Building the Firm of Your Dreams
Your architecture firm is a different kind of business. While it has the same basic elements of other businesses, architecture is just a little different, but you know that. The question is what can be done to make your business work for you so that you can get back to doing what you love. We believe that your firm can be the business that you dreamed of when you started it. You simply need to build better systems in each of the four pillars: Attraction, Conversion, Delivery, and Collection.
If you want a business that works for you rather than a business that you work for then you need to make sure that the four pillars are stable and that you are pushing back on the current limiting factors affecting each one. The best way to do this is to analyze which pillar is putting the most strain on your firm’s growth and focusing your efforts there for the next few months and then analyzing the pillars again.
The goal is to move the business forward in a focused methodical way. The solutions that you need in each pillar today may be inadequate for your business’ growth tomorrow. This does require you to set some time aside to work on your business rather than in your business, but the result of this focused effort is well worth the small allocation of time now.
We are writing this to help get you started on analyzing your four pillars and to help you to install a system of controls that will help you monitor each one. We will cover each pillar, the indicators that something is slipping, what the real problem is, and one or two key performance indicators (KPI) that you can use to monitor the pillar.
Are you ready? Great. Let’s get started with getting leads to your business. The pillar of attraction covers how you acquire and nurture potential clients, which you likely call marketing and sales. Many architecture firms take a more passive role in the marketing and sales of their services; believing that by focusing on networking they will meet people who will eventually (hopefully) require their services or know someone who will. While this tactic is fundamentally flawed by itself, it may work as a piece of a larger system.
The main issue with the pillar of attraction is not having enough leads coming to your business. We call this a funnel problem because the problem really is that your marketing is not reaching the right audience with enough impact to make them take action. As you can imagine there are many places where a miss-match can happen between your marketing materials and the audience they are reaching. Correcting the way in which clients are attracted to your business can really affect your bottom line.If your business is having a cash flow problem then the pillar of attraction is likely the cause.
Pushing back the limiting factors on your marketing and sales strategies has little to do with branding, an updated look of your marketing paraphernalia, or the freshness of your logo. It is best accomplished by asking yourself: who are we best capable of serving and what are we doing to reach them? This involves looking at what your target audience really wants and needs and how your services get them closer to their desires. Then analyzing your current materials to see if they target this market, describe their desires, and highlight how you can get them there.
The result should be an increase in the number of leads you get or the number of proposals that your firm prepares. Either of these can be used as key performance indicators are fairly easy to track. It can be as simple as entering a new lead’s contact information into your customer relationship management tool or just creating a new folder for each proposal that is prepared. Our system involves a simple spreadsheet that tracks the proposal, the proposed fee, and if it was converted. The tool then calculates the totals for the fees converted and the conversion rate.
The pillar of conversion is, to us, as important as the pillar of attraction. If you are not converting the leads that you are getting then there is little hope of staying in business. Just so we are all on the same page, the pillar of conversion includes all the tactics and tools you use to turn leads into paying clients: proposals, statements of qualifications, interviews, follow ups, information packets, etc. According to a study by the Society for Marketing Professional Services Foundation the average firm converts one out of every three proposals.
If there are problems converting leads we often find that the issue is a connection problem. What we mean is, there is a disconnection between what your client is looking for and how your proposal presents the solution or how the prospect feels your team will manage the project.
The best indicator for the pillar of conversion is when very few of your proposals are approved and result in paying jobs. We find many architects that keep charging forward trying to attract new work and writing proposals and do not track how many get converted. Doing this quick analysis can be very revealing for your company. If you are not converting at least thirty percent of your proposals, then you need to reconsider your approach to the conversion pillar.
Your conversion process should clearly connect how your services will get the prospect the desires that they seek. It is common to think that your clients only care about the money - whether it is making money or saving money. However, that is not always, or even often, the most important desire. Often people care about more intangible things like community impact, being good to the planet, or the best place to raise their kids. Asking the right questions prior to writing a proposal will help you to connect your proposal to what the client really wants and not just describe the qualities of the project.
Once you get your proposals connecting your services to the clients real desires you must nurture the client through their decision making process. Large developers have a very different decision making process than someone looking to build their dream house. Your conversion process should include materials and follow up that shows the prospect that you are the right company to take care of their project.
The result should be an increase in the number of proposals that get converted into paying work. The system that we created has produced a conversion rate as high as eighty percent (80%), but most clients see results around sixty percent (60%). Still, that’s double the average. The KPI we use is that simple conversion rate: how many of the proposals you write turn into paying work.
The pillar of delivery includes everything your company does to deliver on the promises made in the proposal. Obviously there are a lot of places where this can go awry, but we find that more often than not issues here stem from a promise problem. What we mean is that something promised was not delivered, or the client thought something was promised that wasn’t delivered, we call these phantom deliverables.
Now, these only relate to the client side of the story, and we all know that if your team is not performing well then your profits and clients suffer. While we suggest you go through all your deliverables to ensure that they hold high value to your clients and that there is a process to produce them, our goal here is focused on the client experience.
You are in the customer service industry and the key indicators that your business is not delivering on good service are a lot of customer complaints and low profit margins. Customer complaints usually revolve around schedules and expectations of deliverables. Low profit margins result from having to do the work over again and putting in late nights to meet deadlines - neither of which should happen.
Many things affect project delivery, but ultimately this pillar is keeping your brand promise. To do this you simply need to clarify what your company is known for: detailed designs, on-time delivery, great communication, etc. These are the things that you strove to provide when you started your business. We suggest that you look into your company’s core values and decide which ones will be your immutable laws - meaning a fire-able offense for not upholding, and redouble your efforts to maintain these standards.
The other piece of the delivery pillar has to do with how your team produces the work. We are not talking about your company drawing standards, but rather the process a project goes through in your office. To insure that your team delivers your brand promise you must install a set of expectations that are clear and concise. You will find that these are very simple, yet impactful for all of your staff members. Setting expectations like: communicate with every client every week or deliver weekly progress reports (which are track-able) will make huge differences in client satisfaction.
Setting indicators for performance in the delivery stage is a bit more complicated than the other pillars and should really be looked at from your current limiting factor standpoint. However, two that we use to start the process are: customer satisfaction surveys and project cost variance.
We know that you do not want to send out a customer satisfaction survey through Mail Chimp or some other service, and we don’t want you to either. All you really need to do is call clients during the project delivery and talk to them. Be sure you ask what they really like that your team is providing; this will reveal what they are paying attention to which means improvement in these areas will be noticed and appreciated.
Project Cost Variance deals with how many of your projects are delivered on budget. This compares the project costs against the project schedule. Project Cost Variance looks at whether the projects are delivered within the planned costs and is the difference between the scheduled costs and the actual costs. We suggest tracking this monthly, but on small jobs you may need to increase the frequency.
The pillar of collection has to do with the financial aspect of your company. If your company can’t collect the money that it is owed then it will be impossible to grow into the company of your dreams. While the process of invoicing and collection seems like a simple endeavor, we find that the real issue is an urgency problem. Either your accounting team is not presenting the invoice as important, or the client doesn’t see it as an important invoice.
As if you did not know that your invoices were not getting paid, the indicators for detecting a problem in the pillar of collection are a low cash conversion cycle and a high delinquency rate. The cash conversion cycle is how long between when the work is executed to when you get paid for it. Since architecture has a relatively long cash conversion cycle it is important to reduce the time between when you invoice for work completed and when the invoice is collected.
Delinquency rate is the number of invoices that are past due in relation to the total number of invoices sent in a given month. While we do not expect that you will keep a close eye on these metrics it is important for you to be aware of invoices that are not getting paid in a timely manner.
As we noted, often invoices are not paid due to a lack of urgency. We are sure that you have let a bill slip through the accounts payable on occasion, we all have. It is not that you spitefully didn’t pay it there was a reason. Bills get held for many reasons (and some just stick to the previous one and get filed without getting paid) maybe you were looking for a deliverable that wasn’t received or you needed to discuss a change in the charges, maybe you were just really busy and forgot this month. Your clients are no different. Maybe they are expecting to see a deliverable before they pay you or they do not see that work is being completed and want to discuss the invoice. Whatever the reason, your clients are likely not being vindictive about paying you.
Luckily the solution to these problems is a system. Whether your invoice was lost in the mail or the client wants to discuss the progress of their project, the key is to follow up on invoices. We suggest removing the “due in thirty days” clause on your invoices and adding a “due upon receipt” term. If your company is rigorous about sending invoices on a specific date then it becomes easy to follow up two or three weeks later with all invoices that haven’t been paid.
We know that calling a client to collect a past due invoice is a hard thing to put on your calendar and complete. Nobody likes asking for money. So. after your “due upon receipt” term add a steep penalty for invoices delinquent over thirty days, but put it in yearly interest amounts like eighteen percent (1.5% per month). This sounds like a hefty penalty, and gives you a reason to call the client in an attempt to save them from accruing this penalty. Another piece of advice is to strictly adhere to this penalty. If they do not pay on time charge them for it. They will be less likely to miss a payment in the future if they know you are serious.
The best KPIs to track invoicing are the invoice-to-payment ratio and the delinquent invoice percentage. Both are fairly easily tracked with today’s accounting software. The invoice-to-payment ratio is the difference between how much you invoiced and the payments received. This ratio will catch partial payments to invoices and payment agreements. While the delinquent invoice percentage is the number of invoices not paid to the total number of invoices sent. Both are a good measure to keep track of company cashflow.
We have found that the best way to improve your business is to focus on the one area that is providing the most resistance to your growth. Every quarter re-evaluate each of the four pillars and focus on improving one for the next three months. This slow, methodical improvement will have a huge impact in a very short amount of time.
Each year you and your leadership team should set goals for each of these pillars. These goals should be lofty and reaching, but not impossible for your team to attain. In a short amount of time you will find that your company has broken through the plateau and is growing. It is our passion to help you build better systems so that you can have the firm of your dreams and we have developed many tools and training for firms currently struggling with cash flow.