Accelerate Your Firm's Performance With Benchmarking: Part 2
We recently talked with Russ Sanford, SVP and Chief Marketing Officer at Kleinschmidt Associates, and Chris Lewis, Business Manager at The M Group Architects, to learn why they got started with benchmarking and how they leverage the Deltek Clarity A&E Industry Study to increase business performance and measure firm health.
Q: How are you using benchmarking within your company today?
Russ Sanford: We have established what our benchmarks are, and we use them to create our annual targets and our key performance indicator (KPI) dashboard, that we use for monthly reporting within our leadership team and quarterly reporting for our board of directors.
In the past, we used the Deltek Clarity Report to help with our overall strategy. There were some things that I was able to glean out of it, and as a Chief Marketing Officer (CMO) I'm going to be talking a lot about the business development metrics. So statistically, the report I read said revenue from your top three clients of a medium-sized firm should average around 45%, and at that time, in 2017, about 17% of our revenue was coming from the top three clients. So, that was a part that we really wanted to focus in on – expanding the foundational clients to build up a much bigger base.
Chris Lewis: For us, we're at the beginning of our benchmarking journey. Over the years we've used our gut instead of hard numbers to make decisions. I've used the Deltek Clarity Report once in a while to check a metric here and there. But, we had an ownership change a few years ago, and at this point we're trying to implement more and more measurements and tools so that we can make better decisions based on real numbers – not just our gut.
This is a growing journey for us. It's really about getting a better sense of where we are, and comparing against our peers. We generally know that we have certain metrics that compare quite favorably against our peers, but this gives us a way to prove it in a calculated way. It also allows us to take that information, figure out what's going well and not so well, and figure out how to tweak and improve it.
Accelerate Your Firm Performance with Benchmarking: Hear from Your Peers
Q: Why is benchmarking critical for Kleinschmidt?
Sanford: For us, it's about improving efficiencies and trying to better run our firm. I started with Kleinschmidt in 2011 and was accustomed to tracking win rates and capture rates and so on, but we didn't have a system to be able to measure this effectively. In fact, when I tried to analyze our proposal win rates, I came up with 75%. Anybody that's been around this business for a long time would question a 75% win rate on your proposals. It took a long time to figure out that we were not tracking the information correctly.
When we really started digging into the competitive pursuits, and comparing the results to Deltek Clarity’s industry benchmarks, we weren't anywhere near 45% or 50%. We were more like 20%. We had to go through a whole process of creating the systems, which started with a go/no-go process that we had in the worksheet, but we weren't really tracking what the scores were and comparing that to what our successes were.
We created a process in our Deltek software to track the scores, and then we could go back and analyze them. We reduced our number of proposals and increased the dollar volume of our wins to overcome the issue that we were dealing with, which was that everybody was busy, but our utilization was really low. So every time I heard from the CFO,CEO and COO that utilization was horrible but everybody was so busy, I thought “How can we improve efficiencies within the winning work piece?" That's why it's so critical to me.
Q: What are some of the top metrics that you monitor, and for those metrics how frequently do you track and share these metrics within your company?
Lewis: We're at the beginning of this journey here at M Group, so we're starting with simple things, like overhead rate, revenue per employee, net income per employee, and days sales outstanding (DSO). We’re just starting to track the basic metrics, seeing if we can improve our collections rate and get money in the door faster. We all like to get paid faster, and if we're not monitoring it as well as we need to, I think that these KPIs are going to help us with that and we’ll see that DSO number come down. We typically have quarterly and annual financial meetings with the ownership team and accounting where we review the metrics and discuss any necessary changes.
Sanford: We track our KPIs on a monthly basis, going back to about 2015. I was working in collaboration with our director of finance and our director of project management at the time, and we were all struggling with which KPIs to track and how often. So, we created this dashboard, or KPI master dashboard, that shows net service revenue, multiplier, utilization and what I call new work won.
Our CFO always wanted to talk about backlog, but I wanted to look at what we won. New work won is a newly signed contract, which instantly turns into backlog, but it's more appealing to the business development folks to showcase that we won the project. We also track these additional metrics: opportunities, opportunities at the proposal stage and cost of winning the work. I add up the marketing, business development and proposal effort costs, and that boils down to the cost of winning the work metric.
Q: How are metrics and benchmarking positively impacting your firms?
Lewis: Since we're just starting, I see it impacting us in the future to help us have a good, clear understanding of how we compare against peers, and help us set goals. Sometimes this isn't going to be about how companies compare with their peers, but how they are internally, what they feel is important, and then setting the goals.
Sanford: One example of the positive impact for Kleinschmidt is related to cost of winning work. Our cost of winning work was near 13.8% of our net service revenue, and we're a unique firm in that we are niche in what we do. But, every report I could find said that number should be closer to 5-8% of the net service revenue. In the last four years, we’ve been able to drive that down to 9.3%. By looking at win rates from different market teams or service areas, we could look at where the big issues were. We were pursuing too many projects where we didn't have a good capture plan. By working with the other leadership team members, we were able to change our pursuit strategy to be more successful in winning the work, which ultimately reduced all of our costs. So that's probably been the biggest impact: driving down our overall pursuit expenses, which turns into winning more work, getting people busier and increasing profitability.
Learn more about Kleinschmidt Associates and The M Group’s best practices in benchmarking in the on-demand webcast, Accelerate Your Firm Performance with Benchmarking: Hear from Your Peers.
Ready to start or improve your firm’s benchmarking? Read the first blog in this series, Accelerate Your AE Firm Performance With Benchmarking Pt 1.
About the Authors:
Russ Sanford is Senior Vice President and Chief Marketing Officer for Kleinschmidt Associates. Kleinschmidt works primarily with energy companies to protect and enhance the environment without compromising performance. They are a midsize company headquartered in Pittsfield, Maine. Russ joined Kleinschmidt nearly nine years ago and is responsible for all aspects of marketing, business development, and sales, with his primary focus on developing growth strategies for the organization and working with senior leaders and the technical teams to implement those strategies. Russ is always looking for ways to coach and improve the teams around him, including coaching on how to be better seller-doers.
Chris Lewis is Business Manager for The M Group. The M Group is a small architectural firm located in Reston, Virginia that focuses on designing outstanding facilities that are functional, creative, buildable and affordable. Chris joined The M Group eight years ago and has a strong background in accounting, contracts and administration. Chris supports The M Group with project accounting, budgeting, contract negotiation, and much more.
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