How not responding to Key Performance Indicators costs a firm $716,883 in unrecoverable hours billed!
I recently stumbled across a firm with 23% in write-offs. That added up to over $700k pa. in unrecoverable hours. While I was astounded by this figure, what really got under my collar was how they treated this information.
This firm responded first with blame and excuses, then denial.
- they blamed new trainees for the high figure
- they used the excuse of bad client jobs and reasonable scope creep
- they even denied they had a problem and questioned why I wanted to spend time on it.
In this case, the write-offs stemmed from several key performance indicators that were being overlooked.
- poor training; and
- inconsistent use of systems
Write-Offs are inevitable, but should be outweighed by Write-Ons
As no one is perfect, it is inevitable that not every job will work out. This makes write-offs inevitable to a degree. Overall though, a firm should have write-ons.
It is far easier to attain write-ons by ensuring that you have three profitability models at work in your firm.
The Three Profitability Models for Efficient Firms (Formula for Write-Ons)
Here is the three profitability model formula for more efficient firms:
- Value pricing
- Efficiency gains that lead to write ups
- Variation invoicing – with allowances for unforeseen (the “we have hit a rock concept”) or extra work outside the scope of agreement
Together, these three models will allow a firm to financially cover themselves for:
- necessary re-work; and
- employee training.
Six Methods for correcting Write-Offs
Further to these models, here are some specific strategies for managing write-offs in your firm:
- Review your pricing models – packages and products is the best way to go here
- Review how the work is done,
- systems and consistent use of tools are the key.
- Ask yourself: “Are the right people doing the right jobs and tasks?”
- Exit clients whose work does not return a job profit – there is always someone else prepared to do their work for less so let them do it
- Eliminate scope creep – Enhance your education of clients around your service offering. Make sure they understand what is included and what isn’t.
- Train your managers and partners on how to exit themselves from the daily work – focus on the strategic organisational structure.
- Focus on profit over hours billed.
Indicators that you should focus on Practice Management
These additional indicators may mean that you need to work on your practice, or that you are focusing too heavily on client work and missing out on immediate, controllable cash profits.
- The firm has write-offs (Don’t budget for write-offs, worse case scenario should be Zero)
- The average hourly rate recoverable is less than $200 per hour
Your profitability is less than 45%
Become an Excellent Practice Management Leader:
Decrease Write-Offs & Increase Firm
Growing your Firm and its profitability should not be a mystery.
I can apply the Premium Practice model to any firm willing to apply the methodology, and unlock the greater profits, by helping you build more effective teams and implement Value Add Services efficiently.
You can talk to me directly about how your firm can unlock the Premium Practice Model, or get more information about the next group coaching workshop coming up.
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Andrew Roberston | TwentySix Group