This is the first in a series of posts about how you can survive the credit crunch. And heck, if there’s a way, we’ll even show you how to capitalise on it. In the current climate, increasing turnover feels as impossible as licking your elbow. So, instead we’d like to focus on your margins and the steps you can take to grow them. Of course, most of our tips are common sense, but they require great attention to detail and rigour. If you take care of the numbers, the numbers take care of themselves.
Why should you care? Well for a company with a project based revenue of £5 million per annum, an increase in profit margin of between 1 and 3 % would translate to an increased profit of £50k to £150k per annum (£150k to £450k over a three year period). Needless to say if your project turnover exceeds this, the benefits are even greater. So, what steps should you take?
1. Have a budgeting process provides you with the information you need
The starting point for improving profit margins on projects is to ensure that your budgeting process allows you to a) Get a full picture of the expected revenue and margin for each project. b) And the flexibility to look at the impact of changing elements of your budget (internal/external resources, management fees, mark-ups, etc.). Being able to scrutinise different budget scenarios will ensure you always know how you stand and what you risk.
2. Reduce errors in the budgeting process
The two magic words for as few errors as possible in the budgeting process are consistency and accuracy. Do it well and do it the same way time and time again. Using different methodologies for different budgets leaves you wide open to error and that generally leads to a loss in revenue.
3. Ensure that time is recorded on projects
Your people are your greatest asset. You’d be amazed to learn how many companies are loosing money all the time because they’re not billing properly for their people’s hours spent. Your system should stay on top of this and sync seamlessly into every project. By knowing your team’s time on a project you’ll always know your true margin and will then be in a position to take the necessary steps to improve it.
4. Compare actual costs with budgeted costs regularly
Taking on a project is a business decision that has to be profitable. But in reality, the projects we take on change and therefore the financial implications change too. It’s really important that you stay on top of these changes and that you compare the actual costs with the costs originally budgeted for. That way you can make an informed decision about whether costs can be passed on to a client.
5. Implement servicing and recovery reporting
Servicing and recovery reporting analyses time costs and helps you to identify where and why overruns are occurring. This is the best way to decide the extent to which you might be over-servicing a client and if the work is worth doing. 6. Have an agreed process for project additions This is a golden rule. Always ensure changes to the project are presented to the client at the earliest possible opportunity and that you have an agreed, formal Project Change process (with the necessary documents) in place. This is the best way to save your margin and to avoid frustrations when dealing with your client.
7. Properly manage 3rd party costs
Be in a position to quickly identify where 3rd party costs might exceed what you had originally budgeted and ensure that there is an approval process in place (preferably automated) to ensure that these don’t get out of hand.
8. Have a full reconciliation process in place
A proper project reconciliation process not only ensures that you identify additional charges that you may be able to pass on to the client, but provides you with vital information about where you might need to change things in order to improve the margin on your next project.
And there you have it folks, 8 ways to defy the credit crunch by increasing your margin. If you have any other great tips that you think we should add to this then send them over.