I recently attended the Southeast Regional meeting of the Society for Marketing Professional Services. (SMPS is an association for marketing professionals working at architecture, engineering and construction firms.  I believe all marketers at such firms could benefit from joining).  The participants generally agreed that there was precious little evidence of a downturn.  Most firms had more work than they could handle. 

I believe, however, that a downturn may be more imminent and more severe than most would suspect.  Here’s my reasoning:

First, the performance of professions that make their living off of the design and development of buildings is a lagging indicator.  New building projects don’t get started until a recovery is well underway and excess capacity either absorbed or removed from the market.  Also, there is so much momentum to these projects and the financial and emotional termination costs are so high, that they keep chugging along even as the economy dips. 

But when the top management of organizations are really convinced that they are about to take a financial bloodletting, out comes a large, stainless-steel cleaver and chops off any planned projects.  About a week later, out it comes again and lops off all projects that are underway, except for those nearest to completion.  In a period of two to three months, the professional firms go from working flat out while desperately trying to find more people to recruit to famine, with many of their people sitting around in the office dazed and unbilled, trying to figure out what happened.

Anyone who hasn’t been through a downturn will find this hard to believe.  Let me show you what happens.  You’re revenue (R) is the product of three numbers

1. the number of people you talk to about your services (N)
2. the percent of them you persuade to buy your services (B)
3. the average fee charged per client (F)

So, N x B x F = R

Or, if N = 100, B = 10% and F = $100, your revenue can be calculated as

100 x 10% x $100 = $1,000

When the downturn comes, the percentage of people in your network who buy shrinks and those who remain have smaller budgets.  In other words B and F decline.  If we assume this decline is ten percent, the revenue calculation looks like this:

100 x 9% x $90 = $810

Whoa!  What happened?  The percent buyers and the fees per client each declined ten percent, but revenues dropped nineteen percent!  That’s because the variables are multiplied against each other resulting in a geometric fall.  This shows how relatively modest declines in the buying power of our market can result in a devastating reductions in revenue.

This is an indirect path to reveal the importance of N, network size. You can’t control B or F (the percent of your contacts who buy from you and the average fee of earned from each).  But you can control N, the size of your network.  N is a function of the number of people in the market that you stay in touch with.  That number is largely within your control.

But today, you are awash with work.  You are so far behind that you don’t have time to maintain your network.  In fact, you are afraid to call people for fear that they will want you to do some work which you don’t have time for.  So, you don’t call and over the months your network begins to slide, too.   In other words N declines by, let’s say, ten percent, too. Our equation now looks like this:

90 x 9% x $90 = $729

This is a decline of twenty-seven percent.  That’s eight percentage points less than we would have to deal with, if only people had kept up their calls and meetings.  How many jobs saved does that translate into? 

So, keep up your calls and meetings, even when you are fully loaded with client work.  When a downturn comes, it won’t be as steep, nor last as long if you do.

*******************************

Order your copy of Ford Harding’s new and revised edition of Rain Making, called ”…an essential guide for anyone responsible for business development in the professional services industry…” – Mark Mactas, Chairman and CEO Towers Perrin

This entry was posted on Wednesday, April 9th, 2008 at 8:42 AM and is filed under Networking, Selling Professional Services. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.