If you own a professional services firm you know that getting to the “right” prospects is a battle. First, you have to know what kind of prospect you want, and you have to create a target list. That’s the easy part. Now you have to find a way to connect to the decision maker in those organizations in a way that demonstrates your expertise near the time when they have a need for that expertise.

Here are three ideas, that we have seen work for our clients.

1. Educational Seminars

The premise is simple. You create a presentation on a topic that your clients have a need for. You invite your clients & prospects to attend the seminar. Your prospects come and hear how smart you are on that topic, your clients tell them you really are as smart as you sound and they hire you.

Making it work: You need to have a strong house list to fill a room. My rule of thumb is that if you invite 100 people who know you and like you, 20 will RSVP and 15 will come. If you are inviting strangers you might need 50 times that number. I have often partnered with another firm to put these on where their house list plus my house list would produce a strong turnout. That way in addition to moving my prospects further down the sales funnel, I’m also exposed to the other firms “fans” as well.

2. Strategic Referral Partner Lunches

There are those referral partners that I know could provide value to my clients, but I never seem to find the “right” time to make the introduction. Or maybe I just don’t have the “right” words. Do you wonder if those partners are doing that with you too?  Sometimes an indirect approach can work better. Invite your referral partner to think of 2-3 people that they have been thinking might be prospects for you. You come prepared with 2-3 of your contacts that might be a prospect for your referral partner. You each agree to invite one of those to lunch and the four of you get a chance to meet. Do this 10 times and you will have a robust pipeline. Bonus if your guest and their guest get value from meeting one another.

Making it work: You need a referral partner who’s target market has a solid overlap, so that their prospects are also likely prospects for you. Make the lunch somewhere nice and make sure there is value in the lunch for your contact immediately (either from meeting the guest, or the referral partner). Lastly, you need to follow up with the person you are meeting after the lunch to get the appointment to tell them more about what you do. Bonus idea: Make it more than a lunch, hit a ballpark, golf course, or other social event.

3. Stalking

There are always those dream clients, companies that you would love to work with, that you know you could help. Ideally companies that would catapult you to a new level. Make a list of those companies, then dedicate time each week to getting one step closer to those them. Search LinkedIn to find the decision makers, and do your research so you know what are the most important challenges and opportunities that they face. Identify who in your network could introduce you, and script the value proposition that you have to offer them that offers a clear answer to their challenges and opportunities. Then ask your network to make the introductions that you need to get you in front of those ideal prospects.

Making it work: You need to have a strong network and be able to clearly articulate why your company, and only your company, can make a big difference for this prospect. If you can’t do that, move on to another prospect (or work on your differentiation). Don’t forget about social media, many of these prospects have blogs, or twitter accounts where you can interact and make an impression (by demonstrating expertise) so that you aren’t a stranger when your network introduces you.

That’s it, three strategies that I see working for my clients. Pick one and start working on it today. The faster you get started the more quickly you should see results!

What new business tactics have been working for you?

What measurements or indicators do you look at to measure your business performance?Small business owners tend to have an intuitive sense for how their business is going. Is the phone ringing? How’s my bank balance? What’s the mood in the office? Everything that they do gives them feedback about how their business is performing. However, there is a problem with relying on intuition. Our intuition is a way that our brain uses to short-cut the prefrontal cortex (thinking part of the brain). It uses our past experiences to “filter” the data we are seeing and fit it into a pattern we’ve seen before. So that gut instinct is usually pretty accurate as long as the data we are looking at is similar to a pattern we’ve seen before. The problem lies when the pattern doesn’t fit, when you are entering into a situation when your past experience isn’t a good fit. That’s when you need to have a better handle on the actual data, and use analysis of that data to guide your decision making.

We find that our clients often fit into this category, as their business grows there is just too much data to take in through osmosis. With a more varied and active customer base it’s too difficult to keep track of every customer, and each transaction. Finding ways to aggregate that data into reports, and analyze those reports using charts and graphs becomes essential to staying on top of how your business is performing.

What reports to we need to see?

1. Monthly Financials

At least monthly review your full financial statements. Income Statement (Sometimes called your P&L), Balance Sheet and Cash Flow.  Your Income Statement should tell you if you are making money, if you compare your actual performance to your budgeted performance you can see how each of your spending and income categories are doing compared to your prediction at the beginning of the year. Is your income up, but your expenses are also up? That’s probably OK as long as the growth in income is greater than the growth in expenses. But if your income is below expectations, then your expenses better be too!

Your balance sheet tells you if you are a debtor or a borrower. How are your receivables? They are going to grow if your sales are growing, but how much is too much. By calculating your Receivable Days Outstanding you can get an index number that will tell you about how well you are doing at collecting your receivables regardless of your sales growth. When your A/R Days go up you are not collecting as efficiently as you should, when it goes down you are collecting more quickly.

Also check your cash on hand, or borrowing capacity; do you have access to the cash you will need to grow? A Days Cash on Hand calculation can help you to get a handle on it. Total up your cash needs for the next 90 days and make sure you have cash on hand to cover it (If you are growing you need more cash than you did in the past!)

Last, make sure you aren’t taking out too much money! You need to maintain a healthy positive net worth (called Total Equity on your balance sheet). You can do that if you make sure to leave some of your profits in the business to operate it.  Your Cash Flow statement gives you an overview of what cash is coming in and going out. This is really the amount of money you have to operate your business. You can have positive earnings, but a negative cash flow if you aren’t getting paid for the work you are doing, or if you are taking out too much in shareholder distributions.

While financial indicators are important, it’s easy to get lost in all the numbers. I recommend using Trailing Twelve Month charts (TTM) to graphically display the trend in your sales, and profits (at a minimum).

2. Sales Indicators

Financial Indicators give you a good idea of what happened in the past, but you need to look at some leading indicators as well. Your Sales Manager or CRM system can provide a nice look at what those would be. How many leads have you received (compared to last month, or last year)? What are the value of those leads and how are they moving through your pipeline? The number  and value of proposals issued (compared to last month or last year) is also important. Lastly, closed new business (from existing clients and from new clients) is a more immediate indicator.

Each of these directions have issues (how accurate is your forecast, is there a lot of “junk” in the pipeline, etc.) but every business needs to choose a path, and start tracking at least some of those numbers; dealing with the issues as they come up.

3. Internal Efficiency Measures

Now that we have looked at what’s coming in, we need to look at how well we are doing at delivering that. For a service firm Utilization (billable hours/total hours) is a key efficiency measure. However, so is on time delivery. In a software or product company, tracking the cost of quality is key (time spent fixing problems or dealing with customer complaints and issues divided by sales). For other firms they can track project profitability, or contribution margin by project. These measures are usually more unique to your business. What can you look at that gives you an indicator of how much time or effort you are putting in to delivering on any particular piece of business.

4. Community Measures

Your business is not just a profit machine, it also has employees, and community members who care about your success as well. How do you measure your effect on those resources? Do you survey employee sentiment? Do you engage in community improvement projects? How do you know that these things are having a positive effect? Employee turnover is one sign (but it’s a lagging indicator, one you see it you already have a problem). What else can you measure?

Lastly, you need to talk about the frequency of these measures. I worked for a very seasonal business that tracked leads and orders by day and the whole company knew what the number for that day should be. Other measures like employee satisfaction are difficult to measure frequently and you might only check them annually.  The key is that you spend time each week/month and quarter looking at the numbers that your business creates, deciding what they mean, and taking action based on the results. Your business will be healthier and you will worry less.

What measurements or indicators do you look at to measure your business performance?

In a post in HBR’s Conversation Starter Steven Woods offers his readers a quiz.

1. Which is the better prospect, a) a potentially ideal customer that’s mildly interested in your offerings, or b) a less-than-perfect fit who expresses a lot of interest?
2. After a prospect registers on your web site for the first time, is it better to a) spend two weeks crafting a highly customized email to the target or b) send a less-customized message within 24 hours?

He then studied several big companies to determine the results of these strategies. He found that many B2B sales forces chose option (a) in each question above, but that the sales results were more favorable in option (b).

I started wondering, would the results be different for small business? I’m guessing that small business people are generally more opportunistic and would respond to the more interested prospect regardless of fit and would naturally understand the need to respond immediately to begin a sales conversation instead of worrying about the “right” response.

While our bigger company cousins are waiting for the perfect lead, and crafting the perfect email response my clients are dashing off to meet with another (imperfect) prospect with materials that they used for the last 17 presentations. Is there a happy medium where we do more qualifying of our prospects (and customizing of our approach) without going to the extreme that Scott bemoans in his article?

Strategic Planning, we all know it something that we should be doing, but I’m not sure that we all even know what those words mean? Are we locking ourselves in a conference room for a day and dreaming about the future? Or do we argue for a day about the words in our “mission statement”. As challenging as our business environment is today we can do things that don’t hit hard on our bottom line, so why should we think about creating a strategic plan?

1. A strategic plan is like a road map – it shows you where you are going and how you will get there. You can measure your progress along the way to determine if you are off course or need to pick up the pace.
2. The whole team builds it together. So now everyone has that map, and as each person on the team encounters a question or roadblock they know what decision to make to keep the business moving forward.
3. We need all the energy and creativity of our team members, and this is one way to engage them at a deeper level and get them more invested in where we are going as a business.

These are all good reasons to do a strategic plan, no matter what the economic environment, but when things are more difficult it’s even more important.

When sales are down and people aren’t as busy as they want to be they may start inventing new services, or projects in an attempt to improve things. Without a plan those experiments won’t be coordinated and may in fact be counter productive. Each person acting independently is using only the data and tools at their disposal and don’t have a complete picture. The Strategic Planning process helps to fill in the blanks.

Being opportunistic can be great, and following the money is a time honored way to evolve your business, but it can also lead you into some lines of business that are less profitable, or that are less enjoyable. Instead of reacting to each opportunity you can filter or prioritize them based on criteria you develop together in the strat planning process.

David Allen likes to say that we can’t think and act at the same time. We need to do our thinking first, then it frees our mind to act. Strat planning does that for us, we do our thinking together, where we have the most information and most diverse input then we act together based on that thinking.

How do I get started? Great question – we have a brief one page PDF of ideas for planning your strategic planning meeting on our website at www.anchoradvisors.com.

We are in the midst of a multi-part discussion about how service firms bill for their services. We’ve looked at hourly billing, retainers, and project fees and some pay for performance structures. Today I want to look at another way of getting paid, reusable content.

How much money could you make by selling the same idea over and over to different clients? Instead of selling your expertise as a service, you would turn it into an information product. If you decide to sell your ideas as information, then profit is straightforward. How many people can you sell the same information to?

What do I mean by an information product? Books, tapes, videos, membership websites, TV or Radio shows, group coaching programs, tele-seminars, the list goes on and on. Anytime you can deliver value in a medium that is one (you) to many, you are leveraging your time and ideas and have an opportunity to extract more value.

Is there one idea that you seem to use over and over with clients? Could you write a workbook or do a seminar on that topic? Is there a part of your process that clients do pretty well on their own if they have some coaching or guidance from you? Could you turn that into a group coaching class? The guys over at 37signals call it Selling your By-Products.  They wrote a book as a way to communicate thier philosophy to their team and the many people that came asking them and it has “made over $1,000,000 directly and way more than $,000,000 indirectly for the company…”

Maybe you don’t want to write a book, maybe group coaching isn’t interesting to you; it’s not likely that I’m going to list the perfect idea for you in this post, but it’s important that you start brainstorming and experimenting with where you can get a one-to-many relationship and figure out how to price that to expand your margins.

One important benefit to information products is that they tend to generate interest in and leads for your service offering as well. It’s the gift that keeps on giving.

How have you experimented with offering your service as a product? What’s working and what’s still difficult?

We are in the midst of a multi-part discussion about how service firms bill for their services. Between hourly, retainer and project fees, there are a lot of ways that service firms bill for their work. We are looking at each method, its strengths and weaknesses, and also some alternatives.

There are three methods that I’ve seen clients use and each has their advantages and disadvantages: Charging for time (e.g. the “billable hour”), charging for production (project fees or monthly retainers) and pay for performance. Today we’ll look in detail at pay for performance.

Charging for results
Clients love pay-for-performance, and if you can implement it it will make your sales process so much easier. You get to tell the customer that they only have to pay when they have made money, how easy is that? But in most professional-service businesses, there is still a HUGE gap between idea and execution. Where the client can turn your valuable idea into clay and you both end up with nothing. For this reason, it’s been difficult to adopt pure pay-for-performance mechanisms in most industries. But there are a few ways it’s being used that are worth a look.

1. Fixed project fee, with guaranteed results. In this case, the service firm will continue working until results are achieved. This provides certainty for the client, and upside if the results area achieved quickly.
2. Fixed fee (or monthly retainer) with a bonus or increased rate depending on achieving certain goals. One firm that has tried this gets paid a “bonus” on about 25% of their jobs; not bad.
3. A “tip” system, where you and the client agree to a price, but you add a “tip” to the invoice that they can pay or not pay according to their perception of the value they received. (Skeptical? Check out this restaurant that works on a similar premise)

When there are very tangible outcomes to achieve, pay-for-performance works well. Investment bankers charge huge success fees when they sell a client’s business. Recruiters often are paid only upon a successful hire. So there are places where this payment mechanism can really work.

Maybe your work doesn’t have such a tangible outcome, how can you tie results to fees? Are there baby steps you could take?

1. Ask for a “bonus” payment if a project is completed by a certain date. Or extra payments if work extends beyond the budgeted timeframe (due to delays on the client side, of course).
2. Think like an athlete. Sometimes athletes get bonuses if their work wins an award, or they have a record-breaking year. Could you ask clients for bonuses in those circumstances?
3. Could you measure client “satisfaction” or the end user’s perception of the value of your work and get some kind of escalated fees based on the results?

Some of these may seem far-fetched, but the only way to know if your client would accept them is to try them out. Brainstorm with your team to see how you might capture a little more value and then experiment with some of those ideas. You might be surprised at the results.

Have you tried any alternative mechanisms for capturing value? What’s worked, and what hasn’t?

Fixed Price, No Haggle

We are in the midst of a multi-part discussion about how service firms bill for their services. Between hourly, retainer and project fees, there are a lot of ways that service firms bill for their work. We are looking at each method, its strengths and weaknesses, and also some alternatives.

There are three methods that I’ve seen clients use and each has their advantages and disadvantages: Charging for time (e.g. the “billable hour”), charging for production (project fees or monthly retainers) and pay for performance. Today we’ll look in detail at charging for production.

Not charging for time

At some point, most service firms decide they need to find another way to charge their clients besides hourly billing. They can do this by defining the beginning, middle and end of a project, or by using some type of retainer/fixed-monthly-fee arrangement.

The idea here is that a client has an easier time determining the value they will receive from a project. So, instead of working out what it will cost you to complete a project, you can calculate what value the client will receive and see if we want to do this work for that price. Project pricing then provides incentive for the service firm to complete the work at a value that ensures the client will earn a return.

In order to do a good job of creating the project plan (which is critical to determining whether we can deliver the project at a price that represents a good value to the client) we need to have a very good understanding of the state that the prospective client is in. If we agree to a project fee, and then find out that the client doesn’t have much of the basic information available that we need, then the cost for the project can skyrocket; but the compensation is fixed (bad deal). So whenever you are planning a fixed fee project it’s imperative to have an “assessment phase” on the front end, where all the inputs to the project can be gathered and you, and the client, can clearly determine what needs to be done, by whom and with what result.  This process is usually too extensive for the service firm to do for free, but can be done for a reasonable (fixed) cost.

When we charge a project fee we preserve the upside (if we finish quickly we earn more money) but accept some downside risk.  Of course negotiating change orders as the project progresses can mitigate that. One of the biggest advantages of project billing is that it requires the advisor to constantly be communicating with the client about how the project is going, warning them when it could be getting off track, and identifying risks and mitigation strategies. This is also the major downside to this payment mechanism. It requires a skilled account manager/project manager to stay on top of changes in scope and negotiate associated changes in payment.

If you charge a retainer (e.g. a fixed monthly fee that represents the expected value that the client receives) you may not get paid for every hour although not every hour you spend on a project creates value. So, sometimes you will have to over-deliver in order to deliver value, and other times you will deliver TONS of value in a few minutes and therefore be able to push more work out into the future and make more money per hour. In most of the firms that bill this way, they schedule a list of deliverables to be completed this month, and have some forecast for what might be completed in the coming months, but it retains flexibility to use the brain of the advisor in any way that is needed. This works best for smaller firms or where the client is “renting” the advisor’s brain. The advisor remains in control of the “effort” they are delivering (you can always set deadlines in the next month) the client determines if that “effort” produces a good value. Again you need to be in constant conversation with the client about what value they receive to ensure that you are meeting their expectations.

Have you tried project or retainer billing? What has worked or not worked for you?

We are in the midst of a multi-part discussion about how service firms bill for their services. Between hourly, retainer and project fees, there are a lot of ways that service firms bill for their work. We are looking at each method, its strengths and weaknesses, and also some alternatives.

Each method of billing for services has  advantages and disadvantages: Charging for time (e.g. the “billable hour”), charging for production (project fees or monthly retainers) and pay for performance. Today we’ll look in detail at charging for time.

Many firms start out by charging for their time because it’s easy to track, it ensures that you make at least some money for the work you do, and few clients will argue with time-based billing (as long as the rate isn’t too high). Hourly billing is ideal in a situation where neither you, nor the client, have a good way to predict what needs to be done to accomplish what they need. And lets face it, when we were getting started that’s exactly the situation we were in!

After working this way for a few months (or years) you may discover a few problems with time-based billing.

1. If things take too long, you can’t usually charge all the time (some of it gets “written off,” effectively lowering your hourly rate). But if things go really well, and you brilliantly get something done in half the time, you can’t charge more. This is the “heads they win, tails you lose” element to hourly billing. Some clients go further by mandating that you bill hourly against a cap or maximum project fee. This is the ultimate set-up for they win (if you are fast and efficient), you lose (if you run into a roadblock or things don’t go as planned).
2. Sometimes you work extremely hard all day on a project, and for whatever reason the client doesn’t see the value in it. Other times you are daydreaming while waiting for a stoplight and you have a breakthrough idea that is worth a mint to your client. How do you bill for either of those events? Hourly billing does a poor job of aligning payment with value.
3. When you bill for time, clients avoid spending time with you. This is not a good thing. If you want to be a trusted advisor for your client, you want them to call you with challenges and opportunities as they come up. That way, you can have more influence and discover additional projects and ways that we can help them.
4. The better you get at things the less you earn, so you have to raise your rate. This is okay if you are able to hire cheaper resources to do the more mundane work. But it often results in pushback from the clients about your rate. “Why am I paying $350 an hour for you to do that?” Again, more time gets written off.

So, the upside to hourly billing is that you make “something” for all the work you do, but as you can see, write-offs erode that value and in trade you have clients who don’t want to talk to you. Further you lose the potential upside of those brilliant ideas you have that don’t take any time. In order to make money you have to give time.

My main objection to hourly billing is that it shifts the cost risk from the service provider to the client, and in most situations the service provider is the expert! You should have a good idea of how long it will take you to complete the work and what value the client will get from the project. You are in the best position to decide what you need to earn and what they should be willing to pay. If your not, you need to be (maybe an assessment phase could help?). If you are the expert and you know (approximately) what it is going to cost and (about) the value the client will realize for your work, then hourly billing really does a poor job of aligning the client’s needs with the provider’s needs.  In fact, it puts you at odds with your client. Your client wants work done quickly, and expertly. You want to take more time, and explore every option.

How has hourly billing worked for you? How has it worked against you?

Photo courtesy Dave Dehetre via Flickr

This is Part Two in a series of posts about how service firms bill for their services following yesterday’s introductory post. From hourly billing, retainers and project fees to alternate billing methods, We will be looking at each method and its strengths and weaknesses, and also some alternatives.

But before we get into comparing these method, let’s first review one billing method that every service firm should use; the assessment phase. For most service firm engagements, the beginning is usually the toughest. You have a pretty clear idea of the services you offer and the value the client should receive, but at the beginning it’s a little fuzzy to understand the totality of the client’s situation, their capacity, and how much value they will likely gain from your services.

Your clients have a similar issue. They know their problem intimately, but they don’t always understand your services, how you work, what you will require from them, and the results they might achieve. Further, neither of you knows what it will be like to work with the other. This gap in understanding prevents a lot of service work from being sold. The solution is an assessment.

In an assessment, the service provider agrees to provide a small amount of value (usually in compiling the data and framing the work to be done). This should be something that provides real value for the client, but not something that “solves” their problem. The service provider spends substantial time and effort in this stage to learn the business and situation that the client is in. During this phase, I like to say the client and service provider are “dating.” At the end of assessment, the service provider knows in much greater detail what the client needs, what assets they have to work with, what obstacles there are to overcome and what results are achievable. The client knows better what their situation is, how trustworthy and reliable the service provider is, and they may gain a more realistic view of the outcome of a longer engagement.

This assessment works best when it’s short in duration and scope, and priced low enough that it’s a “no brainer” for the client. This sets the stage for a more in-depth and credible proposal for the longer project, and increases the likelihood that the client and service provider will agree on the value of the work to be accomplished.

An Assessment phase lowers the risk for both the client and the service provider by helping each to more clearly uncover and understand the strengths, weaknesses and capabilities of the other. They also mitigate many of the risks and weaknesses of the pricing structures we will address in the next several posts.

Do you use an assessment phase in your work? What are the benefits? What are the risks?

Pricing is a hot topic among my professional-service clients and prospects and around the blogosphere as well (Gini Deitrich started a conversation about it, Versage talks a lot about it, even David Maister has weighed in) . It can be challenging to align the value created by your work with any tangible measure. Think about it: Aren’t there times when you come up with a good idea, the client thinks you’re brilliant and you wish you charged five times more than what you quoted? And then there are other times when you feel like nothing you come up with makes the client happy, even though you know it’s more their fault than yours (and sometimes, the other way around). How do you charge for that?

Ideally, clients and professional-service firms would both like to have some kind of system that ties fees to the results delivered. The client takes your advice, the advice works, the client makes lots of money – and they, in turn, are happy to pay you a lot of money. I mean, wow, it works for everyone! Unfortunately, this isn’t as easy as it sounds. More often, the client waters down your great idea, their team modifies it (or, in many cases, they just ruin it), and the market affects the result. In the end, you can’t tell exactly what effect you had on the business or the project’s results. So, if you charged for end results, you wouldn’t get paid for the work you did … and that’s a problem!

But, the concept of clients valuing your work, and you getting paid for that value, is every professional-service firm’s goal. So, how do you do that?

If you know me you know that I have a lot of ideas on this issue. I started writing a blog post on it and it turned out to be enough material for 4 posts (or maybe 5, we’ll see). That’s OK, because there’s a lot of ground to cover here, I’ve written one post on each of the three most common billing structures (hourly billing, project or retainer billing, and alternative billing), their advantages and disadvantages, and where each might have a place. I’m putting up one per day this week so stay tuned.

In the meantime, what challenges do you face in how you charge your clients? What methods have worked best for you?