Sunday, May 31, 2020

Reflections - The Rainmakers


The Rainmakers
To whom the firm is beholden

A rule of thumb of in professional services business is that billable resources, at the minimum, must produce 3x their cost to company. Their services are the sources of revenue for the firm. Let me explain giving an example of an advertising agency, and its client, a technology company, IBM.

As part of the contract of this firm with IBM (the account), the billable resources are: account management person who is the firms regular interface with the client responsible for taking client brief (understanding client communication requirement) and ensuring delivery of firm’s services, raising of estimates and invoices, and collection of dues.

The account management person is supported by creative teams of copy and art, data, computer artist, production person etc. Each one’s services are billable at a rate per hour.

There are also persons like the overall boss of the firm, the boss of the unit, who are billable if they are actively involved in the account. The back-office staff, like the accountant and other staff are not billable.

With that background, if a billable person, the account manager’s cost to the company is Rs 100 per hour and he works 200 days on the account for 8 hours a day (weekends, annual holidays, privilege and sick leave exempted), his cost to the company is Rs 100 per hour x 200 days x 8 hours i.e. Rs 1,60,000 per year. The cost per hour is calculated backwards from the cost to the company for the billable resource. 

The account manager needs to ensure he bills 3x to the company (IBM) i.e. Rs 1,60,000 x 3 = Rs 4,80,000 per annum for his services. Likewise, the other team members who will be on different rates per hour.

The idea of 3x is to cover the cost of the billable resources (1x), overheads of the company (1x), like rent, electricity, back-office staff, overall unit head costs etc., and toward a reasonable profit (1x) of ~30%. Profit essential to expand and reinvest in the business for offering better, wider, and deeper quality of service to the company. Healthy profits help in the growth of the firm and the client company.

In this model, billable resources are added when business grows and retrenched when business drops. The gestation period is an investment the firm makes which must be made up with sufficient revenue and profitability when the full team is in place.

Profitability comes from 100%+ utilization of the billable resource on the client account, with every hour billed, and dues collected within the credit period. Anything less in utilization percent or more in credit period, incurs interest costs and wipes out the profit potential.

When investment costs are not recovered due to stunted growth of the business, the business proposition becomes less attractive to the promoter or investor, cramping future investment in the business. If even operating costs are not recovered it only means shutters for the business.

The point of the long background is to highlight the importance of the ‘rainmaker’ who can bring in new business at a steady rate. The predictability of new business acquisition helps reduce the gestation period to operationalize an account by maintaining a bench strength.

More billable resources get added with expanding operations. Profitability is enhanced with better management of overhead costs (real estate, fixtures, furniture, power, facilities etc.) and back-office staff sharing, who are part of the headcount but are not billable. Efficient utilization of the non-billable staff adds to the bottom line. Often, back-office staff are outsourced to make the headcount revenue and profitability look good.  

Timely technology upgrades make the operations speedier and the output more accurate. When more of the new business comes from the existing customers, there is a reduction in new business development costs. The saving goes straight to the bottom line further improving profitability. If there are occasion for non-fee billing such as commission on production costs that also adds to the bottom line significantly since there is no resource cost attached to it.

What are the rainmakers like?

They are part Golden Retriever – to sniff out where new business exists; part Greyhound – possessing stamina to pursue their prey; part Bull Terrier – showing little patience and tolerance for competitors chasing the same business, forever thinking up ruses to scuttle their moves; part Great Danes – hardworking, pulling their weight, putting in long hours to pepper the prospect with useful information to stay top-of-mind in the prospect’s mind; part Border Collies – herding the team in the company to prepare presentations, propose innovations, and creative way of addressing the client’s problem to bag the business; part Dalmatian – having a certain presence through size, a booming voice, sharp intellect, or panache that the prospect finds difficult to erase the image of the ‘spotted’ breed from his mind even when the person has left his presence.

They work on triple insights: insight of the customer/client – what are his hot buttons when pressed gets a positive reaction; insight of customer’s customer – what will make the customer’s offering the preferred 'buy' of the end customer; and insights of the market – what are the dynamics that plays to the customer’s strength, and more importantly, the weakness that can be eliminated by engaging the firm and its resources.

The bottom line in this case is the focus of the rainmaker on his own and his client / customer’s personal needs and wants, aspiration and fears, success and hindrances in pursuit of their respective missions.

It must be win-win – not just in acquisition of the new business – but repeat business for the firm which saves on new business development costs. The latter is often not the concern of the rainmaker though the success of the business overall does add to the rainmaker’s bonus, apart from what is personally attributed to him, when the account is acquired and the potential business size in dollars is added up.

Want to be rainmaker? Don’t pray for rain. Pray from the rain.

Rainmaker operates from the belief that he already has the client’s business. A reviewer of Ernest Holmes’ book Science of Mind, explains the phenomena of praying ‘from’ rather than praying ‘for’.  

“Because our perceptions determine the nature and quality of our experience, we cannot experience what we do not perceive.  So, we do our Spiritual Mind Treatment from the consciousness that we already have what we want – we just need to realize it.

“It’s kind of like that phenomena when a person goes to the bank for a loan saying they lack money, the bank will turn them down, but turn around and throw all sorts of credit cards at another person who doesn’t ask, because that person has all the money they need.

“That contrast of praying ‘for’ something and praying ‘from’ the thing itself is Ernest Holmes’ distinction between having faith in God and having the faith of God. We must begin to pray from prosperity, pray from health, pray from right relationships, and pray from perfect creativity.

“This is the great mystery of life. We must be clear on the ultimate truth that we are living the life of God, as God.”

     Rainmaker, the business is already yours. Go get it.


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