One of the biggest mistakes a professional services firm can make is to blindly chase revenue. When a firm chases revenue, it focuses too much on the sale and not enough on the final project outcome. High-dollar deals all feel great when the ink is still fresh on the contract. But deals that aren’t set up for success from the outset can wreak havoc on the firm down the road.

So, what is a “good outcome” for a professional services engagement? It should check the following boxes:

• The client is pleased. The best way to gauge client satisfaction is to survey the client a few months after the engagement is completed. Generally speaking, clients are happy when their expectations have been met. Clients have expectations in terms of the quality of the services and deliverables, the time the project will take, the cost, and the experience of working with your team. You should strive to meet or exceed expectations in each of these areas on every project.
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• The team is happy. Did the project team have to work 12-hour days and weekends in order to hit an unrealistic deadline or was the engagement well-planned? When a firm has a culture of making unrealistic demands of its employees, attrition will rise and performance will fall. Employee satisfaction eventually impacts client satisfaction.
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• The target profitability is achieved. It is possible to have a pleased client and happy team, while at the same time producing a terrible economic result for the firm. Each and every project should be diligently estimated in order to determine a target profit margin for the work. If the project can’t be delivered at an acceptable margin (i.e. due to an insufficient client budget), you are better off passing on the work.

Ways that Firms Chase Revenue

There are a lot of ways that a professional services firm can make the mistake of winning bad projects. Below are some of the more common ones:

• Pay sales commissions on topline revenue. If salespeople are compensated on the topline revenue of each deal, they won’t worry about whether or not the engagement is set up for success. Dropping a $200K deal down to $150K won’t hurt the sales representative much but it could kill the project’s financials. Salespeople should be compensated on the gross profit of the proposed project, not on revenue.
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• Drop bill rates too low. When bill rates are arbitrarily reduced without evaluating the revised budget and projected profit, bad things tend to happen. While some amount of bill rate discounting can make sense to win a large deal, the discount shouldn’t coincide with significant project risk factors.
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• Propose a fixed fee billing structure with uncertain scope. Clients often prefer a fixed fee quote, because it eliminates their budget risk. However, the only time this makes sense for the firm is when the scope of work is very well-understood and subsequently detailed in the legal contract. Often, the worst outcomes are a result of a fixed fee project going hopelessly over budget.
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• Fail to properly estimate or budget. It is imperative that professional services firms have a rigorous estimation and budgeting process. The process should be detailed enough to produce a reliable target profit margin. If the estimation and budgeting process fails to yield an acceptable profit margin (due to client budgetary constraints), pass on the work.
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• Wander outside of the firm’s wheelhouse. Sometimes a firm will pursue a type of engagement that it hasn’t delivered before. This often happens because the size (revenue) of the project is attractive or because the firm has excessive bench. The problem with project types that you haven’t delivered before is that you don’t know much about the challenges you’ll encounter. It is hard for a firm to deliver quality work on-time and on-budget with its first attempt at a project type.