Assessing Your Firm's BD Performance

For most A/E firms, the marketplace has changed dramatically the last three years. But what about your business development process? Has it changed dramatically? If you hope to prosper in the next few (or several) years, it may be time to radically rethink your approach to developing new business.

Why? Because if you're planning to grow your business, you'll probably have to take market share from your competitors. Before the recession, markets were expanding and most A/E firms were growing simply by holding their own. Few firms were actually gaining market share, unless they were doing so by acquisition. That's why old BD approaches are not likely to be adequate to sustain growth for the foreseeable future.

So where to start? Let me suggest an in-depth assessment of your current marketing and sales activities. How effective are they, really? Are you measuring effectiveness and return on investment, or simply overall results such as sales and win rate? Here are a few measures of BD performance to consider:

BD labor. Most selling in our business is done by technical professionals who have other important responsibilities such as managing projects and people. Thus the critical function of developing new business is often relegated to leftover time. To combat this, I advocate specifically budgeting time for BD tasks and managing those tasks like project work. This includes tracking how this time is used, which might involve the following measures:

• BD "utilization." It's one thing to allocate time; it's another to actually spend that time on BD tasks. Given how many other things are competing for your seller-doers' attention, tracking how much of their budgeted time is used is advisable.

• Above the funnel vs. in the funnel. Failing to spend enough effort on prospecting--i.e., identifying new clients and leads--is common among A/E firms. How much time is needed? That depends on your conversion rates: How many "suspects" for every qualified lead, how many leads for every sale. My hunch is that you should be spending 25-35% of your total BD labor working above the funnel, which would include most of your marketing efforts.

• Pre-RFP vs. post-RFP. Many firms spend too much time writing proposals, evidenced in part by their low win rates. Looking at your time spent prior to the RFP (building relationships and positioning your firm) compared to how much is spent after the RFP is one way to assess this. Proposal time probably shouldn't comprise more than 25-35% of your total BD labor.
  

• Marketing vs. proposal labor for BD staff. In most firms, the people who are responsible for marketing also work on proposals. And often, too much of their time is consumed by proposal preparation. Once again, I advocate budgeting time. Determine how much time should be devoted to marketing tasks and take necessary steps to preserve that allocation (see "Taming the Proposal Monster"). Track how well you're sticking to your time budget.

Cost and ROI. The median for total BD costs among A/E firms is about 5-6% of net revenue. But ZweigWhite has found that many highly successful firms spend much more. So while controlling costs makes sense, a more important metric is return on investment. Of course, your largest expenditure is labor, so the above measures are directly related to evaluating your costs. Additionally, you might consider tracking the following:

• BD cost to profit ratio. Historic medians indicate that profit has ranged between two to three times total BD expenditures. I would choose the higher number as a goal. This serves to remind your rainmakers that truly effective business development leads to more profit, not just more revenue.

• Projected proposal cost vs. profit. Obviously, the cost of winning the work should not exceed the expected profit associated with it. Yet I've seen that happen many times, especially on smaller projects. To avoid this, make the cost-to-profit projection part of your go/no go decision process. You'll be better at this if you're tracking actual results over time.

• Individual sales results vs. time spent. If your BD costs seem too high, the first place to look is what you're spending on BD labor. Don't start with your marketing staff, but with your seller-doers and dedicated salespeople. Are you getting a fair return on their efforts? Compare their sales numbers with what you're spending on their business development efforts. Some of my clients have discovered they were making substantial expenditures on sales labor that produced few sales.
  

Evaluating business development ROI also includes the metrics suggested below in breaking out marketing and sales activities.

Marketing activities. At the height of the recession, many A/E firms cut marketing expenditures, including staff positions. In one sense, this seemed foolish when firms needed more business. But the harsh fact is that most firms were hard pressed to demonstrate tangible benefits from their marketing efforts. It's time to change that, for it is certainly possible to measure marketing impact (assuming, of course, that your marketing is effective!). A few examples:

• How many contacts and leads it generates. This most important metric of marketing success is how much interest in your firm it produces. That's measured by how many prospects and clients contact you as a result of your marketing efforts. To enable this, assign a distinct phone number and email address to your marketing materials and activities.

• Web presence. Increasingly firms are moving online with their marketing efforts--website, social media, publications, etc. To gage the relative effectiveness of these activities, consider tracking the following "leading" indicators: Google PageRank, traffic (visitors, followers, Facebook friends), interactions (comments, discussions, messages), mentions (use Google Alerts to track how many times your firm's name is mentioned on the internet).

Sales activities. The bottom line of sales is how much new work you bring in the door. But that doesn't tell the whole story. You can have periodic success generating sales--through long-term clients, add-ons, referrals, etc.--without necessarily being that good at selling. That's precisely what many firms discovered when the recession hit. You have to be better at selling now. To measure that, consider the following metrics:

• Sales conversion rates. How many sales calls result in qualified leads? How many leads result in sales? How many first-time clients become repeat clients? I've not seen any benchmarks in our industry for such metrics, but you want to at least see progress in these rates.

• Proposal win rate. The industry median is reportedly 40%, although most firms I encounter don't do that well. So 40%, at a minimum, should be your goal. But if you aspire to be really good at the proposal game, shoot for 50% or more.

• Proposal conversion rates. Beyond just looking at win rate, it can be enlightening to track two more measures: (1) proposals to shortlist and (2) shortlist to wins. You may find that you are pretty good at getting to the shortlist (say 50%), but not so good at getting from shortlist to contract award (say 25%). That finding enables you to target where improvement is needed.

• Negotiated multiplier or profit. It's gotten harder in several market sectors to maintain the profit expectations of the past. It's wise to target and track profit goals during the sales and negotiation stages. Know in advance when to say no and under what conditions it's okay to make some concessions.

Client relationships. Focusing only on making sales is shortsighted. To build sustained success, you need to strengthen long-term client relationships. So I advise using a few measures of how those relationships are doing:

• Revenue and profit trends. Obviously you want clients who continue to give you new work. But beware of declining profits from long-time clients. Most A/E firms are now tracking financial performance on a per-client basis, but fewer are using these data to guide how they manage these critical relationships.

• Client relationship life cycle. In a previous post, I suggested five stages of client relationships. The recommendation is to assess where in the life cycle you are with each of your clients and determine which ones you want to advance to the next level, and how.

• Characterize your client relationships. In addition to life cycle stages, there are various ways to assess the value of and positioning with your clients. For ideas, I encourage you to check out the white paper "Profits Under Siege" by Harry Mills. This paper has inspired some of my clients to take a harder look at their business development and client management processes, leading to various improvements. In this stumbling recovery, you can't afford to stand pat.