Survey after survey reveals that one of the top goals for A&E firms is increasing profit. I even ran a poll with my audience on LinkedIn asking A&E leaders which of the following 4 is their top business goal in 2024:
- Increase profits
- Improve decision making
- Hit more deadlines
- Reduce admin time
The conclusion? 47% of firm leaders report that they’re top business goal is increasing profit.
Increasing profit is often overcomplicated by endless spreadsheets, profit and loss statements, and other financial reports. The truth is that increasing profit is a simple math problem.
With more than 1,000+ firms using Monograph each day, I can confidently say these three levers—volume, efficiency, and pricing—are the most effective way to double your net profit in 2024. Let’s jump in!
1. Volume: Scale up your project load
Sometimes firms have more demand than they can handle, but they struggle to delegate because the leaders are too busy to hire and train. Increasing volume is about growing your business by taking on more projects and expanding your team. This strategy relies on leveraging your firm's capacity to handle a larger workload while maintaining the quality of output.
How to increase A&E project volume:
- Double Your Team: If you have 10 staff members handling 50 projects, expand to 20 staff to manage 100 projects.
- Increase Project Volume: With additional staff, aim to double your project volume.
- Maintain Your Fees: Keep your average contract value stable to ensure your profits grow as your project volume grows.
For example, if a 10-person firm is currently completing 50 projects per year, then to double volume they would need to hire 10 additional staff and complete 100 projects in the next year. Assuming each project contributes equally to profit, doubling the project volume will also double the net profit.
Pros of increasing project volume:
- Rapid Growth: Quick increase in revenue and market presence.
- Economies of Scale: Potential cost savings per project as volume increases.
- Diversification: More projects lead to a diversified portfolio, reducing risk.
Cons of increasing project volume:
- Increased Overheads: More staff and projects mean higher operating costs.
- Management Complexity: Larger teams and more projects can lead to increased managerial challenges.
- Quality Control Risks: With rapid expansion, maintaining quality can become challenging.
2. Efficiency: Streamline project delivery
Efficiency is about doing more with less. This strategy focuses on optimizing processes and leveraging experience to reduce the time and resources needed for each project, thus increasing profit margins.
How to increase A&E firm efficiency:
- Leverage Experience: Use your team's growing expertise in specific typologies to reduce project delivery time.
- Implement Fixed Fees: Charge fixed fees for projects, incentivizing efficient work and ensuring that you won’t get paid less as you become more efficient.
- Reduce Costs: Aim to reduce costs by 25% — most of which can likely come from working and communicating more efficiently (i.e. spending less time on each task).
For example, if a firm typically charges a $10,000 fee for 100 project hours, then the goal is to complete the same amount of work in 75 project hours (while keeping the fee the same). The 25% cost reduction in combination with a stable fee will contribute to doubling the net profit margin.
Pros of increasing A&E firm efficiency:
- Cost Savings: Reduced hours per project lead to lower costs.
- Higher Profit Margins: Same fees with lower costs increase profit margins.
- Team Expertise: Leveraging experience speeds up processes and enhances quality.
Cons of increasing A&E firm efficiency:
- Initial Learning Curve: Implementing new processes and training staff takes time and resources.
- Fixed Fee Risks: Misestimating project scope can lead to losses on fixed-fee contracts.
- Staff Burnout: Increased pressure to deliver efficiently might affect staff morale.
3. Pricing: Increase perceived value
Pricing strategy revolves around increasing your fees to reflect the value and quality of your services. It's about enhancing client perception and positioning your firm as a provider of premium, high-value services.
How to increase A&E firm pricing
- Enhance Service Quality: Elevate the quality of your work and client interactions.
- Communicate Value: Clearly articulate the value and benefits of your services to clients.
- Adjust Pricing: Incrementally increase your fees in line with enhanced perceived value.
For example, if an A&E firm has an average project fee of $100,000, then the goal is to increase the average project fee to $120,000. This 20% increase in profit margin will lead to doubling net profit over time.
Pros of increasing A&E firm pricing:
- Higher Revenue per Project: Increased fees directly boost profit margins.
- Brand Positioning: Higher prices can position the firm as providing premium services.
- Client Selection: Higher fees might attract more serious and profitable clients.
Cons of increasing A&E firm pricing:
- Market Resistance: Clients may be resistant to price increases.
- Competition: Higher prices may lead clients to consider competitors.
- Justification Challenge: Requires continuous demonstration of value to justify higher prices.
Which profit lever is best for your A&E firm?
While each of these strategies can be effective on its own, combining each lever is more realistic. Test each lever to see which is most effective for your A&E firm. You’ll likely discover that a balanced approach will drive significant impact for your business. For example:
- Rossman Architecture used volume and efficiency to 3x revenue in just 9 months.
- HDG uses efficiency to manage 50-60 monthly projects with just 13 employees.
Not sure where to start?
Firms use Monograph to:
- Increase volume by making it easier to manage projects
- Increase efficiency by reducing time spent on admin tasks
- Increase pricing by giving leaders more time and tools to increase project value.
Book a free demo of Monograph to see if it’s the right fit for you and your team.