Saturday, February 20, 2010

Maximizing the Return on Your BD Costs

With business still languishing, A/E firms are understandably being very cautious about spending. Some continue to trim costs. Interestingly, many firms have substantially reduced their business development expenditures. Marketing staff positions have been eliminated, with corresponding cuts in marketing activity. One large firm halted a major initiative to improve its business development process.

The wisdom of cutting BD costs is debatable. If what the firm was doing wasn't working, then certainly it would be unwise to continue funneling money into it. But is cost cutting the best approach, or should that money be redirected to more effective strategies? Done right, business development isn't a cost at all. It's an investment. If your BD investment isn't yielding a proper return, you're either (1) not investing in the right things or (2) not giving it sufficient time and attention to make it work.

Let me suggest some ways to maximize your BD investment in these still uncertain times:

Analyze how your BD labor is being spent. One A/E firm principal complained to me that their BD labor costs were too high (they were). His conclusion was that they needed to cut marketing staff. I encouraged him to first look at how those costs were distributed among his staff. He discovered what I suspected, that his marketing staff constituted less than 20% of his BD labor costs.

We reviewed how much time each of his "seller-doers" was charging to BD. The principal was surprised at what he found. Some technical professionals who had charged substantial hours to sales, for example, had not made any evident contribution to bringing work in the door. Others had spent many hours on proposals, yet had little, if any, success to show for their efforts. Rather than cutting marketing staff, the firm decided to redirect how their technical professionals were spending their time.

Push BD efforts upstream in the sales process. In analyzing how your BD labor is being spent, it's valuable to compare pre- and post-RFP efforts. In many firms, 70-80% of BD labor is expended on proposals, and this number has likely grown in the recession. This kind of "downstream" emphasis is almost always accompanied by a low win rate. These firms are not investing adequate time building relationships and uncovering client needs before the RFP is released.

If you are spending 70% of your BD labor on proposals and only winning 25% of them, then it can be argued that you are wasting about half your time. Imagine that your firm redirected more time to pre-RFP positioning and relationship development. You now spent only 50% of your time on proposals and improved your win rate to 45%. That's a shift of 25% of your BD labor from unproductive to productive efforts.

But in reality the transition is even better, because you're spending more time building relationships that can pay off for years to come. Simply responding to RFPs and spending most of your time on losing efforts is a poor investment of your BD dollars--not to mention an ineffective strategy for building a sustainable business. That's not to suggest you pursue only proposals you're pretty sure you will win, but to avoid those with a high probability of losing.

By the way, the example above is not merely hypothetical. That was the improvement one of my clients made after we redirected the emphasis of their BD efforts from proposals to sales. We cut the number of submittals by 40% and increased sales (in dollars) by 33%. And there was no increase in their BD costs.

So how do you move more activity upstream in the sales process? A few suggestions:

  • Implement a "no know, no go" policy. This means if your firm hasn't been talking to the client before the RFP is released, the decision is automatically no go. There are always a few exceptions, but generally the win rate for such proposals is dismal and not worth your time. Divert those hours instead to pre-RFP relationship building.

  • Avoid over-emphasizing the proposal pipeline. When I first started participating in the regular sales conference calls of the engineering firm mentioned above, I noticed that branch managers seemed to take particular pride in talking about how many proposals they had in the works. Proposals, not sales, dominated the conversation. I suggested that proposals only be mentioned either when they involved other offices or when they were successful. That helped shift the discussion to focusing more on clients, not only on those calls but across the organization.

  • Develop client account and capture plans to drive pre-RFP activity. Compile all the associated action items in one place (e.g., your CRM system) to help prompt and track follow-through. If you don't scope and schedule sales activities, they will naturally receive less emphasis than project and proposal tasks. These plans also help encourage people to focus on your best clients and sales opportunities.

  • Budget seller-doer time for BD. In too many firms, business development is done with "left-over time." That usually means it's done too seldom and too randomly to be really effective. It's critical that you treat BD activities with the same importance and discipline as you do project work, meaning it needs to be similarly budgeted, scheduled, and tracked.

Revamp your marketing strategy. Are you getting a good return on your marketing dollars? Chances are you don't know. Most A/E firms invest in things like trade shows, direct mail, advertising, public relations, website, and marketing materials without seemingly expecting a tangible, trackable return. They simply trust that these things enhance their reputation, name recognition, and overall market positioning.

Of course, in tough times like these such nebulous outcomes are a luxury. So marketing activities are cut because they haven't proven their near-term value. Yet effective marketing does produce real, observable outcomes. The key is to devote most of your marketing expenditures to developing content and experiences that clients value.

When I served as marketing director for a national environmental services firm, this was the approach we took. We produced articles and white papers on issues of interest to our clients, created what was then the best environmental management resource website available, kept our clients routinely informed of regulatory trends and developments, invited them to leading-edge strategy roundtables, and provided free technical seminars--among other things.

Because of these activities, clients were regularly calling us. That's the one marketing metric that really matters. A number of companies that approached us due to our marketing efforts eventually became long-term, high value clients. I discussed this type of marketing in more detail in an earlier post.

Effective marketing is another way to move more of your BD dollars upstream. One of the best benefits of marketing is the ability to maintain an ongoing presence with existing and prospective clients. Since clients don't always need your services, it's often difficult to ensure the timeliness of your sales calls. But quality marketing helps keep your firm fresh in the client's mind when the need arises.

One more thing to keep in mind about marketing. One study of companies across multiple industries found that the ones that increased marketing activity during previous recessions grew much faster (as much as 10x) when the economy recovered than companies that cut their marketing expenditures during the downturn. But another recent study found that over half of professional service firms decreased spending on marketing in 2009, with one-quarter of firms cutting their marketing budgets by 25% or more.

So while it's wise to stop funding ineffective business development activities, it could be a big mistake to scale back the effort overall. The important thing is to maximize your BD investment by focusing limited resources on the strategies that really work.

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