Editor’s note: This is the third installment of Nuts + Bolts, an exclusive ArchNewsNow series to provide A/E professionals with practical tips for a more successful, profitable practice.

 

 

According to the American Institute of Architects (AIA), demand for design services has increased around the country since the beginning of the year. The organization’s Architecture Billings Index (ABI) continues to improve, posting an overall score of 54.9 in February, which exceeds a two-year high posted in January. The AIA ABI is used to indicate annual commercial real estate spending, where a score above 50 indicates an increase in billings.

 

Many of our clients in the New York City area and beyond are seeing more business opportunities since January. However, prospects in other geographic areas seem to remain in a slow recovery. While big firms in big cities continue to grow, smaller to mid-sized firms are just holding on. So, when will business begin to filter down? The national numbers seem to bode well, but for many firms, the future remains uncertain.

 

In a March 20 press release, AIA Chief Economist, Kermit Baker, Ph.D., Hon. AIA, stated: “Conditions have been strengthening in all regions and construction sectors for the last several months. Still, we also continue to hear a mix of business conditions in the marketplace as this hesitant recovery continues to unfold.”

 

Now, more than ever, small to mid-sized firms must focus on the best practices that have gotten them through the tough times so far. For many firms, the greatest challenge is fee stagnation, and it could easily take several years before rates go up again. Although the forecast is positive, it seems that firms must continue to do more with less.

 

Even firms that are seeing an uptick in new business would be wise to stick to the tenets of slow, steady growth, focusing more than ever on these basic principles:

 

Do business with the right people. Whenever possible, do business with people you like. Seek out existing or former clients with whom you’ve had the best working relationships. Leverage these relationships by reminding them of your firm’s value and the results you achieved in the past. Don’t forget: ask for referrals. Be proactive, not passive. You won’t get something without asking for it. When you work with people and companies you already know, the potential for profitability remains highest and you will likely experience the fewest problems.

 

Focus on what you do best. When the pickings are slim, it’s tempting to go after the projects with the highest perceived profits. Projected revenue can be motivating, but it can also give you false confidence. Before pursuing a project always ask yourself: “Do I have the appropriate experience?”

 

If the answer is not an emphatic “Yes,” then you need to think strategically about the best way to approach the opportunity. Getting into something you aren’t experienced in can cause you to lose time and money. Pinpoint your top areas of expertise and target opportunities in these areas. Go after projects that test your mettle only after business is coming in consistently from areas where your skills are strongest. 

 

Promote your best projects. When the economy is slow and competition is fierce, it’s critical that you find ways to differentiate your firm from your competitors. Select your best projects and then leverage them to get similar projects. Showcase these projects in all of your marketing materials, and then promote them to everyone in your network, including potential clients, former clients, and the media.

 

Keep an eye on marketing costs. Marketing costs are more than just the price of printing proposals. How long does it take to get the project? What is the value of your staff’s time and – most importantly – your principal’s time? Is travel required? How fierce is the competition? When choosing which projects to pursue, make sure you take into account the amount of time and money required to go after them. Consider the marketing costs in answering an RFP, for example, as part of your overhead for a given project.

 

Maximize your ROI. You may not be able to do much about stagnant fees, but you can maximize the return on your investment for the projects you pursue. If your firm stands to make 12% on a hospital versus 8% on a multi-family residential project, it may initially make more sense to go after the hospital project. However, you need to take the size of the project – not just the profit margin – into consideration, as well. Eight percent of a $15 million project is obviously a better return than 12% of a $3 million project.

 

Minimize your risk and liability. Stay focused on the fundamental tenets of managing risk, and ask yourself if the risks posed by a particular project are beyond your standards. Are you able to manage the potential risks of the project? For example, in recent years, the pendulum has swung towards owners in the form of atypical contract language, which can significantly heighten your risk. Blindly accepting owners’ terms can be dangerous. If at all possible, protect yourself by using standard AIA-approved contracts. Otherwise, you may find yourself with no recourse if something goes wrong with the project. A solid relationship with project decision-makers and a risk-management specialist is critical to help you navigate the relationship.

 

As the economy slowly recovers, it will be difficult to say no, but you must be selective about the projects you pursue. Focus on managing growth and carefully manage risks. Following these basic business fundamentals will ensure safe, steady growth and prepare your firm for a stable, profitable future.

 

Steve Whitehorn is managing principal of Whitehorn Financial Group, Inc., which provides architects and engineers with strategies that minimize risk, increase profitability, and speed up cash flow. The firm created The A/E Empowerment Program®.

 

Also see:

 

Nuts + Bolts #2: You Can't SELL If You Can't TELL
You talk all the time but are you communicating clearly? Use your words effectively to build your influence.
By Tami D. Hausman, Ph.D.

 

Nuts + Bolts #1: Mission Possible: Increase Your Value Without Lowering Your Fees
Fact or fiction: Lowering your fees makes you competitive? You decide.
By Steve Whitehorn