Three Keys to Improving Project Profitability
Project fees can be one of the early battlegrounds of a changing marketplace, particularly for engineering design firms. For some geographic areas and sectors, the number of available projects is slowing due to higher interest rates, changes in the office market due to remote work or simply a city overbuilt in multifamily. In others, there is a push toward commoditization of design and engineering.
Clients want to spend less yet expect the delivery of the same level of service and scope. In still other marketplaces, the investment of private equity money into competitors is helping them quickly shift where they play in the market and how they win.
Regardless of why you feel the pressure on fees, three elements will help improve project profitability: client selection, differentiation and efficiency.
- Client selection: We all know the joy of working with great clients. They recognize the value you bring to the project, understand the agreed-upon scope and appreciate the result. Not all clients are the same, so how do we find the ones who understand working with your firm?
Having a clear understanding of what makes for a great client and a successful project is the starting place, but it is not as simple as evaluating a client as good or not so good. Most clients and projects have some gray areas and challenges. Creating an objective scoring system for evaluating both the client and the project sets you up to win the right opportunities.
The same scoring system is utilized in the client/project discovery process before the contract is even contemplated. It is all about the questions we ask in advance and how expectations are set. Those same questions set us up for being able to differentiate our approach and companies.
Each company’s questions are a bit different, but a few to consider:
- What are the monthly gross margin returns?
- Does the project provide a (safe) growth opportunity for selected staff?
- Will there be future work from this customer?
- Does the project or customer have the right amount of market visibility?
- Can your company handle the complexity of the project?
- Does the project size allow you to leverage your staff?
2. Differentiation: There is a big difference between basic expectations (e.g., BIM modeling, technical depth, experience level, etc.) and what it takes to differentiate the project approach and the company. If we offer the same general thinking that competitors do, there is no reason to command higher project fees. When we can step away from the competitive field and offer something different, we can command better terms and fees.
The key is finding that difference in the mind of the customer. One important distinction is the value we can offer. When we deliver value, there is less pressure on project fees. Clients are the judge of what adds value and what is the baseline of service they expect.
We need to train our people to ask better questions in the process of winning opportunities. In general, the faster we get to project specifics, the more we can compete on price. Yet, the more time spent exploring the client’s situation, their company’s strategic objectives , what is important to them and why, the greater our ability to stand out and be different.
3. Efficiency: Reasonable fees start with picking the right opportunities at a fair price. Delivering those projects efficiently and effectively is the other half of that equation. A favorite strategy to share with our clients is looking for small ways to increase fees. That means finding a 1% more productive way to deliver a quality project. Share the 1% strategies with other project teams. Incorporate them into the standard way that projects are delivered, and you will capture a price advantage quickly.
Those 1% gains engage teams and build on their insights and experience in delivering client expectations. Typically, teams capture improvements in aspects of work that frustrate them and make their day-to-day work harder than needed. This is a positive financial improvement strategy; one not to be overlooked. What is equally important is the employee engagement it engenders.
It is natural for clients to think about value and what they pay for the services we provide. We need to continue to get better at discovering exactly what they’re looking for and being able to articulate that value in tangible ways.
If you are feeling the pressure on project fees, incorporate these three strategies in your profit roadmap. If not, perhaps they provide insight into continuing to strengthen your company’s bottom line.
