While you paddle ahead on your top priorities for 2025, take time to check the boat for leaks slowing you down.
One place to look is your firm’s revenue journey.
We cheer when we sign a new engagement, but if the revenue doesn’t make it to our bank account, we’re in trouble.
You could start all the way at the top of your marketing funnel, but for today, let’s begin from where a scope of work gets approved. Revenue then (we hope) gets:
- Booked
- Earned
- Invoiced
- Paid
Does this sound pretty elementary? You might be surprised at how much room there is for unnoticed leakage from booked to paid.
Let’s take a quick scenario. Imagine a firm with 45% delivery cost and 25% operating cost. With just minor issues, their leakage could look like this:
- Earned: 98% of booked
- Invoiced: 97% of earned
- Paid: 96% of invoiced
Just a 1% reduction in leakage at each stage will mean a 10% increase in operating profit. Yes!
So how can you surface your best paths to capturing more profit here?
- Calculate your total revenue at each stage from each of the past 6 months (and total)
- Calculate the leakage at each stage per month (and total)
- Identify the transition with the biggest leakage (booked>earned, earned>invoiced, invoiced>paid), looking at the trend as well
- Drill down to your engagement or invoice reporting for that transition to understand what is happening and why
- Identify any patterns in the what and why – clients, types of engagements, teams, circumstances – and explore possible causes
Issues you uncover could relate to discovery and planning, team scheduling, managing client expectations and scope changes, communication between PMs and Finance, collections, and more. Every stage of the client journey presents risks and opportunities for the revenue journey.
Remember to prioritize your exploration based on what will make the biggest impact on profit with the least effort.
Then:
- Pursue the highest-value cases of uncaptured revenue
- Fix the highest-value causes of leakage patterns
The result? More profit!
That extra profit can be invested in your capabilities to create value for your clients, your team, and yourself, and even more profit follows.
One more thing: today I published my great chat with Shaun Tyndall on the Agency Health Podcast. He shared the details of his approach to building long-term client relationships, finding freedom from the feast-or-famine cycle, and structuring win-win retainers. Take a listen.