TEDx | "Never accept the status quo" is my ethos | Accelerating innovation and manufacturing ecosystems through actionable, data-driven market insights is my mission
Understanding Business Models and Economics of firms is a critical part of market intelligence. It's one of the areas where I find the least understanding on the part of government and an area that I will be diving into more over the coming weeks/months. Example - Professional Services This oversimplified example is because I've seen frustration on the part of contractors as Contracting Officers will merely take a position title (e.g. Senior Analyst) and try to compare rates. That is very much not an apples-to-apples comparison. The skills required by each firm may vary. The business model and economics will often vary. I've provided examples of two types of firms (staff aug vs. project-based), but some firms deploy both models or a hybrid and it's not as simple as these two examples. Here's what matters when you are thinking of staffing and negotiating for Professional Services. - Length of project and staffing - Will staff be 100% staffed or some smaller % - this has a huge implication on cost/hour. Most project-based firms have to account for a BILLABILITY FACTOR - essentially how much time will their staff be unbilled. The value for the client has to be whether they get some type of specialized skills/expertise and paying for part of the unbilled time. - Salaries - Salaries may vary significantly depending on skills and talent sourced, experience levels etc. Titles by themselves are not useful. - OH Rates - Overhead rates for project-based firms can be higher if they are competing based on niche expertise, skills, tools that are also differentiated. They may be making investments in research, data, tools that ultimately benefit the client. That is the million dollar question - how do they benefit the client? - Profit % - Staff aug contracts typically have lower profit % but make it up through much larger contracts, hence much larger profit in aggregate. Project-based on the other hand have higher profits (even though I've used the same in my example) for the risk and specialized expertise. Results - As you can see, even with the same salary levels, the rates can be very different, many times 2x to 3x more for the same salary level. Advice - Take time to understand your requirement and what skills you need, the length of the contract which is a significant cost driver, the type of professional services firm you need to address the requirement. Only when you get to apples to apples can you really start to compare rates, total cost and most of all, value to be delivered. #professionalservices #businessmodels Public Spend Forum Wendy Masiello Ryan Connell John Ferry John Bashista John M. (Jack) Pellegrino, NIGP-CPP, CPPO, CPCM Kevin Herstine
Good example of an important concept. If you are a firm that does both staff aug and project-based work, you should consider differentiated overheads to be more competitive and also try to make the fully loaded rates truly reflective of the cost to perform the work.
Absolutely! It’s essential to go beyond the superficial comparison of titles and base rates. You hit on the point of aligning the right business model with the right requirements—and understanding that comparing across different models can prove problematic. Sometimes staff augmentation is what’s needed, other times it’s a project/deliverable-based model. Start with deeply understanding the requirement and services strategy.
Raj Sharma this is really well said. Being "small business friendly" isn't just about giving a Small Biz a contract people - it's about giving predictability. You can't Firm B work at Firm A prices for long (some firms will invest, of course, up front to take a bet). And, if you go big, you're dealing with more overhead by admin vs. by "bench" costs -- lots to consider here from an acquisition perspective
Co-Founder / CEO at Spacely
7moGreat example and couldn't agree more about understanding and mapping to the requirements. We've been saying it's no different when jobs remain unfilled, to deconstruct them according to the skills you need, and the work that needs to be done, at a more granular level. Open talent marketplaces should reside in a Firm C column. Firms can increase velocity and tap into the type of talent that reside in Firm A and/or Firm B, without carrying the same overhead. Including task based work (1 day-30 days) along with project based work (1-6 months) can add agility and velocity, give additional relief valves, while better metering variable costs. Takes some work to set up the operation, but once it's in place and understood, you can create greater efficiencies and organizational flexibility. Tough part is then convincing the government that you might have rates at $500/hr but that it still costs less overall than agreeing to project or long term engagements