Hello, business developers. Welcome to another episode of Breaking Biz Dev. I'm Jon. As always, I'm joined by my trusty co host, Mark Wainwright. Mark. How are you doing today?
I'm well, John, good to, good to be with you today. We're going to talk about revenue, at professional services firms, firms that are hitting the mid year point in their calendar year. Maybe they are looking at their, their, their plans, their projections, and maybe they're falling short. Maybe they're doing great. Maybe they're right on targets. Maybe things are going incredibly well. Who knows, but we're going to, we're going to dig into all of that.
Yeah. For folks that are just tuning in, we have an episode, episode four titled revenue centric approach to firm strategy, where, we dive into, how to set those targets. And so if you're listening to this and you want to kind of get a little bit of a primer for this episode, go back and listen to that one. I think that's a good setting of the stage for our conversation today. If you've already listened to that episode, awesome. I think you're coming to the table with the right mindset.
and I would say that this is really kind of a, a recalibration of your revenue strategy. Of your marketing strategy of your sales strategy. So I think this is going to be a really good episode to dig into and I think it'll be actionable For a lot of firms out there
good. Yeah, I I totally agree a little maybe a a little recap i've written and spoken about all of this in the the past, throughout this episode and Likely that, that other and other potential, episodes that we're going to be recording. We talk about things like backlog. We talk about pipeline. We talk about projections and all of those things are all tied together. And just to take this, quick pause and define all that. Your backlog is.
The work that you have under contract, whether it's shorter term or longer term, and if you're picturing with me that sort of graph that you have a wonderful backlog right now, you've got a lot of work under contract and over time that tapers. Right. Six months, 12 months into the, into the future. Your pipeline are all of the potential projects backfills that, right? You're hoping to contract that work and that will then become your backlog as well.
And continue that, that nice, that nice revenue stream that you're hoping to close the projections and we'll touch a little bit on sort of the concept of projections. Projections are going to be even further out from that. Projections are the things that kind of pie in the sky, your crystal ball, things that aren't closing for many, many months. They're not quite in your pipeline yet because we want things in our pipeline that. are going to close hopefully in a reasonable amount of time.
And for most firms that I know, and many that I work with, your pipeline should contain projects that are going to close in the next 90 days, 120 days, maybe 140 days, that kind of thing. During the pandemic and a handful of years ago, those pipelines got really, really long because projects were slow to close. So it varies, but in general, It's going to take some months for those projects in your, your pipeline to close. So we're going to, we're going to kind of touch on all of those things.
I just wanted to kind of define that and get that sort of picture in people's minds of backlog is now pipeline is soon projections are way out there.
And Mark, you wrote a blog post. On this topic called backlog pipeline in the cliff. And I like how you refer to it as a cliff. The imagery on that blog post is very, you can, you can imagine it. If you've ever looked at sales projections, you know exactly what we're talking about when we say the cliff. and so yeah, that, that blog post is linked in the show notes. So if you're listening to this, go check it out. so mark, let's, let's get into it.
I think that was a great way to tee it up, kind of define what these, these things are, the, what a backlog is a pipeline. And then, the revenue that you've closed year to date, like you mentioned earlier, there's really three scenarios that you could be in. Either you're exceeding those expectations, of the targets you set, you're exactly where you thought you'd be, or you're not meeting those original revenue targets at this mid year point. so. Let's, let's start kind of at the beginning.
hopefully you've set those revenue goals to begin with, but let's start there, I guess, what are the different ways that, that firms can maybe set those goals and then how does that, how do you take the methodology that you use to set those goals and then apply that to kind of looking out at the rest of the year?
Good place to start. There are a number of ways that firms can come up with the number. And when I say the number, that is, the number, right? And that's supposed to echo the number, right? What is your total expected revenue over the course of your year, which is typically a calendar year over the 12 months. How do you come up with that? There's a bunch of different ways, some good ways. A lot of firms will look at historical data. They'll look at, what they did.
In the last few years or so, maybe, there's some, some growth projected, maybe there's some changes there. So they'll kind of add some, some dollars there. Others will, do some calculations where they're looking at their revenue per employee. They can look at that both historically and there's also some fantastic sort of industry wide kind of standards on, those numbers. You can calculate your potential revenue by taking.
how many total working hours, do you have as a, as a team, your, your billable time multiply that by some, some billing rate, if you're basing your business on hours and you come up with this big number that says, okay, here's all our work. Billable potential hours. Here's the rates, the hourly rates. We want to associate with that. There's our total revenue.
Other firms will use some sort of a, a multiplier where they'll understand what their direct labor costs are because they know there's salaries and there's other costs that, that are, are, are carried by their sort of direct labor. they're people who are billable that the, and then they multiply that. typically it's plus or minus three times that, if you look across a whole lot of industry data, 2. 75 to three and a quarter in that ballpark, some firms are even higher than that.
Some firms, unfortunately might be a little bit lower than that, but that's a good place to kind of start. So there's three ways revenue per employee calculating your potential revenue with this, billable time and billable rates, and then using. The third is using a multiplier of some type often referred to as the net multiplier. So there's a bunch of ways you can come up with that number. And yes, it is really important to come up with that number.
Everybody tends to perform better when you have goals. you can write the big number on the wall. You can all talk about it. you should, it should be something that's discussed regularly, but everybody should have the big number.
Yeah, I think that's a, everyone should be able to rally around that number and whatever that is. And that's when I've been a part of healthy sales cultures, there is that everyone is working towards that one big number. and it is mentioned often, revenue per employee.
I, just a quick aside, in the research that I've done in the past, I've seen revenue per employee range pretty wildly from anywheres from like 120 K per employee on the low end to anywhere up to like 500 K per employee on the high end. And obviously, you're going to want that to be higher than lower, but in your experience, where, what's a typical revenue per employee in professional services firms?
The comment you made about it ranging wildly is so true, and there are select professional services firms who garner 300, 000, 450, 000, yeah, 500, 000. annually per employee.
And, a lot of times, the, the big consulting firms out there can, that work with, very large, fortune 500, fortune 50, companies, they can hit those, hit those dollar amounts, but typically Most of the firms that we see in the marketplace, small to midsize professional services firms are typically between 100 and I'd say 140 to 200, 000 annually per employee, and that's total employees when we just talk about because a lot of times you can come up with.
There's there's data out there that talks about. Revenue per sales
employee, revenue, yeah, all the different
roles. Technical employees, if you're talking about an engineering firm, it's, what's our revenue per, for just our engineers. But the easy number that I tend to go with is just across the entire organization. We take our revenue and we divide it by the number of FTEs we have. And what's our number?
140 to 200 is, Pretty standard and you know, it's, it, it, there's a bunch of different factors involved, what you pay people, the cost of living in certain geographies, there's a ton of variables in that, but what you want is you want a number that lets you compensate your employees well, lets you run a sustainable business. Lets you have the margin that you want to either, increase compensation or to reinvest in your organization. And it, John, we're consultants to professional services firms.
Hopefully organizations are smart enough and have the ability that there's just a little bit of extra, cash laying around that they're able to go out and find. skilled, consultants, whether it's, technology consultants or management consultants or whoever else they are just to come in and help them when they need a little, a little bit of help. So firms that, have too low of a revenue per employee, don't have the margins they want, aren't earning the revenue they want, can't.
Invest in research and development can't improve their business with help from the outside, that sort of thing.
Between these three different ways that you've helped firms come up with the number in your opinion, is there a better approach among these three or does it, does it matter or it, or is one more common than another?
I don't think so. I think just as long as you can come up with something that's, that's realistic and is a number that. You can't that everyone can understand that you can track. Well, I think that's, that's, that's fine. I, it's just simply important to, to come up with a goal and really share it across the organization and have people kind of understand what it is now. Reaching your big revenue goal is not the only thing you're chasing after constantly.
It can be fatiguing to constantly be chasing after this big huge revenue number. Yeah. There's so many other things that we need to use to motivate individuals to shoot for, To target, other than the big number, you just need to have that, that number, but there's a lot of other, other factors that we need to be focused on as well, but that number is important.
So, okay. So there's a, there's different paths to getting to that number. Let's say firms have their number, they've got the number, and they're popping their heads up for air. They're, they're looking, they're recalibrating their expectations. They're looking at, how are they doing mid-year? let's put ourselves in, in their shoes right now. So when you have, when you've, we've got that number, you, you understand how, how you're tracking against that.
How does that influence your, your strategy moving forward?
Yeah. What's important to understand when I talk about, about. revenue to date, I'm not talking about stuff that's, that's actually been, been paid, dollars that you've received, on the, on the sales and the top end revenue, we're talking about contracts, we're talking about, contracts that are closed. So you're halfway through the year and you're looking at your total contracts closed and, like you said, maybe you're shy of that number, you're, you're, you're somewhere, right?
So what's super important is. This, this, this underscores the importance of having an organized pipeline because when you hit the halfway through the year and you start looking around, you're thinking, okay, so we're halfway. Maybe we're not quite halfway there. Whatever. Where are those? Where are those future dollars going to come from?
Ideally, if you've got an organized pipeline, you can turn to your pipeline And you've got some amount of potential projects, potential work in your sales pipeline that will hopefully make up that, that shortfall over the, over the rest of the year, hopefully you've got that pipeline in place. If you do not. That's where the problem starts and you start scrambling around and people start losing sleep and, and trying to figure out where the next dollar is coming from.
That's the whole critical nature of being, organized and having an organized sales pipeline. Hit, hit, halfway through the year. If you have a reasonably, robust, good looking sales pipeline, stuff that's going to close over the next six months or so. That's, that takes off a lot of the, a lot of the pressure.
So let's dig into the pipeline real quick because, it's not necessarily binary, right? Whether or not an opportunity is going to close or not. It really depends on, where that deal or opportunity is in its development. In the conversations that you're having with them and how far along you are in terms of developing a solution for that perspective client. before we hopped on this recording mark, you talked about waiting different stages of the pipeline.
Let's, let's dig into that a little bit and how that impacts your projections for the rest of the year.
Right. So when you, when you wait a pipeline, that means you are, you are discounting all the various opportunities that are in your sales pipeline because they haven't closed yet. And they're not a sure thing. And they can range anywhere from, we've just, we just heard about this, this opportunity. We, I just had a quick phone call with John the other day. timing is not super clear, but we think it's going to happen within this particular timeframe.
We're going to have a subsequent conversation. This is, this seems like a really good, a really good, good, good, good project for us. let's put it in the sales pipeline because we think it's kind of a qualified opportunity. We think John's a good person to work with. this looks like this is right up our alley, but it hasn't progressed very far. So let's put those dollars in there.
It's if we guessed at this point, it was a hundred thousand dollars worth of work, but let's discount it heavily because it's just new. So maybe we'll say, okay, we're going to discount that by 90%. So. The weighted value of that 100, 000 is only going to be 10, 000 and that lets us be really conservative about what's in our sales pipeline.
Now, other opportunities that are further along, maybe you've been talking to, someone else you've had, it's, it's an opportunity that's been in your pipeline for maybe a couple of months or so, like 60 days, 80 days, whatever that is. You've had a few conversations, it's progressing. things are becoming clearer and clearer. You're going to wait that more heavily, 20%, 30%, et cetera. You get to the certain point where you're going to come up with a real proposal to do this work.
You're 40%, you're 50 percent somewhere in there. So that 100, 000, when we've waited at 10, 000, 20, 000, 50, 000, Not overly optimistic. We're not going to say, something jumps in our pipeline and then immediately two weeks later, we're gonna wait it at 90%. Just doesn't happen that way. But the weighting is critical.
So you take all of your, your, your pipeline opportunities, they're all weighted slightly differently 'cause some are new, some have been in there for some time, and then you come up with a weighted amount and that total weighted amount. is, is just a more realistic, more practical way to look at the total value of all of the work that's in your sales pipeline.
And those, those numbers, the weighted, percentages that you have, they don't need to be arbitrary numbers either. I think, if to your point, if your pipeline is organized, you should be able to go back and look at the conversion rates, not only from, let's just, for argument's sake, from lead to opportunity or opportunity to proposal and proposal to closed one, but how many of those leads, end up becoming clients.
And that, that proportion is one way that you could approach this and say, okay, well 12 percent of leads end up becoming clients, right? So that could be an example of how you could wait the value of a lead when it enters your pipeline.
Agreed. I tend to recommend that anything, any, any, sales stage, and these are the different steps that your opportunities take from a maybe to a close any sales stage that is prior to a proposal or prior to the point where your prospective client will say yes or no. Anything that comes before that moment should be less than 50% because logically, if someone can say yes or no, you've got a 50 50 chance.
So what I tend to recommend is that these early sales stages are weighted, 10%, 20%, 30%, walking our way up to that halfway point where when we've proposed, we're having that proposal conversation. We're talking to them about the dollars and cents and the work to be done, et cetera. If they say yes, if we receive some indication that, okay, we're going to move forward now, we need to figure out the details in the contract and the scope of work, great. There's some energy and momentum.
We're moving forwards. That percentage usually jumps way up 80%, 90%. way up there because usually these projects will close once we've had some sort of an indication of verbal approval to, okay, we're going to do this. Very rarely do they fall apart in the contract, but they do sometimes sometimes. Yeah. Yeah. So, so a closed contract is not something where someone has verbally indicated. It's a go. It's where you've got the ink. on the contract, right? And that it's so funny.
It's just such an old school term, but I got to tell you, it's so true, right? It's just that the contract needs to be signed. And the great thing about the contract being signed, everybody's got their signatures on it. We're ready to go. So everybody's focused. Okay. Now it is time to go any moment before that. It ain't over till the fat lady
sings. That too. Right. Um, That too. So we talked about weighting your pipeline based on kind of the, the different sales stages. there's different ways that you could approach that too. You also talked about factoring in opportunity age. So how long has it been in a pipeline? So, what are some different indicators of that may influence the weight of an opportunity based on that, the time it's been in your pipeline?
Well, wait is, is important. And we just, we just talked through it. Let me, let me touch on sort of how I look at age. And I would say that a number of firms out there who get this, this whole sort of sales sales pipeline thing, they've heard about waiting. Some firms will say, okay, so we need to have a pipeline, total pipeline value. That's three times what we eventually want to close. Okay. That's okay. I think being way more specific and waiting opportunities is more important.
But I would also say that those same folks who have a good grasp of waiting aren't really in touch with opportunity age. And I'll drill into opportunity age a little bit here. So, so opportunity ages is the amount of time that typically days that it takes you to originate and then contract a new opportunity.
And a lot of times this takes way longer than most folks And the important thing about age, and I will try to kind of explain this here without, without the aid of a whiteboard is opportunity. Age is really important because it lets you understand how big your pipeline needs to be. So if, if you have. If all of your, if, if on average it takes you 365 days, so an entire year, one year to originate and contract your opportunities, new work, that's, that's a long time.
Most firms that I am aware of doesn't take that long, but let's just say hypothetically it takes exactly one year. You need to have one year's worth of weighted revenue in your pipeline. Okay. That makes it. I see. Did that process. It just took, took a minute to click, but it takes a minute. It takes just a minute. If it takes you half a year to close the opportunities that are in your, your pipeline, on average, you need to have half of a year. of weighted revenue in your pipeline, right?
Is this all, is this all syncing up? Yep. If it takes you one month on average to, to originate and close opportunities, you need to have one month's worth of weighted revenue in your sales pipeline. So most firms that I work with 90 days, 120 days, 140 days or so. So if that is the average time, it takes them to originate and then close opportunities. They need to have that amount of weighted revenue in their, in their pipelines. That's how this whole number works.
And you're thinking, Oh, Oh, okay. I start to get it now. Right? So if we have 90 days, it takes us on average. to open and close projects or opportunities. We didn't have 90 days of weighted revenue. If we are, if, if our, if our target is, 1. 2 million for a year, that's a hundred thousand dollars of revenue per month, three months, that's 300, 000. We need to have 300, 000 of weighted revenue. Now where the waiting comes from is that, right?
That, that, that opportunity waiting that we did before advanced opportunities of higher percentages, new ones have lower. So that lets us know how we're doing. Throughout the course of the year. And if you're halfway through the year and you've got about half a year's worth of weighted revenue in your pipeline, you start thinking, Hmm, okay, we've closed about half our pipeline has about half the other half of the year and weighted revenue we're doing.
Okay, yeah, you're right where you want to be. Yeah, you're right where you're right where you want to be. Right. So there's the importance of having an organized pipeline, being able to wait them properly, conservatively, But you know accurately and then bringing this whole age thing.
And so I suppose that there are really two levers That you can use to, to impact that, right? So there's the pipeline velocity comes to mind, right? How quickly opportunities move through the pipeline and not all opportunities are created equal. There's the ones that are, I like to call them silver platter. they're ready to go. They know exactly what you do. They know exactly the value that you provide and they want to work with you.
And so those opportunities tend to move faster through your pipeline. And I think that's a by product of great marketing. And we can talk about that in another episode. but, I think, yeah, so that kind of shows you the importance of age and then levers that you can pull to, to impact the pipeline velocity. And I think the, the other one is adding new opportunities to the pipeline. So the weight of your pipeline opportunity age, you can look at those two things and you can, you can project out.
How you're doing against the year, and that should ease your anxiety, or it should really kind of give you a sobering dose of reality and what you need to do and understand and have a clear picture of what you need to do to fill your pipeline. So, Mark, you've got a scenario here that I think will help kind of bring this whole concept to life. so you want to walk through this scenario you've got.
Yeah, I've, I've, I've hinted at it in some of the, the, the little sort of, descriptions that I've, that I've used, when I'm talking about waiting and I'm talking about age. So here's a scenario, right? You're halfway through your year, your calendar year, your revenue year. You've got a revenue target of 1. 2 million. That's 100, 000 per month. All makes sense. You've closed contracted about 500, 000 worth of work year to date. So you're almost halfway there. Not too bad.
Okay. You've got another million and a half dollars of projects in your pipeline. That's unweighted, right? that's just total potential revenue from all these projects, but But we have to, we have to wait them and a lot of them are fairly new. So we're going to wait them fairly, fairly heavily. So, so our weighted value on average, when we do our calculations up here, we're about 350, 000 of weight and revenue. So we've got 500, 000 closed and 350, 000. Likely.
So we've got 850, 000 towards our annual goal of 1. 2 so far. So we can see that 350, 000 in our pipeline. We can see it 500, 000. We've got closed. So we're 850 to date, either 100 percent or pretty darn close there. We're in pretty good shape. So the decision is, do we start freaking out and panicking and chasing a bunch of new opportunities?
Or, do we continue to focus on those pipeline opportunities, continue to, to, we look at that 350, 000 and we say, okay, so if we focus on these and they progress, that 350, 000 of weighted revenue is going to increase as it moves through our pipeline. So if our average win rate is 45 percent and if we end up closing 45 percent of that 1. 5 million that's in our pipeline, that's almost 700, 000 worth of revenue.
I think it's like 675, 000. So the choice is, if we stay focused on that pipeline, and we close about 700, 000 worth of revenue in the last six months of the year, we hit our goal. Right. Right. Close to 500, 000 in the first part of the year, 700 in the second half. We hit our goal of 1. 2 million.
Or halfway through the year, did we freak out, stop paying attention to what was in our, our, our pipeline and just go chasing after a bunch of new maybes right now, obviously that's, that's problematic because they're speculative and you're losing focus on the stuff that was in your pipeline to begin with. But the other trick is that if you are starting to add new pipeline opportunities in August, September.
October and your average age of your, your pipeline opportunities is a hundred days, 120 days, 140 days, that stuff, that's at the end of the third quarter into the fourth quarter. It's not going to close until the following year. So you're kind of kidding yourself thinking that, Oh yeah, we've got all these new opportunities in our pipeline. This is great, but they're not going to close till the first or second quarter next year. So your annual revenue target is at risk.
Yeah, those are great points. so maybe that's not the time to do a bunch of prospecting. That's a time to focus on the opportunities that you have in your pipeline. Therein lies again, let's, hit this, hit this note again. It's important to have an organized pipeline so that you can go in there and you can take a look at that. I, I like the, I like how you put that, the 350 K that's going to increase as you pay more attention to it. Those opportunities become proposals.
Those proposals become, they move into a negotiation stage, right? Where the solution's been embraced. It's just a matter of contracting and that holds a higher weight in your pipeline. I think that all makes sense, Mark. And I think that there's a real, I think the not having that clarity. Is what results in firms to your, to use your words, freak out, or they start to freak out and start to chase new opportunities. So, that's cool that we were able to dissect that.
Yeah, it's, it's, it's a great exercise and, and firms do need to consider. adding new opportunities constantly to their pipelines, even into the third and the fourth quarter. But they can't be under the, the impression that those are going to, close by the end of the year. It's, it's just, it's just not how it happens.
And, you can picture in your mind that whole end of year scramble where, the holidays are coming, but you're still, Trying to close these opportunities in your pipeline, if things get a little bit crazy and people get stressed out, you do need to continue to, to market and to prospect all, in the second half of the year, but the chances are that those opportunities are going to push into the.
The first and second quarter of the next year, and you just have to kind of understand that and the, the, the better people can get their heads wrapped around that whole concept, the, the, the easier it is to kind of be able to take in a full 12 months worth of work and understand what's, what, what opportunities are started, when, when they're going to close, when do I need to start new opportunities? this whole thing just starts to all make sense.
In, in our, in our heads as we can, as, as we, as we picture it and kind of play it out.
Yeah. And for firm owners or folks that are in charge of business development and managing, their sales pipeline, managing their forecasts, making sure that they're performing against that. if this is just too much for them to handle, Mark, you offer. fractional sales management consulting services, right? So this is something that you help firms do. Absolutely. Happy to help. So if you're having trouble with this, if you're a bit overwhelmed, reach out to Mark. He's got you covered. Very good.
Very good. John, this has been, this has been a lot of, a lot of fun until next time.
Until next time.