project profit team
Dude, we just made $50K profit!

Project Profitability

The last thin any IT project management consultant wants to do is get caught up in a consulting or PM engagement that costs them lots of time and effort and in the end makes them very little money. It’s frustrating, it’s counter-productive, and it almost certainly ensures you won’t have return business with that particular customer.

The key is to safeguard your efforts – safeguard the profitability of the engagement. To do that, there are five key things to keep in mind when you’re discussing the project with the customer, scoping and pricing the project, and then executing on the project through to completion. In this Part 1, we’ll examine the first two of the five ways to ensure project profitability….

Have a spine

This may be the most important concept of the five and it probably overlaps, to some degree, with most of the other four. What is meant by ‘having a spine,’ as you might have guessed, is having the ability to do most or all of the following:

  • Say no to the customer when necessary
  • Stand firm for what you believe to be the necessary tasks
  • Be confident and unwavering when directing the activities of others
  • Stand firm to prices quoted and stand behind your estimate and the work involved

Customers in all lines of work and in every industry want something for less. Stand firm. Stay true to your expertise. Be confident. Have a spine. In the end, you’ll be more profitable for it and you’ll have customers who truly need your expertise and are willing to trust you and pay you for it.

Know your cost of doing business

Many years ago, I had the responsibility for creating a coupon booklet for a fundraiser in a small Midwest town. My team and I went around to area businesses and explained the purpose of the booklet and asked them to suggest coupons that their business could honor in the books. The very nice gentleman who owned the only full service gas station (that also did auto repairs and just about anything else car-related that you can think of) offered 20% off a full set of tires. Then he hesitated and needed to think about it for a while. I told him that I certainly didn’t want him to lose money on the offering. See, he was nice, but not a very good businessman (and this wasn’t the only evidence of that, but that’s another story). He had no idea what his cost of doing business was and what his profit margin was – all things considered – on a set of tires.

In order to be a profitable IT consultant, you must – you absolutely must – know your cost of doing business. Be real – figure in your overhead expenses in the equation and look forward to things like driving, potential air travel, phone time, supplies, some wiggle room in the scope that you know you may need to give away without putting up a fight, etc. After looking at all those things and probably more, you’ll know your cost of doing business. You’ll know what you need to bring in per hour to make a particular engagement possible. Unless you’re just starting out, you should be able to come up with this fairly quickly and even ballpark an estimate on the spot for a potential client in order to get the quick ‘in’ on the possible work that is laying before you.

In Part 2 of this two-part discussion on ensuring project profitability, we’ll look at understanding when you’ve hit your financial ceiling in ability or location, keeping customer scope in check, and advertising strategically.

For more information visit the Entry Software site and signup for an online 30-minute demo with an Entry Software consultant.