Growing equity value webinar series: Quality of fee income

In the last few weeks we’ve been running a series of free 30-minute webinars to help attendees grow the equity value in their consultancy firms. Attendees at each webinar are able to submit questions, and we’re going to be sharing and answering these questions in a series of blog posts. This week we’re looking at the questions asked during the webinar on how you can make client fee income more predictable and reduce forecast revenue risk.

  1. How will a buyer view a business with only three months of forward load (i.e. future pipeline)?

Potential buyers are likely to view consultancies with only three months of forward load as having too much risk. They’re looking for a good return from consultancies they invest in and if the sales engine and proposition of your business has only built a pipeline of three months of work they’re likely to look elsewhere.

However, buyers do understand that consultancies have a short forward load relative to many other types of organizations, and would not be put off by a forecast that goes 9-12 months into the future. This is where building a programme of work with a client can help rather than the ‘one and done’ engagement.

You can read more about how to build your consultancy’s sales engine here.

  1. What is the right balance of sub-contractors to employees?

While there isn’t a precise numerical answer to this question, it is important that, regardless of the ratio of sub-contractors your consultancy employs, the core competency of the business remains with employees, rather than contractors. Furthermore, as a general rule, employees rather than contractors should manage the key client relationships.

Businesses often make a lower margin when employing contractors. If your average margin across the board is dropping below 50% because it’s being diluted by contractors, this is a sign that you need to rebalance your use of employees to contractors.

For more information on this topic, read our blog on getting your staff balance right.

  1. Any tips on improving utilization among consultants?

From experience, we have come across consultancies where the most senior executives, including founders, are engaged in service delivery. It’s little wonder junior staff are underutilized if the seniors fail to delegate delivery work.

Consider this military imperative: delegate as much as possible to the lowest rank possible. This insight applies to consultancies too. To give senior members the confidence to delegate, it is important that consultants and other staff members are adequately trained. It is worth investing in training staff throughout all levels and across all skill sets. To guarantee that the training is relevant to the skills needed, consultancies should codify their intellectual property (IP) to ensure that it is learned and replicable for future success.

Finally, as with all of our webinars in this series, our key takeout is presented in our Start, Stop and Continue strategies. To immediately improve the quality of fees in your consultancy:

Start:             Start getting better monthly visibility of your future pipeline and matching it with capacity

Stop:             Stop trying to sell everything to everyone

Continue:     Continue to work within your existing sectors in order to grow new clients and avoid having all your eggs in too few baskets

To sign up to listen to a recording of this webinar, please click here. To see our upcoming webinars in the series, please click here.

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners grow and realize equity value in their business. Register here to gain full access.

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