Profitability Tune-Up
Attention all of you who are AEC firm owners and managers! With the widespread inflation we are experiencing in this country, if you aren’t worried about declining profitability, you probably should be.
Everything is going up. And it’s not going up by 6 percent to 7 percent like it’s being reported. Some things are going up by 300 percent or more. So if it hasn’t hit you already, all of us are eventually going to face rising costs for labor, office space, software, insurance, and everything else. And these cost increases will unquestionably affect your profitability.
If declining profits are one of your concerns, you might want to consider doing some of these things:
Raise prices. I could keep saying this until I am blue in the face. Those of you on percentage of construction cost contracts will get paid more just because everything is going up. But projects on a fixed fee or hourly billing rate should also go up in price. Now is the time if there ever was one to raise your rates by 10 percent or more.
Buy a building or buildings. It’s one way to control your space costs and get some tax advantages. And while there is no doubt commercial real estate has gone up in value thanks to market acceptance of lower cap rates, it has not gone up as fast as rent. Could this be the time to go for it? Perhaps it is.
Shop your insurance. I’m no expert in insurance, but I do know this: When you have worked with the same brokers and insurance companies for a long time they tend to push their rates up. Sometimes new companies will buy your business for a year or two and give you a better deal than you are currently getting. Brokers can get lazy or may be tied to one company. Check out your options.
Take a fresh look at individual staff utilization. Two things I want you to look at in particular: First is design and technical staff who are low utilization-wise when you have record high workloads. That tells you something. No one wants them on their jobs. And secondly, you need to take a hard look at overhead staff that got added when the company was making record profits. Some companies sure seemed to load up on all kinds of expensive non-billable staff at the highest levels in the last few years.
Change your bonus plan. Maybe you should take a fresh look at it to see if you need to more directly tie firm performance to individual bonuses. You want everyone to understand that bonuses come only from profits, and aren’t just part of their “deal” regardless of how the firm performs profit-wise.
Lower utilities usage. Get an energy audit. Figure out how you can reduce your utility costs. They are going up quickly, and not looking at this expense – even though it isn’t a huge percentage of revenue – could hurt your profitability.
Get more fuel efficient vehicles. Does everyone really need to commute in F-250s and 6.2 liter Denalis? Even though I love some of these fuel-guzzlers myself, smaller hybrid and electric-powered vehicles may be in order now.
There is always something you can do to improve your bottom line. Now is the time to do it, if there ever was such a time!
About the Author – Mark Zweig is Zweig Group’s chairman and founder. Contact him at mzweig@zweiggroup.com. Read more about Mark.
This article originally appeared in the April 3, 2022, issue of The Zweig Letter. Reprinted with permission.
About Zweig Group
Zweig Group, three times on the Inc. 500/5000 list, is the industry leader and premiere authority in AEC firm management and marketing, the go-to source for data and research, and the leading provider of customized learning and training. Zweig Group exists to help AEC firms succeed in a complicated and challenging marketplace through services that include: Mergers & Acquisitions, Strategic Planning, Valuation, Executive Search, Board of Director Services, Ownership Transition, Marketing & Branding, and Business Development Training. The firm has offices in Dallas and Fayetteville, Arkansas.
