Return on Investment (ROI) is an interesting and important concept. In professional service firms the “cost benefit” of business development is often difficult to segregate, calculate, and measure. Not because it’s a difficult concept, but because there are so many factors.
ROI is precisely measured by comparing the direct overhead costs of a single business developer (salary, benefits, bonus, expenses, etc.) against the firm’s profit associated with the work that individual was “responsible for” or “associated with.” This is the typical accounting/finance perspective.
That is alright, but, more often than not, there is a team of professionals responsible for the client interaction necessary to win and perform any project assignment. The “contribution” of any one individual to the successful contracting for a new piece of business varies widely from introduction, to strategic overview, to tactical solution, to proposal, to presentation, to final contract negotiation, and finally, to actually performing the service (which, in turn, determines the profit).
And therein lays the challenge. How much weight do you put on the initial relationship development, when both winning and the actual performance of the service (and resulting profit) are dependent on a “team” of professionals (with varying degrees of ability)? Is it fair to measure the business developer’s performance on so many factors out of that individual’s control? Probably not, but it remains an important metric.
Other ROI measures that may be considered in analyzing business development performance include:
1. Improving the firm’s “visibility” within its market focus or geography, measured by the actual or percent increase in number of contacts and potential clients. This can be a general measure or a market specific measure when the firm wants to diversify or expand in a particular sector.
2. Improving the firm’s “opportunity pipeline” measured by the actual or percent increase in potential net fees for “qualified” projects (gross fees less consultants and non-billable expenses and splits with other offices or departments within the organization). The ideal “depth” of the opportunity pipeline is typically a calculation of the firm’s success or “hit” ratio (see #5 below) as the denominator to the firm’s sales budget target (i.e., if you win 33% of the work you submit/present for, you need a visible pipeline that is 3X your sales goal). This is preferable to measuring numbers of opportunities because the quantity is irrelevant if the total potential fee is not reached. The “factors” for analyzing “qualified” and “potential” are topics that will be addressed in a future posts.
3. Improving “submittal-to-shortlist” results, measured by actual or percentage increase of success in converting statement of qualification or proposal responses to interviews. The business developer is usually not a contributor to the actual preparation of the response, but they should be a key strategist in determining the content and how to address the client’s most important issues, and a reviewer of the submittal for content and consistency of message. Think like the client (it is not “all about us”) because if you don’t make the cut, you can’t get to the win.
4. Improving “short-list/interview to win” results measured by the number of engagements or dollar value of engagements divided by the number of interviews. Again, the business developer is not usually a part of the interview team, but should always be part of the presentation preparation and rehearsal process. Think Simon Cowell, because if you don’t win no one remembers who came in second—well sometimes they do on Idol, but not usually with professional service firms.
5. Improving the firm’s “hit rate” measured by number of opportunities (or dollar value of same), divided by the number of “wins” (or dollar value of same) in a given period (month, quarter, year). Again, this is something that the business developer contributes to, but is not directly or totally responsible for. But, it is where the work that is performed starts, and where “profits” are the result. You can’t design or build, or bill it, if you don’t win it first.
For smaller, niche firms quantity ratios make the most sense (if project fees are ‘about average’). For larger firms where project fees vary greatly, dollar-based ratios are more relevent.
This takes us back to determining ROI. In today’s challenging marketplace, all of these factors are critical. Showing improvement in any one of these factors is a positive metric of a business developer’s value. Improvement in all is a metric of the firm’s overall marketing, business development, and public relations efforts. But, improvement in the profit/cost ratio is still the measure that “pays the rent” (and salaries, benefits, and bonuses). At the end of the day, they all matter.
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