Leverage is the ability to use a small number of resources to generate a large number of results. It can be achieved by having the right mix of employees and contractors. A hallmark of an efficient professional services company is being able to recruit and deploy contract and offshore talent when needed to meet the needs of clients in your growth strategy framework. This also includes having a blend of senior, intermediate, and junior employees to make up the consulting team. This is essential to profitability because it allows businesses to meet the needs of clients at different levels of complexity and budget. Read more for tips on how you can use leverage to maximize your efficiency and growth strategy framework.
Get Your Practice Leverage Right
Having a balanced composition of personnel at the appropriate cost structure is crucial for a successful business. A well-structured team of senior, intermediate, and junior employees, can ensure that the right work is being done by the right people. However, over time, changes in the business model or retention issues can lead to an imbalance, resulting in too many senior employees and not enough junior employees. This can lead to a decrease in profitability, as senior employees are performing basic tasks that should be done by junior employees.
It's important to avoid this situation because it can also lead to higher costs, which can make the company less competitive in bidding and lead to unhappy employees. To achieve profitability, it's essential to have an optimal staffing mix and make sure that basic work is being done by junior employees, while senior employees focus on more complex and high-value projects.
Senior employees have the most experience and expertise, and they are best suited to handle the most complex and high-value projects. Intermediate employees have a good balance of experience and expertise, and they are best suited to handle projects that are less complex but still require a high level of skill. Junior employees have less experience and expertise, but they are still valuable assets because they can handle routine tasks and support senior and intermediate employees.
Structure Your Business Strategically
In order to maximize resources and maximize the impact of your workforce, it's important to consider the potential return on investment (ROI) for different projects. While some projects may promise a high margin with relatively low effort, others may require a great deal of time and effort to deliver. In these cases, it's best to prioritize the allocation of junior or lower skilled employees. This is because the cost of taking a senior or highly skilled resource away from more lucrative projects to focus on lower margin, time-consuming work can have a more significant impact on overall ROI. By effectively balancing skill level with project potential, you can ensure that your resources are being used optimally to drive business growth.
Furthermore, having a structure that allows for lower profit margins on some projects and higher yields on others can also help to reduce risk. When a business has a diverse portfolio of projects, it is less likely to experience a significant loss if one project fails. This is because the firm will still have other higher margin projects that can help offset the lost margin on a lower-yield project that gets delayed or compromised. This can help to ensure stability and longevity.
Finders, Minders, and Grinders
Leverage can be achieved by having the ideal employee configuration with different roles and responsibilities. One way to categorize these roles is by using the terms finders, minders, and grinders.
Finders are the employees who are responsible for finding new business and bringing in new clients. They are typically salespeople or business development professionals skilled at identifying and cultivating new business opportunities. They are often outgoing and charismatic individuals who are able to build relationships and close deals.
Minders are the employees who are responsible for managing existing clients and ensuring that their needs are met. They are typically project managers or account managers skilled at coordinating and communicating with clients. They are often detail-oriented and organized individuals who are able to keep projects on track and ensure that deadlines are met.
Grinders are the employees who are responsible for delivering the actual services. They are often experts in their field who are able to provide valuable insights and recommendations to clients.
Having a balance of finders, minders, and grinders is an essential part of a growth framework. Finders are able to bring in new business, while minders are able to ensure that existing clients are satisfied, and grinders are able to deliver high-quality services. By leveraging the strengths of each group, businesses can increase their capacity to generate revenue and improve their overall profitability.
Furthermore, having a balance of finders, minders, and grinders can help to reduce risk. By having a diverse mix of employees with different roles and responsibilities, you are less likely to experience a significant loss if one employee is unable to perform their duties.
Tactics That Enhance Your Business Growth
Dealing With Underperformers
It's important to have a strategy in place to deal with underperforming employees. These individuals can negatively impact the performance of the team and the overall profitability of the firm. One way to address this issue is to set clear performance expectations and provide regular feedback to employees. If an employee is not meeting those expectations, it's important to take action and address the issue. This can include providing additional training, coaching, or mentoring, or in some cases, terminating the employee. The key is to not let an underutilized person hang around and affect the performance of the team.
Dropping Unprofitable Service Lines
Another important strategy for increasing profitability is to regularly review the service lines offered by the firm and drop those that are not profitable. This can be a difficult decision to make, as it can mean investing time and resources into building a practice area and then abandoning it. However, it's important to remember that unprofitable service lines can drain resources and negatively impact the overall performance of the firm. By regularly reviewing service lines and dropping those that are not profitable, businesses can redirect resources to more profitable areas and improve overall performance.
Saying Goodbye to Low Margin Clients
Similarly, businesses should also review their client base and be ruthless in dropping unprofitable clients. These clients may be high maintenance, have a history of late payments, or change orders, or may not be a cultural fit with the firm. These clients can drain resources and negatively impact the overall performance of the firm. By regularly reviewing clients and dropping those that are not profitable, businesses can redirect resources to more profitable clients and improve overall performance.
Balancing Staff Ratios
Consulting staff are the backbone of any professional services business, as they are responsible for delivering the services that generate revenue for the firm. Typically, consulting staff represent 75% of the firm's employees. These employees are the ones who are interacting with clients, conducting research, analyzing data, and providing recommendations. Their work is billable and generates revenue for the firm.
On the other hand, back-office or nonbillable staff, which include administrative and support staff, are also important for the smooth functioning of the firm. They are responsible for tasks such as accounting, human resources, information technology, and marketing. While these tasks are important, they do not generate revenue directly. Keeping the proportion of back-office staff in check is essential to maintain profitability.
As a business grows, it's important to keep the proportion of back-office staff in line with the growth of the firm. For example, if you grow by 15%, but increase staff by 30%, the proportion of back-office staff becomes too high, which can degrade your profitability. This is because the additional staff will increase overhead costs without generating additional revenue.
To avoid this, focus on tactics to lower overhead costs. This can include outsourcing noncore functions, implementing technology to automate tasks, and streamlining processes to reduce the need for additional staff. Additionally, you should review the roles and responsibilities of back-office staff to ensure that they are aligned with the needs of the firm.
Increasing the speed of billing, improving the rate of collections, and reducing basic equipment costs are all important strategies for improving the profitability of a professional services firm.
Increasing the speed of billing can be achieved by streamlining the invoicing process and automating as much as possible. This can include using software to generate invoices, setting up automatic reminders for clients to pay, and implementing an online payment system. By reducing the time it takes to invoice clients, you can increase cash flow and improve profitability.
Improving the rate of collections can be achieved by implementing strict credit policies and following up promptly on overdue payments. This can include conducting credit checks on new clients, setting up automatic reminders for overdue payments, and implementing late payment penalties. By collecting payments on time, you can improve cash flow and reduce the risk of bad debt.
Reducing basic equipment costs can be achieved by implementing cost-saving measures, such as using cloud-based software, using low-cost office equipment and supplies, and outsourcing noncore functions. By reducing costs, you can increase profitability and remain competitive in the market.
It's also important to be mindful of support staff in any of the functions like finance, HR, or IT and try to keep them at an optimal level. This includes regularly reviewing their roles and responsibilities to ensure that they are aligned with the needs of the firm and implementing cost-saving measures, such as outsourcing noncore functions or automating tasks. By maintaining support staff at an optimal level, you can reduce costs and improve profitability.
ALTA Powers Your Growth Strategy Framework
Leverage can be achieved by having an effective employee strategy with different roles and responsibilities. By having a balance of finders, minders, and grinders, businesses can increase their capacity to generate revenue and improve their overall profitability while reducing risks. By leveraging the strengths of each group of employees, you can achieve a higher return on investment and improve overall business performance.