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Managing a Business that Sells Only Hours
Managing a Business that Sells Only Hours
Managing a Business that Sells Only Hours
Managing a Business that Sells Only Hours
Managing a Business that Sells Only Hours
Managing a Business that Sells Only Hours
Managing a Business that Sells Only Hours
Managing a Business that Sells Only Hours
Managing a Business that Sells Only Hours
Managing a Business that Sells Only Hours
Managing a Business that Sells Only Hours
Managing a Business that Sells Only Hours
Managing a Business that Sells Only Hours
Managing a Business that Sells Only Hours
Managing a Business that Sells Only Hours
Managing a Business that Sells Only Hours
Managing a Business that Sells Only Hours
Managing a Business that Sells Only Hours
Managing a Business that Sells Only Hours
Managing a Business that Sells Only Hours
Managing a Business that Sells Only Hours
Managing a Business that Sells Only Hours
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Managing a Business that Sells Only Hours

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Describes in step-by-step process how to measure and display the key business indicators in a consulting business - when you sell time. It ensures always making a profit, or at least being conscious …

Describes in step-by-step process how to measure and display the key business indicators in a consulting business - when you sell time. It ensures always making a profit, or at least being conscious of decisions taken on proposals. It is a graphical solution, easily understood by non-business savvy middle management, and promoted technical performers. Advising business: www.JeremiahJosey.com

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  • 1. How to Make Money When Selling Your Time A perspective on consulting in today's profit and cost conscious consulting market Presentation by Jeremiah Josey www.JeremiahJosey.com Member - Mensa International © Jeremiah Josey www.JeremiahJosey.com
  • 2. Business and Numbers
    • A business is what?
    • A product?
    • A market?
    • Sales?
    • Overheads?
    • Systems?
    © Jeremiah Josey www.JeremiahJosey.com A BUSINESS IS NUMBERS THE NUMBERS HAVE TO WORK
  • 3. What are “The Numbers”?
    • Different for different businesses…
    • Hospital = satisfied patients per year
    • Knitting Club = great functions per year
    • NASA = successful missions
    • Business =
    © Jeremiah Josey www.JeremiahJosey.com = Income left over after taking away the expenses PROFIT
  • 4. Business and Profits
    • Profit determines good business from poor
    © Jeremiah Josey www.JeremiahJosey.com
  • 5. Poor Business
    • Division of a Large Oil and Gas Company
    • High Income, High expenses
    • Annual Income AUD8.35B
    • Annual Expenses AUD8.31B
    • AUD40 Million profit or 0.5% RoR
    • Equity AUD871M, RoE 4.6%
    © Jeremiah Josey www.JeremiahJosey.com
  • 6. Hamburgers Anyone?
    • McDonalds 2007 Income: US22.8 billion
    • Profit USD5.18B / 22.7% EBIT
    • Business with most customer service staff Under 21
    © Jeremiah Josey www.JeremiahJosey.com
  • 7. So, Consulting and Business?
    • How do consultants make money?
    • Two ways, by:
    © Jeremiah Josey www.JeremiahJosey.com
    • Selling time – Commodity Consulting
    • Trading Time for Money
    • Selling results – Value Consulting
    • Taking part of the profit or a piece of the pie – equity positions, profit sharing etc
  • 8. Commodity Consulting – Trading Hours for Money
    • GOOD Commodity Consulting Profit
    • Income from selling hours must be greater than the cost of getting those hours
    • That means….
    © Jeremiah Josey www.JeremiahJosey.com PROFIT = SELL RATE x SOLD HOURS – HIRE RATE x TOTAL HOURS – OVER HEADS
  • 9. The Equation
    • Profit = Income Less Expenses
    • Profit = Sell Rate x Sold Hours – Hire Rate x Total Hours – Over Heads
    • Labour Margin % = (Sell Rate - Hire Rate) / Sell Rate
    • Utilisation = Sold Hours / Hire Hours
    • Labour Margin % = 1 - Utilisation * (1 - % Over Heads - % Profit)
    © Jeremiah Josey www.JeremiahJosey.com
  • 10. The Result – A “Galaxy Chart” © Jeremiah Josey www.JeremiahJosey.com
  • 11. Interpreting the Result
    • Above Pink Line = GOOD
    • Below Pink Line = BAD
    • Provides a VERY QUICK business indicator
    © Jeremiah Josey www.JeremiahJosey.com
  • 12. Examples – Poor Business
    • A business with a poor handle on what is important..
    • High rates but not much work – losing money
    © Jeremiah Josey www.JeremiahJosey.com Lower the rates to get more work, but still losing money
  • 13. Examples – Good Business
    • Knowing your business means you can make decisions to take you from…
    © Jeremiah Josey www.JeremiahJosey.com … to here, being profitable, and working less. … here, working really hard and going broke…
  • 14. In Practical Terms
    • Sell Rate if Hire rate is USD 125 per hour?
    • Utilisation of Staff is averaging 85%
    • Office Over Heads are averaging 20% of revenue
    • Required Profit for the business is 10%
    © Jeremiah Josey www.JeremiahJosey.com
  • 15. The Equation © Jeremiah Josey www.JeremiahJosey.com % L ABOUR MARGIN = 1 - % UTILISATION * (1 - % O VERHEADS - % P ROFIT )
    • Utilisation: 85%; Overheads: 20%; Target Profit: 10%
    • Required Labour Margin is 40.5%
    • Since Labour Margin = (Sell – Hire) / Sell and Hire = USD 125 per hour,
    • The required Sell Rate = USD 210 per hour
  • 16. In The Final Analysis
    • From the chart there are three variables to monitor:
    • Labour Margin – how well you hire vs how well you sell
    • Utilisation – how hard you are working
    • Overheads – how much it costs to hire and sell and provide the tea, coffee and biscuits
    © Jeremiah Josey www.JeremiahJosey.com
  • 17. Improving
    • Labour Margin
    © Jeremiah Josey www.JeremiahJosey.com Overheads Utilisation Focus is best when it is applied to one thing at a time Spend time on one of these items each week and then move to the next Each stage on the cycle calls on different skills and tools
  • 18. Typical Components of a Sell Rate © Jeremiah Josey www.JeremiahJosey.com 10% for Profit 15% for Utilisation Provision 7% for Non-Labour Office Overheads 13% for Corporate Overheads 3% for Payroll Tax + Insurance 4% for Leave Provision Hire Costs per Hour (Annual Salary + pension divided by 2080 or direct hourly cost) Makes it complicated trying to track all of these variables
  • 19. Another Way - The “Multiplier” © Jeremiah Josey www.JeremiahJosey.com
    • Many consultancies use “multiplier” magic – A single number is used to multiply the hire rate to obtain the sell rate. Once created, the basis for the calculation is are lost or hidden , or at most difficult to reproduce
    • Multiplier and %Labour Margin are related: combination of the same three critical elements: Multiplier = 1 / ( % UTILISATION * (1 - % O VERHEADS - % P ROFIT ))
    • Using Multiplier still need to consider all 3
  • 20. “ Galaxy Chart” Using Multiplier © Jeremiah Josey www.JeremiahJosey.com
  • 21. Benefits of Using Galaxy Charts
    • A Picture tells 1,000 words – use the galaxy chart to ask questions
    • Doesn't rely on too much understanding of staff or managers – business management skill level can be lower for senior staff (usually promoted lower managers or “technical performers” – not business savvy)
    • Very simple metrics to measure, monitor and focus upon
    • Using a multiplier alone often hides problems
    © Jeremiah Josey www.JeremiahJosey.com
  • 22. Discussion Time
    • How would this add value?
    • How much time would be saved in monthly reporting?
    • How much quicker would proposals be?
    © Jeremiah Josey www.JeremiahJosey.com

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