The best-in-class A/E/C firms delivered profit margins north of 40% last year. Think that sort of profit margin is out of reach for you? It may be closer than you think.
According to PSMJ’s recent Circle of Excellence: Best Practices Benchmark Summary, the 90th percentile of operating profit as a percentage of net revenue for the 73 firms that made it into the Circle of Excellence was a whopping 43.1%. If that doesn’t completely rock your world, consider that the low end 10th percentile value was still a respectable 23.3%. Yet, even this profit margin has been far out-of-reach for too many A/E/C firms. The knee-jerk reaction for many firm leaders is that they couldn’t possibly reach a 20% or 30% profit margin because of constraints associated with their client type, geographic location, or service mix.
“Argue for your limitations, and sure enough they’re yours.” – Richard Bach
Committing to improved profitability is just good business — with far reaching ripple effects
You take on immense project risk. You operate in a boom-bust economic world. You put so much into running your business and keeping your clients happy. So, why are you settling for lackluster profits? Taking action to improve your firm’s profit margins can lead to many powerful direct and indirect benefits for your firm’s owners, employees, and clients such as:
- Increased business value for exiting owners
- Higher employee engagement
- A more attractive investment for incoming owners
- Faster growth (with more cash to finance acquisitions)
- Increased discretionary compensation and distributions for owners
- Increased bonus compensation for staff
- Improved employee morale
- Lower involuntary employee turnover
- Increased client satisfaction (because you can afford to fire the bad ones!)
But, nothing changes if nothing changes
Unfortunately, time and time again, our financial management experts see firm leaders resign themselves to the profitability their business is giving them. They neglect and overlook clear pathways to profit improvement…and everyone suffers. This leads to the opposite of just about all of the profit improvement benefits listed above. Slower growth, demotivated employees, and a no internal market for equity because it’s a pretty lousy investment.
What makes PSMJ’s Profit Improvement Program work?
PSMJ research shows that there is a 100% correlation between A/E/C profitability and just three firm performance factors. As such, PSMJ’s Profit Improvement Program takes a simple approach:
STEP 1. Benchmark the three key profit-driving metrics against similar firms to identify which one(s) offer the most opportunities for improvement.
STEP 2. Benchmark contributory metrics and interview key staff to identify the root causes for substandard performance in these key metrics.
STEP 3. Develop an action plan to correct these deficiencies (in a way that doesn’t create unintended adverse consequences) through an interactive and engaging on-site workshop with your leadership team.
In speaking with hundreds of A/E/C principals, it’s been made clear that consultants who “ride in on a white horse” to give firm leaders a boilerplate directive rarely deliver successful results. So during your STEP 3 workshop with PSMJ, we present our findings and data, describe what works at other firms (and what doesn’t), and facilitate a discussion with your leadership team to collectively decide on your course of action. The resulting action plan is yours, not ours – so it’s much more likely to get your firm achieving its full profit potential.
Want to learn more about improving A/E firm profits? Listen to PSMJ profitability expert Brian Flynn, P.E., BCEE, author of Maximizing Engineering Firm Profits—Profit Fundamentals, present his proven methods for driving positive change:
Your firm’s improved financial performance starts here.
Are you ready to give your owners the return on investment they deserve? Your best employees the compensation that will retain them? Your clients the attention and level of service they need? Consider a brief, no-obligation discovery call to learn how PSMJ’s proven Profit Improvement Program can transform your balance sheet, and take your first step towards reaching the profit margins your top-performing peers and competitors enjoy.