When you have limited capacity to do work, your strategy should be to maximize the value of the work you do. Your organization can continue to grow in value, the ultimate goal of any for-profit business, even though you aren’t increasing in size. How? By doing higher value jobs.

What is a higher value job? It is a job that produces more free cash flow than another job. How do you figure this out? You need to do a little data mining and this is what your marketing staff should be doing all the time, but particularly in busy times. You identify the most valuable job, client, type of work, client industry sector, region, office location, etc. by looking at the final profit dollars/pounds/euros for each job or task order. Don’t confuse profit percent with the profit amount. For this, you are after the amount–the absolute profit contribution. When you do this, don’t look at your planned profit from your proposal, as this won’t reflect what actually happened on the job. Look at your final realized profit after the job is completed and closed. As well, do include the job-specific proposal and sales costs.

When you have job-by-job profit amounts, you can pick a time period (e.g. last year) and then total up the amounts by the categories of interest (e.g. job type, client, client type) and sort them from high to low. The ones at the top of the list will be the most valuable.

When you have limited capacity, don’t spend time chasing work from the bottom of the list. Let that work go to your competitors. You want to have your staff spend their 2,000 hours per year on work that most contributes to firm value. In busy times when you can’t increase your capacity, keep your sanity and high work quality by only taking high-value jobs. Successful firms aren’t big firms; successful firms are valuable firms!

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The success of an organization, any organization, can be measured in many ways. In the heritage world, we like to measure things like the impact our organizations have, what we have learned about the past, or using the results of our work to shape public policy. Financial sustainability also is important. In fact, without it our organizations cannot achieve their other goals. What does financial sustainability mean? It means that an organization is growing in value. Thus, value growth is the most important financial metric.

Size, as it is typically referenced by CRM firms, means revenue:  the top-line income that a firm receives. What the archaeological panelist did not understand is that revenue has nothing to do with value. It does not matter if your firm brings in $1 million or $20 million in revenue, what matters is how much is left over at the end—the free cash. A $1 million revenue organization can certainly have more free cash at the end of the year than a $20 million revenue firm. If so, that $1 million firm is more sustainable, more valuable, and potentially has more resources to invest in making an impact.

Let’s change our vocabulary to brag about the things that matter. I look forward to the day when I hear an archaeologist introduce themselves as working for the most financially sustainable firm in the U.S.       

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So, what happened in 2005? After a few years of strong industry growth, the supply for trained, experienced, and degreed employees, especially project managers (PMs), exceeded the supply leading to a shortage of PMs. Demand can change quickly, but it takes many years of education and experience to make a valuable PM. PMs jumped from firm-to-firm cashing in on very high-salary offers. PMs are often the “bottle neck” for a firm’s ability to take on more projects. For firms, this led to disruption, chaos, and higher labor, training, and retention costs. Unbillable labor shot upwards as new PMs had to be trained to the policies and procedures of a new company and figure out how to take over a portfolio of ongoing projects. While firms were able to charge some clients 2-3 times normal prices, many firms who had long-term and/or government contracts were locked into the prices they could charge while they were facing rapidly escalating costs. The ability to subcontract to partner firms or, more critically, to specialized analysts disappeared because they were beyond capacity too.

Normally a “boom” in business is considered good, but in this case the consequences were damaging both professionally and commercially. First, firms could not cash in on the profitability that would be expected in a boom and that the market would support. The opportunities for high profits were missed. Second, the scientific quality of work decreased because projects were rushed, standards were relaxed, and the use of paraprofessionals increased. Third, attacks against compliance legislation and regulations rose because CRM was holding up economic development, especially “strategic” energy development. Finally, fourth, it was boom and bust for PMs who changed firms. When the recession hit and demand was reduced, high-paid project managers who had low seniority at their new firms were laid off. Many left the industry.

Can these happen again? Absolutely! So, what can be done to minimize risk now. Demand can exceed industry supply quickly and when it happens there is little individual firms can do. First, take measures to tie key employees to the firm. This can be done through the use of long-term contracts, guaranteed bonuses, or equity stakes. Second, explore options for outsourcing non-fieldwork activities to lower-cost, higher-capacity markets. It is a global market for heritage services. Develop trusted relationships now for support and technical work that doesn’t need to be based, like fieldwork, in the capacity-shortage area. Third, pay attention to contracting. Avoid long-term contracts, seek cost-plus contracts, and add clauses that allow pricing to change relative to short-term changes in costs. Offer clients “preferred” status where you trade what they want (e.g. schedule priority) for what you need to be able to deliver (e.g. higher prices). Fourth, identify key vendors and subcontractors. Seek to become priority clients with top-of-the-list rights. To do this, you may need to give them what they need: more business and/or higher prices. Fifth, assess your organization’s structure. Is it scalable? Are you at the right stage of growth to be able to handle an increase in work? If not, make adjustments now. How much extra capacity do you have? Sixth, rethink your capital structure. Retained earnings can usually only support about ten percent growth. Establish robust lines of credit and other forms of capitalization now so that you have the resources to quickly scale up and add capacity.

Let’s learn from our past failings. Sure, some CRM firms did great during the boom of the first decade of this century. Overall, though, it caused more harm than good for firms, our sciences, our industry, and our public reputation. Now is the time to ensure that everyone benefits from a new period of high demand. 

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What does a client orientation mean? Ingram et al. cite seven research findings regarding what customers value in salespeople:

1. are personally accountable for the customer’s desired result,
2. understand the customer’s business,
3. will be an advocate for the customer so the customer receives maximum value from the selling company,
4. will be a business consultant who thinks beyond the current transaction,
5. will solve customer problems,
6. will be creative in responding to customer needs, and
7. will be easily accessible.

This list is a good one to use when reflecting on the practices of you and your sales team. Our tip this week is to get your sales team together and discuss this list. The best salespeople put their client first—above that of their own firm. That’s an idea that’s pretty radical for most organizations in the heritage industry and one that could give your organization a competitive advantage.  

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Bonuses are important, but make them the right kind of bonus to recognize their contribution, ramp up performance, and build loyalty. Also, smaller “spot” bonuses given immediately after a notable accomplishment can provide better performance motivation than a larger reward given at the end of the year.

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The formula is easy, but most heritage organizations don’t do it correctly. Retention rate = clients at risk retained / clients at risk. What’s a client at risk? If you have finished all the work for a client in a given year (or another time period), they are at risk. If they hire you again the next year, then they are retained. If they don’t, they are lost.

If, in 2016, you finished work (all jobs and tasks) for 17 clients. These are now your at-risk clients for 2016. In 2017, you received new work from 5 of these 17 clients. Your 2017 retention rate would be 5/17 or 29.4 percent.

If you run a heritage attraction, like a museum or park, all of your prior month’s visitors are at-risk. Say that in December 2017 you had 1,136 visitors. If, in January 2018, 493 of these same visitors came back to revisit, your visitor retention rate for January would be 493/1,136 or 43.4 percent. The challenge for heritage attractions is that many don’t have a way of tracking individual visitors. They only have aggregate visitor counts. Of course, in our modern marketing era of tracking, there are ways of measuring the visitation of specific individuals.

Regardless of the type of heritage organization you operate, knowing your retention rate is one of the most important metrics you can track. Need more help with this? Download our FREE white paper that will walk you through the process.

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