Are you ready to let go of the edge of the pool?
The traditional way of managing service firms, utilisation and charge-out rates, was fundamentally trying to achieve one goal, to ensure that the ratio of people costs to sales stayed at level that would allow the firm to grow safely and at the same time provide a good return to the partners for their efforts.
There is a better way to do this, the modern way, but it requires different skills and discipline.
The simplest way to leave timesheets behind is to stop measuring time and start measuring tasks completed. But be careful because I’ve seen a lot of firms go halfway to implementing these changes only to bump along on the bottom.
When you stop charging by the hour and start selling outcomes, logically, the best things to target and measure internally are the corresponding number of tasks involved in delivering the outcomes. You do this by breaking down projects into identifiable steps and giving your people, individually or in teams, a target for each type of task completed for each day, week or month. Depending on what is the most appropriate. Obviously there is a tradeoff between granularity and tedium. Lean towards the bigger picture every time.
The biggest advantage of doing this should be an improvement in the efficiency of your internal processes over time. You start measuring what you value, in this case client outcomes. Rather than thinking that you need to be able to justify the hours to your client.
If you want to change to this type of system take the time to plan your bundled services from both the perspective of value to your clients and managing the margins inside your firm.
The best way to do that is to build a financial model of the firm in excel. There is a real art to this but here are a few tips.
Separate out the different bundled services/income streams. Look for recurring and passive income, packaged and hourly rate services. Try to determine lifetime customer value. List the key inputs to price and, importantly, direct costs. Broadly allocate other costs across these streams, particularly looking for client acquisition costs, product and professional development.
It’s usually a good idea to align your management reporting to this model and to regularly feed back actual results into the model.
Try to get any subcontractors to bid fixed prices on any work they do on your client delivery to minimise your risk.
So until you have these processes mapped out, and costed, you will need to keep the safety harness on. And for a lot of people, there will be some hourly based high level consulting on top of their bundled products. You need to decide to “translate” those hours into your new system.