Are you ready to run a super-profitable project-based practice?
Running a profitable business is not about leaving things to chance. Those who succeed have implemented certain processes, monitor key metrics, and train their staff to think commercially.
In order to achieve this, you need to get a clear view of your bigger picture. You need to know:
- which projects are making you money and which ones are costing you money,
- if there is enough work coming in to keep your staff on fee-paying work, and
- are there enough invoices lined up to pay the bills?
In this blog, we will discuss the PETAL Framework in more detail to help your business start to think critically about how you quote, scope, manage, invoice, and review the success of your projects so that you can achieve exceptional profits and consistent business growth.
Why are some projects unprofitable?
Let us introduce you to the evil twins of project management...
Evil Twin #1 goes by the name of “Underquoting”.
Evil Twin #2 goes by the name of “over-delivery”.
Underquoting and over-delivering on projects mean you reduce your profitability, and can ultimately end up making a loss.
For many businesses, we notice time and time again that the major problem is underquoting. Often leaders and project managers do not always fully think through everything that is going to be included in the service, which leads to low fee quotes and a client expecting more than you have planned for. Because of the uncertainty with what is included in the service, clients request or expect additional requirements which they thought were included in the scope of the work and your staff end up doing additional work for free.
Not defining the brief properly and scoping out all aspects of the project leads to underquoting. Your team then over-delivers in order to complete the job, costing you more money than the project is worth.
Because these projects cost you money, you lose “creative freedom” - i.e the ability to pick up projects that interest you or will make your practice stand out in the industry. Ultimately, you need to be profitable to take on the more creative projects that you’re happy to accept will either only break even or might even cost you more in time and resources.
In order to rid your business of these Evil Twins, you need to quote accurately, be clear about what is included in the price to your clients, and make sure your team knows exactly how long they’ve got to deliver.
How do you banish the evil twins and start delivering profitable projects?
We’d like to introduce you to our PETAL Framework - a 5 step process that will allow you to make sure all your projects are profitable and will help to grow your practice. These 5 steps are:
Following these 5 steps will stop underquoting and over-delivery in your practice, meaning your schedule is only filled with profitable clients and projects that will help you achieve business growth.
The first part of the PETAL framework is Plan. This requires you to:
- Scope out the project accurately
- Calculate your contingency costs
- Clearly quote the project costs to your client and set expectations
Getting this first stage correct is vital. This is what will set your project up to be successful and profitable, or a money drain straight away.
Instead of looking at the whole project in order to quote, think about the breakdown of the service you’re offering and the different stages involved. This will help you understand the scope of work needed.
Once you understand the level of work needed, you need to calculate contingency costs.
Do certain client or project types tend to go over budget?
These are the projects that you need to keep close track of in order to price a similar project more accurately next time.
These types of clients or projects need to have contingency plans. Whilst you need to predict as accurately as possible the level of service and how the client will behave, needless to say it’s not always possible to predict everything that is going to happen, especially if you’re working with a new client.
This is where adding a contingency to your budget to deal with these complications comes into play. You can either build this into the fee structure of the quote, or you can include it textually in the statement of work, but the key thing is to ensure you include what you're delivering as part of the scope so everyone's clear from the outset. This should also include your team’s time on status call updates and rounds of design revisions.
Some people will simply increase the budgeted hours above what they think will be needed. However, doing that usually results in those extra hours being allocated to the team straight away and they end up getting used anyway.
Next, you need to deliver your quote to the client.
The key challenge here is setting expectations and making sure your clients understand exactly what is included in the scope of work so that additional requirements don’t crop up and take more of your time and resources.
Be absolutely clear about what your team will deliver, in what timeframe, and how many rounds of amendments/revisions they can have. Once your client has agreed to the quote, your team can start!
This next step in our PETAL framework is getting your team engaged.
All the previous planning you have done now carries through to delivery.
However, to stop over-delivery happening you need to develop a “how long have I got?” culture. This means that before your staff starts any fee-paying work the first question on any project should be “how long have I got?”.
Make sure your team knows exactly what is expected of them and in what time frame. That way they can plan their time accordingly.
Asking this at the beginning of each project is key in creating a culture where you allocate appropriate timescales to each task to avoid over-delivering.
This might sound easy, but this is a cultural change that might take time for your staff to get used to.
As your staff starts to work on the project, it’s vital that you monitor budget vs actual time spent. This will allow you to see if you’re over-delivering and reducing your profit.
Timesheets are essential in comparing how long each task is taking compared to how long you quoted for.
The key with tracking time though is to do so against specific tasks, not just the project as a whole. Doing so allows you to pinpoint any problem areas, and rectify any issues where necessary.
Keeping up-to-date timesheets is essential in monitoring the profitability of your projects.
Interestingly, the biggest obstacle to timesheet adoption (other than most timesheet software being painful to use!) is that people often think the purpose of timesheets is for ‘Big Brother’ to keep an eye on them.
The real purpose of timesheets is to ensure you aren’t over-delivering and doing work for clients for free.
Giving your employees the responsibility of their own personal budget for their delegated tasks means they suddenly discover the importance of timesheets as they need to ensure that they’re completing work whilst staying within their own budget.
By following this 5 step process, you would have already identified if you are over-delivering on your project. If you’re over budget you need to find out why and work out the best way to adjust it.
For many projects, scope tends to expand the further in you get and the more clients move the goalpost. This expanding scope is commonly known as “scope creep”, and means the final project ends up being a lot bigger than you initially thought and quoted for!
However, creep tends to be the result of not properly defining the scope of work in the first place.
Extra revisions, expanded projects, or uncertainty about the level of details can decimate your project profitability if you’ve not made it clear those things will incur an additional fee.
As we have previously mentioned, you need to consider adding in contingencies and also giving your client an exact breakdown of everything that is included in the fee, including status updates and finished details.
You need to continuously monitor how often your clients are moving the goalposts and flag up anything that was not originally specified in the scope of work and fee, and charge accordingly.
To avoid scope creep that decimates your profitability, you need to make a decision.
- Quote more for the extra time spent (especially if it’s due to clients moving the goalposts)
- Hurry up! - Talk to your team, set expectations, and make sure they’re managing their own budgets efficiently.
The final stage in PETAL is to review your projects, learn from them and apply learnings to your next project so the same mistakes don’t happen again.
Looking back at a completed project can help you identify what went well (so you can replicate it going forward) and any areas that went off-track (and need to be corrected next time).
As with most things in life, when you’re running a business the best lessons you learn will probably come from the mistakes you make. Making mistakes and learning from them is a key part of becoming an experienced leader.
To achieve profit and consistent business growth, you need to be able to review your projects and learn from them, or else you risk making the same mistakes time and time again.
How can you learn from your previous projects? This can be achieved in four parts:
- Part 1: Gather quantitative data for analysis
- Part 2: Subjective elements
- Part 3: Bonus gains
- Part 4: Cost review analysis
First, you want to gather as much quantitative data as possible (budget - ideally broken down into stages, timesheets, expenses, and any external costs that you might have incurred from third parties).
This data will tell you the “financial success” of the project by comparing how long you thought it would take compared to how long it actually took.
Next, you should also gather subjective feedback from your team, including what went well, what didn’t work well, and what lessons were learned.
A great way to build a strong library of case studies is to discuss it during your project reviews. Did the project go well? Is the client happy? If so, would this project make for a good case study?
Finally, template your review process so that it makes it easy for you to review and compare across projects. This will help you spot patterns and readily identify issues that need to be addressed in future projects.
CMAP Pages allows you to save templates for different reasons (e.g. different markets, different project types, different client types, etc.) and within those templates set expected margin targets for each of them. This means when you come full circle and are ready to enter the “Plan” stage with a new client/project you now have a super-accurate template to start from!
After completing project reviews you should also be able to periodically compare projects side-by-side to see which types of projects are more profitable to you and which ones cost more.
In order to work on the more exciting projects, your business should first be able to make a good profit margin on the regular projects that cover the bills and keep your practice growing upward.
How can you apply the PETAL Framework to your practice?
Now you know what you need to do, how are you going to apply PETAL in your practice to maximise your profitability?
Don’t worry, we’ve got you covered! Download our free guide: “From Pain to Profit: Using the PETAL Framework to Transform your Business into a Highly Profitable One” and we’ll show you how.
● How to increase profitability in your practice so you can afford more creative freedom
● How to make quick and easy changes to your processes so that you can identify a costly project early
● Ways in which you can make sure your business is working efficiently to achieve consistent growth