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Where’s the Business?
I’ve seen architects, surveyors, service providers, BIM/VDC professionals, and many others talk about the latest in open sourcing, photogrammetry, target-less registration, 3D printing and more. There’s no shortage of eye-candy that has been produced, projects that have been showcased, and blogs that have been written. All the hoopla feeds our egos, and some of the claims are actually true.
What I find fascinating is how unusual it is within the 3D industry to find someone who will openly discuss the `business’ side of their company. I’m referring to the metrics that will ultimately determine your success or failure. Things like EBIDTA, litigation, H/R, A/R, cash flow and gross profit.
Why is this? Is it because our space is still filled with zealots and not business professionals? Maybe it’s because we represent a still emerging industry without formalized metrics? Or maybe the technology is changing so rapidly that it’s hard to compare "apples with apples" .
I’d suggest that there are a lot of players who are focused with the `what’ in their business rather than the `why’ or `how’ The `why’ should be your . purpose and be something that you communicate to your clients. But it’s the `how’ that will propel you to new heights, or doom you to failure. Without understanding how you’re going to do it…and making sure it translates to financial accountability, the rest won’t ultimately matter. The `how’ is your strategy for making money.
FOR SALE–Employee #123
If you drill down to the core component of our 3D laser scanning business–we’re not selling technology, we’re selling labor to perform a service that’s technologybased. We have analogous business models with providers of services such as attorneys, accountants–your dry cleaner. All of these groups provide a professional service doing something that requires the skills of a specialist.
So the most important question to answer is, "What is my profit on labor?" You need to track your projected earnings on labor for every employee, on every job. And you should also track the profit by customer, by industry, and on a monthly and yearly basis. There will be no quicker indicator of your financial future than understanding the income you make on labor sales. Figure 1 shows an example.
Burn Rate
There are several considerations when determining what your gross profit on labor should be. And you’ll need to crunch the number some to establish your target. I apologize for the basic math lesson, but while most understand this, few aggressively track it. Once you have what you believe is a healthy percentage of profit (in the example above its 67%), then deduct your Sales, General, and Administrative (SG&A’s) expenses [these are your business expenses not tied directly to the project such as rent, utilities, etc.] to see if your financial model makes sense. In other words, are you happy with the financial projection of your business and are your labor rates high enough to guarantee a profit?
There’s no doubt everyone who’s reading this understands this simple P&L calculation…but how many of you know exactly where your business needs to be to accomplish your goals.
Be Honest
There are a lot of other considerations that go into finding your target labor rate and gross profit number. For example, what percentage of your labor is actually billable? Maybe it’s 60%, or perhaps as high as 80% [in the above example it’s calculated at 70%]. After all, you need to take into consideration employee training, R&D, and other non-billable hours that you’re paying for your which aren’t directly recoverable.
Several other considerations regarding profit on labor:
What is the skill set of the person you’re selling? Make sure to match your employee to the project requirements, otherwise you’re propensity for disaster increases rapidly.
Who’s bidding your work and are they entering into the projects with legitimate expectations, or are they simply trying to sell jobs? Be careful of the low budget project and don’t be afraid to walk awayremember there is always someone who will do the same job for less.
From Left Field
I believe the smartest business operators seek help from others. Perhaps it’s a peer group, your accountant, or perhaps professional coaching companies like Vistage, or Young Presidents Organization (YPO). In any case, the more you admit that you either don’t have all the answers, or you simply want to validate your existing plan the more chance you’ll have for business success.
This is especially true from a financial perspective. Actively seek other business leaders who can provide open and honest financial advice. If it only makes an incremental difference, it will be worth the effort.
Ken Smerz is the President of Precision 3D Scanning (www.precision3Dscanning.com) a service provider that travels throughout the nation working with A/E/C and forensic clients. He can be reached at kens@precision3Dscanning.com with any questions or comments you might have.
A 440Kb PDF of this article as it appeared in the magazine complete with images is available by clicking HERE