients, sub-consultants and teaming partners
• Understanding and defining where project opportunities are
• Identifying new targets (projects)
• Networking
• Breakfast and coffee meetings
• Client-focused events
• Preparing proposals
• Creating new opportunities

How should time be invested in management and administration? The obvious things are: AP/AR, collecting on outstanding accounts, staff development and coordination meetings. Often overlooked is advance planning to accommodate peak demand without permanently increasing overhead. Invest in finding other sources (independent contractors, consultants or part-time resources) that can support staffing demands so that they are already identified when such a situation occurs. An investment in finding people is just as valuable as an investment in finding work, but it’s hard to do when billable time takes priority. Take the time to look for intellectual capital before you need it.

Analyze how you spend billable and unbillable time, establish goals for utilization and track your performance. These are the first steps to becoming the profitable firm you’d like to be . . . no matter the size.

Seller vs. Seller-Doer

“I need to find a business development person.” I hear that statement often, and my answer often is “Are you sure?” The truth is most small firms (i.e., less than 50 in an engineering and architectural firm) do not benefit from a dedicated business development professional. The reason is two-fold. In a smaller firm, clients expect that business development/sales functions will be led by the principal. At that size, a key function of firm ownership is getting new business. But, many firm owners dislike business development and would rather relegate it to someone else. Which brings me to my second point: it is often financially unfeasible to have a dedicated business development position in a small firm since it is often pure overhead.

In our industry, sales and commission structures don’t work. Business development professionals play a role in “opening the door” to new clients, relationships and opportunities, but they are often not responsible for closing deals, nor are they responsible for the delivery of architecture or engineering solutions. As a result, to tie their compensation to such metrics is unreasonable and often unsuccessful. What is the option? Consider a Seller-Doer.

A Seller-Doer is just that: an individual that both sells the work and is responsible for its delivery to the client. The individual is often a professional (i.e., architect, engineer, construction manager) responsible for identifying and developing new work and then performing some level of the work. He or she could be a Project Executive, Project Director or full design-delivery manager. In any case, a portion of their salary is billable back to the project(s) which they identify and secure. As a result, the impact to a firm’s overhead rate may be as much as 50% less (depending upon the billability of the individual). Let’s look at the numbers:

Assuming a salary of $100,000 a year plus benefits at 35%, $100,000 in proposal costs and overhead including computers and office space of $35,000, the total annual cost is $270,000. If we assume a 10% gross profit, the business development professional would need to secure $2.7M in new work just to cover their costs. A seller-doer (35% billable) reduces the amount of fee required to cover their costs by $945K.

Review your own numbers and then decide: seller, seller-doer or do-it-yourself.

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.