Is your business development (BD) program successful?
Whether you answered yes or no, here’s a question to ponder: how do you know?
Two challenges facing professional services firms today are both having an understanding of Key Performance Indicators (KPIs) as well as having the ability to track those KPIs.
There is a long list of potential metrics, but which ones make the most sense? In this post, we’ll look at some of the most important business development (sales) metrics.
For this blog, I’ll assume that your firm is already tracking revenues and profits as key financial performance indicators. (And if your firm isn’t, shame on you!) With that stated, this post will focus on four important BD KPIs:
- Activities / Contacts
- Sales Pipeline
One of the most basic BD metrics is bookings. This is work that has been “won,” whether or not you have actually billed against it. A design firm may “book” a $50,000 design fee (or multiple thereof), while a construction firm may “book” a $5 million contract (or much more).
The booking is recorded when a firm is notified by the client that they have been selected. Firms utilize different triggers when determining when to track work as being booked — perhaps upon receipt of verbal or written notification from the client, or perhaps when a formal signed contract is received.
Bookings is an extremely important metric to track because it is an indicator of work to come. A $250,000 design fee booked today may entail billings over the next year or two. But the booking itself is typically tracked in the year (calendar or fiscal) in which it occurs.
Note that this is a high-level KPI, and should be further broken down in a number of ways, based upon what makes sense for your company. These can include:
- Repeat clients vs. new clients
- Business units, departments, disciplines, or offices
- Geographic locations
- Market sectors or client types
- Project delivery types (design-build, CMAR, design-bid-build, P3, IPD)
- Any other meaningful way that you want to sort the data
Bookings is a great indicator of future workload; however, it is merely a piece of the whole story.
Why it is Important
This KPI is useful for several reasons. First, it provides a gauge of business development success. If your bookings goal for a certain period, like a year, is $1 million, and you’ve booked $250,000, you know that the company is at 25% of goal. If this is at the end of the first quarter, you’re on target. But if this is your figure at the end of the second quarter, you have problems. You’d only be at 50% of your bookings goal through six months. This is why the KPI should be monitored monthly, so you can take corrective action if necessary to generate more work — or at least more opportunities.
Bookings also allows your operations department to conduct resource planning. Bookings allows them to determine if the company (or department or office) will have enough staff to deliver the projects, or if they need to recruit new employees. Conversely, if bookings are down significantly, it can be an indicator to consider a workforce reduction.
Another meaningful metric is proposals submitted. Like bookings, this data can be broken down into many different categories. In addition to those listed above, you might want to track the proposals by:
- Proposal type (lump sum, time & material, not-to-exceed, GMP)
- Selection type (competitive, negotiated, prequalified, shortlist)
Many firms use bookings and proposals to gauge the effectiveness of their business developers and seller-doers (principals, project managers, project executives, department managers, lead designers, construction managers, etc.).
However, this isn’t always fair — particularly when it comes to bookings. Say BD Representative A generates opportunities for three proposals worth $1 million. The firm loses two proposals, and wins one worth $250,000. If the BD Rep is being evaluated based solely upon bookings, they will be given credit for $250k. Now, say BD Representative B generates four proposal opportunities worth $1 million. The firm wins 3 of 4, and “books” $750,000.
Which BD Rep is more effective? If you go by bookings, BD Rep B wins the trophy. But is that fair? They both generated $1M in proposals. Furthermore, BD Rep A actually generated a higher average proposal value. How much control do the BD Reps have with the proposals? Do they write them? Do they price them? Do they participate in the project interviews – if there are any?
Often, at least in the architecture, engineering, construction (AEC), and environmental industry, BD professionals hand off the proposal writing, fee / cost development, and presentations to co-workers. Seller-doers may have more involvement, but again there are typically others engaged with the process, and thus they rarely have full control over these stages.
What if BD Rep A was not involved with the subsequent stages, and the firm’s fees for the two losses were significantly higher than the competition? Is it fair to penalize the BD Rep (or seller-doer) for something that was out of his or her control?
However, if the firm is evaluating the BD team based upon proposal opportunities – instead of bookings – then both representatives in this example would be given credit for generating $1M in proposal opportunities.
There are of course other factors at play. Perhaps the firm does not have a robust go/no-go process for making decisions on whether or not to pursue proposals. Potentially, one business developer could be bringing in high quality proposal opportunities while the other is bringing highly-competitive, low-probability opportunities.
Why it is Important
Tracking proposals submitted, along with their value, is another way that a company can monitor their pipeline to make sure there is enough work to meet budget and keep staff busy. This information can be especially important at the department or profit center level. Furthermore, when proposals are tracked and broken down by business developer or seller-doer, firms can use the KPI to evaluate the effectiveness of their staff in these roles.
Activities / Contacts
Another business development KPI to consider is an activity-based metric, like contacts made. Tracking contacts allows a firm to see whether or not a business developer or seller-doer is doing the right things. Contacts can be tracked numerous ways:
- Phone calls
- Social media activities
- Networking event conversations
For gauging the success of business development, it is important to ensure that quality conversations are taking place. In fact, one of the reasons the seller-doer model typically fails is because the seller-doers are so busy on project work that they are not engaged with their BD responsibilities. Maybe they excel at regular communications with their current clients – but how often are they staying in touch with their former clients? Or client contacts who have moved on to other firms? Companies that are actively tracking contacts being made are better able to determine whether or not these conversations are taking place.
The caution here is that not all conversations are equal. Face-to-face meetings are typically higher in value than email exchanges or short networking interactions. However, just because a meeting is held doesn’t mean that it went well, or that a proposal opportunity will follow.
For many AEC firms, contact tracking is not easy to do. Too many professionals don’t track their BD activities, or they keep minimal data that few people can access. Customer Relationship Management (CRM) software programs like Deltek, Cosential, salesforce.com, Insightly, Hubspot, and others make this tracking possible, but many firms are not using them. In fact, I’ve come across a lot of firms using Deltek for timesheets, but not CRM.
And even if you have the software, are there enough seat licenses for everyone? Probably not, but even if the answer is yes, the next question is whether or not everyone is effectively tracking their activities. Are they logging their BD contacts? Are they including meaningful information about the conversations, or just recording that they had a phone call with someone on a certain date? (Or only that they left a voicemail or sent a LinkedIn connection invite?) Are they identifying and tracking leads – with potential dollar value, probability, timeframe, competitors, etc.?
I typically recommend that firms use activity-based metrics to ensure that the right things are taking place, but there absolutely must be buy-in from the top. I’ve heard seller-doers say, “Would you rather me be making the contacts, or spending my time recording the contacts?” (I’ve actually heard a business developer or two say the same things!)
The answer to both is a resounding YES!
Firms need data!
Why it is Important
In order for your business development program to succeed, those staff members with sales responsibilities must be taking them seriously. Tracking BD activities — and using them as accountabilities — allows firms to ensure that business development is actually happening. Contact goals can be established and monitored, like “arrange 2 meetings with new prospects per week” or “contact 4 former clients per month.” These goals will vary greatly, with dedicated business developers typically expected to generate a higher volume of contacts and meetings than seller-doers, who are also involved with billable work.
One of the most important KPIs for business development is the sales pipeline. Firms may calculate it differently, but I like to include proposals submitted, proposals in progress but not yet submitted, and identified projects that have yet to reach the proposal stage, which some firms call opportunities and others call leads. This is a big picture metric that allows a firm to look at what could be coming down the pike. Of course, not all opportunities will become proposals, and not all proposals will become bookings.
How large should your sales pipeline be? I’ve always said that most firms need at least a year’s worth of work in the pipeline at any given time. Furthermore, for firms that assign probabilities to both submitted proposals and potential opportunities, it is ideal to have a year’s worth of work in the adjusted probabilities. So for a firm that has a 40% hit rate (more on that below) and a goal of $10 million for a given period (like a calendar year), it is great to have $10 million in the pipeline right now. But we unfortunately work in an industry where it often takes years for a project to come to fruition and months for a project to be awarded after proposals are submitted.
So that firm with a 40% hit rate really needs $25 million in the pipeline! ($25M x 40% = $10M.)
Why it is Important
Tracking the pipeline — beyond just proposals submitted — also serves as a warning system for a firm to identify potential workload gaps, the dreaded “valleys” that most of the firms in the AEC industry experience too often. Conversely, a crazy-healthy pipeline is a leading indicator of the need for more staff and a call-to-action for operations and HR to be recruiting potential employees to meet the workload demands of the near future.
Another important business development metric to track is hit rate, which looks at the percentage of proposals won; however, this is also a marketing KPI which will be covered in a future blog.
About the author:
With almost three decades of experience, Scott has worked with architectural, engineering, construction, and environmental firms as a consultant, trainer, facilitator, and employee. He is a Certified Professional Services Marketer through the Society for Marketing Professional Services (SMPS). Scott holds a BS in Marketing from The Pennsylvania State University, a Certificate in Professional Photography from the New York Institute of Photography, and three certifications from Hubspot Academy. He is a Fellow of SMPS and recipient of the Central Penn Business Journal Forty Under 40, Leadership York Outstanding Alumnus of the Year, SMPS Central PA Keystone Award, and SMPS Philadelphia Supporting Member Award.
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