When Charging Hours, Business Development is not the City Dump!

Architects, engineers, construction managers, and related firms sell a fairly straightforward product: hours. This is no different than attorneys, accountants, consultants, and other professional services providers.

We don’t manufacture widgets; we don’t offer a tangible product that is marked up multiple times as it travels the supply chain. We sell knowledge, and most often charge for that knowledge in terms of time.

Whether “selling” these hours under a lump sum or time-and-material contracting methodology (or even percent of construction cost), we need to account for this time, and ensure that we are charging for every hour (or half hour) spent working on a specific project. This, in turn, allows us to maintain a database of project costs, which helps us to more accurately estimate fees for new project opportunities.

No, this is not breaking news: this is the way it’s been done for decades.

And although it seems a pretty simple approach to tracking actual labor expenses, too many firms have created city dumps within their time sheet structures: general office (GO) and business development (BD). Some firms use the category of marketing in place of BD.

Unfortunately, many A/E/C firms have developed “worst practices” when it comes to tracking time within these categories.

General Office is, by nature, somewhat of an “other” category. Staff that do not have a project or specific task to charge to often dump their hours in GO. Cleaning your office? Charge it to GO. Updating drawing title blocks or estimating standards? Put it in GO. Sitting around twiddling your thumbs with nothing to do? GO.

Of course, not one wants to have too much GO, because it begs the simple question of, “Why are you on our payroll?”

So what if there was a place where people could hide their GO and still look productive?

Enter BD.

For years I’ve heard horror stories about how people are charging to Business Development accounts.

Some people literally put GO time under BD, even if they are doing nothing to advance the company or bring in new work. It becomes a place to bury hours.

Others who are working on projects, but over budget, sometimes hide project hours in BD. If questioned, their response is usually, “We can’t charge the client for this time, but need to do this level of work to get the next project with them, so it is really business development.”

Does this comment create the urge to throw a penalty flag or call BS?

An industry colleague recently shared with me a story about how posting project time to BD was actually an accepted company practice at a former employer. If someone had 40 chargeable hours to a project in a given week, they’d charge (and bill) 30 hours to the project, and put the other ten in BD. The rationale was that they only needed to be 75% chargeable to meet budget, and everything above and beyond was then naturally a BD expense to land the next project.

I wish I were making that up!

And even beyond the role of BD accounts being the “city dump” for hours, firms far and wide don’t take advantage of the knowledge they could be gaining by effectively using BD accounts for labor posting.

For instance, most companies have a single, unified BD time category. So staff doing any of these activities charge to that catchall account:

In this era of big data and the Internet-of-Things, you’d think that companies would want to know how they are spending their sales and marketing dollars. After all, for the majority of A/E/C firms, labor is the number one sales and marketing expense.

But yet too many of us don’t effectively track the things that matter. Thus, marketing and business development activities are lumped together in the city dump!

Inputting CRM data and responding to letter proposal and change order requests are important business development activities. But they are vastly different than proactively pursuing new project opportunities and developing relationships with potential clients.

Furthermore, how can you get a sense of the true costs of project pursuits unless you actually track your labor expenses through all stages, from initial meetings to proposal submission to project interview?

On top of this, today it is standard practice for a lot of firms to do a bit of free work as part of the proposal – an architect creating renderings, an engineer performing calculations or preparing a LEED scorecard, a construction manager preparing an estimate and schedule.

How are you capturing all that time? What if you spend $15,000 to land a $100,000 contract with 10% profit budgeted? Best case scenario, you lose $5,000! But how would you know this unless you’re accurately tracking the data?

Business development and marketing are difficult. Taking the time to input data into a CRM, prepare project descriptions, make phone calls, attend networking functions, update resumes, etc. is not high on the list of favorite activities for most A/E/C professionals. Preparing scopes of work, developing fees, creating estimates for projects that haven’t even been designed yet is not a lot of fun. (Exception: I’ve met a lot of architects that love to design before they’ve even been hired – because that is the fun stuff!)

Until you are honest about your business development labor expenses, you’ll never know the true cost of BD within your firm.

If your staff buries project hours in BD, you’re realizing the double whammy of inflated BD costs and under-reported project expenses. How can you accurately budget for future projects if you don’t have a handle on today’s project labor costs?

Don’t let BD be the city dump. And consider creating multiple BD accounts to segment the tasks. Ideally, track proposal expenses – at least on major pursuits. Break out marketing time (building brand and creating awareness), proposal efforts, and proactive sales activities (prospecting, meeting with prospective clients, etc.) to get a better feel for how you are spending money. And remember, if your marketing staff spend all their time working on proposals or developing project interview presentations, they aren’t doing any marketing! These are business development (sales) activities!

Or, choose to be like too many of your colleague firms, who look at their BD expenses and say, “Wow, we’re spending a ton of money here, but not seeing the results I’d expect!”

Sound familiar?

Do you want your BD accounts to provide business intelligence? Or be the city dump?

What are some other “worst practices” when it comes to tracking BD time? What successes have you seen or been involved with that helped companies get a better grasp on their true BD costs?