Claire ran a busy web design business that employed two staff and operated out of a small office in a regional town.
Although her revenue appeared healthy, there seemed to be little, if any, profit being made. Claire was a hard worker and put in at least 60 hours per week.
In fact she worked more hours than this, but didn’t keep track of her time, so an accurate figure was not possible.
One of the first thing we did together was to develop an hourly rate calculator. Another exercise that I asked Claire to complete was to document (in 15 minute increments) what she did during a normal few days at work.
It turned out Claire’s main issues boiled down to 4 areas.
Type Of Services Being Promoted
Claire found that the services that made up the majority of the business were easy to sell. There was a reason for this.
These particular services were in high demand, attracted a lot of competition and featured a low hourly rate. These types of client projects made up the bulk of Claire’s revenue.
Many of the other service offerings in this business commanded a much higher rate, but were viewed as being harder to sell. So, these services and products were not pushed even though they had a higher profit margin.
Type Of Client
There was a great demand for Claire’s services within micro businesses. These businesses had small turnovers and very small budgets allocated to outsourced work. The thinking behind chasing these types of clients was that they were easy to approach, they had a high need for these particular type of services and project cost was acceptable.
Claire thought that enough of these small-business projects would add up to large revenues. Which it did.
Missing Terms Of Service
All businesses should have their terms of service (TOS) documented in some way, shape or form. TOS set out what the business will or will not charge for, the responsibilities of the service provider and the client, dispute resolution, refund policy and many other aspects of doing business.
For the services that Claire was providing for her clients there was no clear description of what would be provided for the hourly rate stated. What should have been laid out, discussed and agreed with the client before any project started was at the very least:
- the type of services being provided
- the scope of the work to be done
- description of what was to be performed during the project based on customer requirements
- the deliverables of the project (what the customer going to actually get)
- what happens if there are changes made to the scope of the project
Which leads us onto the next topic….
One of the biggest factors impacting Claire’s profit was scope creep. By this I mean the time allocated to most of her projects was, in some cases, double the estimated time due to constant changes being made by the customer. So Claire’s already low hourly rate was made even lower by having to accommodate changes to the web design that were outside the scope of the original project.
Claire had to absorb the extra time and cost of making these changes.
The story has a happy ending for Claire. After realizing what was happening in her business she set about making some significant changes:
- She documented terms of service that were presented to the client for discussion and agreement prior to any project work starting. The terms of service clearly outlined the changes deemed to be outside the scope of the project were to be charged at a particular rate per hour.
- A marketing plan was drafted that included promotion of premium services to larger clients
- New service packages were created at a set prices, with clearly defined deliverables and scope
In service businesses, where fees are based on an hourly rate, you need to be monitor the time taken to provide the services….or it could cost you.