on Average How much does a firm/architect spend for acquiring projects?
These may include events, promotions, newsletters,yellow-pages and online listings, competitions etc. I know it will vary from project to project. But whats a safe ballpark assumption? 2.5%- 5% of architect fee? 10%?
Or is it negligible,? and projects are acquired purely through referrals?
null pointer
Jul 30, 15 10:25 am
Varies widely.
I probably spend 20-30% of my time chasing projects. But that's because (1) I am just starting up my solo practice, (2) I really really enjoy that part of the work.
By contrast, I've gotten quite a bit of referral work. I generally have to deal with unbillable bullshit for an hour and then adjust my hourly rates to make up for it (upwards adjustment).
quizzical
Jul 30, 15 11:28 am
While It seems to vary quite a lot from firm to firm, I have found this 'rule of thumb' to be useful for planning purposes:
a. Budget 7.5% - 8% of net revenue for marketing
b. Allocate 75% of the marketing budget to raw salaries dedicated to marketing
Carrera
Jul 30, 15 11:36 am
^accurate
JOE-ASC
Sep 8, 15 8:34 am
It depends ( sorry!), how much do you want the work, is it in a new sector that you want to get into etc etc. I would always create a separate work stage/ phase for the enquiry phase. This way you can separate out the cost of doing the work and the cost of winning the work.
gwharton
Sep 8, 15 5:42 pm
Learn how to calculate expected value for your project pursuits.
Expected Value = Value of Contract times Probability of Getting It.
So, for instance, if you were pursuing a project with a contract value of $1,000,000 on which you were projecting 1) a profit of 10%, and 2) the probability of your winning it at 20%, then the EV of the contract is $200,000 and the EV of your profit is $20,000.
Your question then becomes: How much would you spend to get that $20,000?
That calculation needs to be run for every pursuit, preferably at the Go-NoGo stage.
Note also that this is entirely independent from your marketing budget.
Carrera
Sep 8, 15 9:08 pm
^ Like that, but if I had done that I wouldn’t have chased anything. It’s good to track your costs over the year to budget so you know where your money is going, but like many business you go in on the path of least resistance and sell up.
If you look at your market area one can calculate what your share could/should be, then given the average hit rate you will find that you have to go after almost everything....the tiger is pacing.
midlander
Sep 8, 15 9:11 pm
Do any of you quantify risk per lead? such as that 1,000,000 contract has a 95% chance of being completed and paid in full, or 1% chance of ending in a lawsuit? Or is this something a firm simply minimizes in an unmeasured way at G/NG stage?
Carrera
Sep 8, 15 9:18 pm
^ Again, if you did that you’d never leave the house. You do measure the background of the client, the ability to pay, the feasibility of the project, then hit go.
Sep 9, 15 3:47 am
Exactly.
A wise architect suggested employing a mechanism to 'qualify' the prospect in whether they should be a client (a go) or rejected (no go). Sometimes, a little test of paying up front an amount, evaluating the clients ability to pay and then feasibility of the project with any pre-design research and analysis. For example: Do they have money access sufficient to paying secured? Is the site suitable for proposed project based on geological reports of the immediate area (ideally... the precise site). Discretionary call on that.
I wouldn't worry about being sued. That's just the nature of the business. If you are afraid of lawsuits or threat of a lawsuit, you are in the wrong profession. Just do your job good and minimize risks by not being negligent.
Sep 9, 15 3:52 am
Not being negligent is simple to navigate and mitigate and that is NOT rushing or let deadlines supersedes health, safety and welfare responsibility. Don't procrastinate, either. Do the work, get it done in a timely responsible manner. Don't let the client or deadline be too damn important over responsible care.
gwharton
Sep 9, 15 2:23 pm
What Carrera is saying in his somewhat idiosyncratic way is that you also need to factor in opportunity cost on top of expected value and risk.
If you're just starting out, your opportunity cost for NOT pursuing projects is actually pretty high. You need the work and you don't have other opportunities you have to forego in order to spend the money and time necessary to get it.
Later, when you get busy, the opportunity cost equation shifts and the EV/Risk calculation becomes much more important. Even then, it can still make sense to pursue a project with a negative EV if there is a strategic reason for doing so.
But you should still know what your EV, risk, and opportunity cost is every time you make that decision.
Carrera
Sep 9, 15 2:50 pm
^very true, except when starting out you’re living with a cat and when you get bigger you’re living with a tiger…the chase never stops.
wurdan freo
Sep 9, 15 4:26 pm
I think something that is missing here is a pain in the ass factor. Whether dealing with a cat or a tiger, how much harder are you going to have to work depending on whether you're dealing with garfield or battle cat.
One thing I heard lately that I like alot to qualify clients...
1. you have to like them
2. they gotta be serious
3. They gotta have money
4. They gotta be willing to part with their money
5. They have to have integrity
Easier to discern with repeat clients, but a good guide none the less. And testable for new clients as richard eludes to.
gwharton
Sep 9, 15 4:32 pm
Qualifying clients is very important. Life is too short to work with assholes.
But if you really have to work an asshole, make sure you charge them Asshole Tax.
Sep 9, 15 7:19 pm
YES!
In an ideal world, we could bill it that way. But we have to find a clever way to deal with that.
In which case, whether you feel better to tell me in private than in public, feel free to PM me or email me. If you can, what do you officially call that "Asshole Tax" on a billable invoice or go about that?
It might be better to say that privately (for good reasons !)
Sep 9, 15 7:25 pm
In addition, it is perhaps good to discuss how we 'qualify the clients' as it is good for all of us. This is one, I am willing to listen to more about.
Carrera
Sep 9, 15 8:10 pm
Wurdan – My “Cat” references has to do with overhead…”feeding the tiger”.
Gwharton – Love the “asshole tax”. The other thing to be mindful of is how you turn work away, using “too busy”, jacking the fee up and being unresponsive can backfire in a community market.
Richard – just need to interview for red flags, 3 was my limit.
This is one method I had read directly in context. I have read others from less subject related sources. I like more perspective on this topic.
Carrera
Sep 9, 15 8:44 pm
^ Not sure on the article, most prospects lie around those questions (Realtors have a trade saying “Buyers are liars”). I think the questions are good but just to get them to talk so you can get a “feel” for the person, because when you are starting out you just need to find a good personality fit and get paid.
The problem with what we do is we work for 30 days, invoice, and then work an additional 30 days before we get paid….you’re out 60 days before you know if they pay. Would get a 60 day retainer up front on private clients, if they object I’d give them my McDonalds analogy….”When you order a #3 do you pay after they hand you the bag?”
(Know that most invoices call for payment in 10 days, but when does that ever happen?)
Sep 9, 15 8:56 pm
It isn't fool proof and the individual questions can include more questions which can be tools and mechanisms to read through their b.s. A prospect can lie but we can read through it. Enough clever worded questions in the 5 categories along with some additional questions as well as other qualification method.
I alluded to that as a method to supplement. You don't spend an ordeal of time on the client before any pay. Like stock house plans, we don't mail the plans until you pay for it. We don't hand over the construction documents until we are paid all outstanding amount up to that point including the final payment. Exactly, your McDonalds Analogy makes perfect sense.
There is more than the one article that extrapolates a lot more on the whole subject of generating leads, qualifying clients, securing payments, etc. The BUSINESS of architecture and architecture marketing which is intertwined.
Enoch does a great deal on discussing this topic which I find informative and enlightening.
There is a holistic system behind it.
gwharton
Sep 9, 15 9:03 pm
Asshole Tax is a concept I learned from a friend who is a principal with a local construction company. You see it in construction bids on projects where the contractor doesn't like the way they're being forced to do something when there's a better way. Usually it winds up being a flat mark-up like 10% or 20%, but I've seen it higher than that. Subcontractors charge Asshole Tax all the time, particularly for projects where the architect designed something not done precisely the way they always do it.
As an architect, there are a few ways to charge Asshole Tax on a client that is being a problem. The easiest is to hit them with mobilization fees and additional service orders for out-of-scope work. At the initial proposal stage, tack on a number that covers your pain and heartache for having to deal with them, say 30%, and if they balk at the price then you just saved yourself a problem. If they go for it, then you'll at least be making money while they make you miserable.
A related construction-industry pricing concept is the "circumcision principle": e.g. you can take 10% off the top of ANYTHING.
Sep 9, 15 9:24 pm
Yep. Sometimes, nail it at both ends. No sympathy for fickle minded stupidity.
Carrera
Sep 9, 15 9:37 pm
I got so I would figure fees then divide by months of duration, and then add 1 month’s payment. Can’t tell you how many times I got stiffed on final payments, using this method I didn’t care if I got the final payment and if I did I considered it a bonus. (On private work).
null pointer
Sep 9, 15 10:54 pm
Marginally related, but having had one of those annoying days where 3 different leads go cold, I found this really helpful:
Thanks, null pointer. I think of both Mark and Enoch friends. Thanks for the references and its as meaningful to me as it is to you.
Carrera
Sep 9, 15 11:22 pm
Entrepreneur Architect is a great site, finally someone connecting the dots.
Sep 9, 15 11:27 pm
Got to love leads going cold. SUCKS!
I've got work to do in improving conversion rate of leads to clients. In addition, I need a good mechanism for doing that while also qualifying clients.
This last year I had a fair number of leads compared to prior years. Therefore, I need to get in gear things for improving leads but also improve conversion rate and also qualify the leads.
There is also have to be a great deal of website redevelopment and bringing everything together in a good integrated fashion.
on Average How much does a firm/architect spend for acquiring projects?
These may include events, promotions, newsletters,yellow-pages and online listings, competitions etc. I know it will vary from project to project. But whats a safe ballpark assumption? 2.5%- 5% of architect fee? 10%?
Or is it negligible,? and projects are acquired purely through referrals?
Varies widely.
I probably spend 20-30% of my time chasing projects. But that's because (1) I am just starting up my solo practice, (2) I really really enjoy that part of the work.
By contrast, I've gotten quite a bit of referral work. I generally have to deal with unbillable bullshit for an hour and then adjust my hourly rates to make up for it (upwards adjustment).
While It seems to vary quite a lot from firm to firm, I have found this 'rule of thumb' to be useful for planning purposes:
a. Budget 7.5% - 8% of net revenue for marketing
b. Allocate 75% of the marketing budget to raw salaries dedicated to marketing
^accurate
It depends ( sorry!), how much do you want the work, is it in a new sector that you want to get into etc etc. I would always create a separate work stage/ phase for the enquiry phase. This way you can separate out the cost of doing the work and the cost of winning the work.
Learn how to calculate expected value for your project pursuits.
Expected Value = Value of Contract times Probability of Getting It.
So, for instance, if you were pursuing a project with a contract value of $1,000,000 on which you were projecting 1) a profit of 10%, and 2) the probability of your winning it at 20%, then the EV of the contract is $200,000 and the EV of your profit is $20,000.
Your question then becomes: How much would you spend to get that $20,000?
That calculation needs to be run for every pursuit, preferably at the Go-NoGo stage.
Note also that this is entirely independent from your marketing budget.
^ Like that, but if I had done that I wouldn’t have chased anything. It’s good to track your costs over the year to budget so you know where your money is going, but like many business you go in on the path of least resistance and sell up.
If you look at your market area one can calculate what your share could/should be, then given the average hit rate you will find that you have to go after almost everything....the tiger is pacing.
Do any of you quantify risk per lead? such as that 1,000,000 contract has a 95% chance of being completed and paid in full, or 1% chance of ending in a lawsuit? Or is this something a firm simply minimizes in an unmeasured way at G/NG stage?
^ Again, if you did that you’d never leave the house. You do measure the background of the client, the ability to pay, the feasibility of the project, then hit go.
Exactly.
A wise architect suggested employing a mechanism to 'qualify' the prospect in whether they should be a client (a go) or rejected (no go). Sometimes, a little test of paying up front an amount, evaluating the clients ability to pay and then feasibility of the project with any pre-design research and analysis. For example: Do they have money access sufficient to paying secured? Is the site suitable for proposed project based on geological reports of the immediate area (ideally... the precise site). Discretionary call on that.
I wouldn't worry about being sued. That's just the nature of the business. If you are afraid of lawsuits or threat of a lawsuit, you are in the wrong profession. Just do your job good and minimize risks by not being negligent.
Not being negligent is simple to navigate and mitigate and that is NOT rushing or let deadlines supersedes health, safety and welfare responsibility. Don't procrastinate, either. Do the work, get it done in a timely responsible manner. Don't let the client or deadline be too damn important over responsible care.
What Carrera is saying in his somewhat idiosyncratic way is that you also need to factor in opportunity cost on top of expected value and risk.
If you're just starting out, your opportunity cost for NOT pursuing projects is actually pretty high. You need the work and you don't have other opportunities you have to forego in order to spend the money and time necessary to get it.
Later, when you get busy, the opportunity cost equation shifts and the EV/Risk calculation becomes much more important. Even then, it can still make sense to pursue a project with a negative EV if there is a strategic reason for doing so.
But you should still know what your EV, risk, and opportunity cost is every time you make that decision.
^very true, except when starting out you’re living with a cat and when you get bigger you’re living with a tiger…the chase never stops.
I think something that is missing here is a pain in the ass factor. Whether dealing with a cat or a tiger, how much harder are you going to have to work depending on whether you're dealing with garfield or battle cat. One thing I heard lately that I like alot to qualify clients... 1. you have to like them 2. they gotta be serious 3. They gotta have money 4. They gotta be willing to part with their money 5. They have to have integrity Easier to discern with repeat clients, but a good guide none the less. And testable for new clients as richard eludes to.
Qualifying clients is very important. Life is too short to work with assholes.
But if you really have to work an asshole, make sure you charge them Asshole Tax.
YES!
In an ideal world, we could bill it that way. But we have to find a clever way to deal with that.
In which case, whether you feel better to tell me in private than in public, feel free to PM me or email me. If you can, what do you officially call that "Asshole Tax" on a billable invoice or go about that?
It might be better to say that privately (for good reasons !)
In addition, it is perhaps good to discuss how we 'qualify the clients' as it is good for all of us. This is one, I am willing to listen to more about.
Wurdan – My “Cat” references has to do with overhead…”feeding the tiger”.
Gwharton – Love the “asshole tax”. The other thing to be mindful of is how you turn work away, using “too busy”, jacking the fee up and being unresponsive can backfire in a community market.
Richard – just need to interview for red flags, 3 was my limit.
One way to stimulate that thought line:
http://architectsmarketing.com/how-to-qualify-architecture-clients/
This is one method I had read directly in context. I have read others from less subject related sources. I like more perspective on this topic.
^ Not sure on the article, most prospects lie around those questions (Realtors have a trade saying “Buyers are liars”). I think the questions are good but just to get them to talk so you can get a “feel” for the person, because when you are starting out you just need to find a good personality fit and get paid.
The problem with what we do is we work for 30 days, invoice, and then work an additional 30 days before we get paid….you’re out 60 days before you know if they pay. Would get a 60 day retainer up front on private clients, if they object I’d give them my McDonalds analogy….”When you order a #3 do you pay after they hand you the bag?”
(Know that most invoices call for payment in 10 days, but when does that ever happen?)
It isn't fool proof and the individual questions can include more questions which can be tools and mechanisms to read through their b.s. A prospect can lie but we can read through it. Enough clever worded questions in the 5 categories along with some additional questions as well as other qualification method.
I alluded to that as a method to supplement. You don't spend an ordeal of time on the client before any pay. Like stock house plans, we don't mail the plans until you pay for it. We don't hand over the construction documents until we are paid all outstanding amount up to that point including the final payment. Exactly, your McDonalds Analogy makes perfect sense.
There is more than the one article that extrapolates a lot more on the whole subject of generating leads, qualifying clients, securing payments, etc. The BUSINESS of architecture and architecture marketing which is intertwined.
Enoch does a great deal on discussing this topic which I find informative and enlightening.
There is a holistic system behind it.
Asshole Tax is a concept I learned from a friend who is a principal with a local construction company. You see it in construction bids on projects where the contractor doesn't like the way they're being forced to do something when there's a better way. Usually it winds up being a flat mark-up like 10% or 20%, but I've seen it higher than that. Subcontractors charge Asshole Tax all the time, particularly for projects where the architect designed something not done precisely the way they always do it.
As an architect, there are a few ways to charge Asshole Tax on a client that is being a problem. The easiest is to hit them with mobilization fees and additional service orders for out-of-scope work. At the initial proposal stage, tack on a number that covers your pain and heartache for having to deal with them, say 30%, and if they balk at the price then you just saved yourself a problem. If they go for it, then you'll at least be making money while they make you miserable.
A related construction-industry pricing concept is the "circumcision principle": e.g. you can take 10% off the top of ANYTHING.
Yep. Sometimes, nail it at both ends. No sympathy for fickle minded stupidity.
I got so I would figure fees then divide by months of duration, and then add 1 month’s payment. Can’t tell you how many times I got stiffed on final payments, using this method I didn’t care if I got the final payment and if I did I considered it a bonus. (On private work).
Marginally related, but having had one of those annoying days where 3 different leads go cold, I found this really helpful:
http://www.entrearchitect.com/2014/01/26/conversion-rates-for-a-small-firm-architect/
Thanks, null pointer. I think of both Mark and Enoch friends. Thanks for the references and its as meaningful to me as it is to you.
Entrepreneur Architect is a great site, finally someone connecting the dots.
Got to love leads going cold. SUCKS!
I've got work to do in improving conversion rate of leads to clients. In addition, I need a good mechanism for doing that while also qualifying clients.
This last year I had a fair number of leads compared to prior years. Therefore, I need to get in gear things for improving leads but also improve conversion rate and also qualify the leads.
There is also have to be a great deal of website redevelopment and bringing everything together in a good integrated fashion.