Accountants. Architects. Consultants. Designers. Engineers. Counselors. Speakers. Trainers. You know the list…companies who sell time, expertise, advice, analysis, guidance, etc.
Imagine that the typical billing multiplier in the market place has been running around 2.5 so an average billable employee with a compensation package totaling $75,000/yr could be reasonably be expected to produce $187,500/year in fee related revenue. The average hourly price for the professionals would need to average $150/hr and the professionals would do billable client-related work 60% of their time for those numbers to result. Since fees often constitute as much as 80% of a service firm’s gross revenue, a $5 Mil/yr firm would have about 21 billable professionals producing $4.0 Mil/yr in fee revenue. A firm like that would probably generate 40% gross profit which could fund $1.5 Mil (30%) for operating expenses (business management, marketing, and overhead). The owners could end up with a 10% net operating profit of $500,000/yr. There would be as much as $900,000 available to cover salaries for a few managers, a marketing coordinator, a small accounting department, and maybe an administrative or IT professional. That’s 28-30 employees.
A similar series of metrics could be run for distributors. The difference is: by the time a profitable distribution company reaches the 25-30 employee mark, they are typically generating closer to $10 Mil/yr in gross revenue.
In general, are service firms that generate $5 Mil/yr in revenue with 25-30 employees (or distributors at $10 Mil with 25-30 employees) positioned for growth, a plateau, or free fall?
Does the well-known phrase “5 MILLION DOLLAR WALL” answer that question?
A stubborn plateau often occurs at 25-30 employees…and it happens across a wide variety of industries. The managers have become tired. The complexity of dealing with that many people becomes too difficult. The amount of money available for management salaries is too small to encourage the business leaders to hire more non-billable employees. The need for additional departments becomes evident, but the time to deal with re-organization doesn’t exist. Account profitability often starts to slip backwards at the 25-30 employee level as experienced people delegate and lack the time to provide sufficient training. Systems used by a core group of 10-12 employees are still in place but no longer work.
Ironically, we are helping a client with 175 employees that is experiencing the same kind of span-of-control plateau faced by $5 Mil/yr companies and 25-30 employees. It’s just their 7th wave of change.
Aldonna R. Ambler, CMC, CSP has earned the right to be called THE GROWTH STRATEGIST®. She has won over 2 dozen national and statewide “entrepreneur of the year” awards for the resilient growth of her international businesses across 4 recessions. Her midsized BtoB clients get on…and then stay on…the published lists of the fastest growing privately held companies. She owns and operates a suite of companies that help privately held midsized companies achieving accelerated growth with sustained profitability® through opportunity & resource analysis, 4 approaches to strategic planning, executive advisory services, growth financing, and targeted search. 2013 is Ambler’s 9th year hosting a weekly peer-to-peer-to-peer syndicated on line talk show that features interviews with CEOs/Presidents of midsized companies (typically between $20 and 200 Mil/yr.) sharing success tips about the growth strategy-of-the-week. An archive of over 300 interviews is available at www.GrowthStrategistShow.com. She can be reached toll free at 1-888-Aldonna or at Aldonna@AMBLER.com.
Known as The Growth Strategist®, Aldonna Ambler built and grew a suite of companies to help midsized B2B companies achieve accelerated growth with sustained profitability® A Certified Speaking Professional (CSP), Ambler has addressed over 2000 audiences and hosted a syndicated online talk show about growth strategies for 9 years. As a growth financing intermediary, Ambler raised over $1 Bil dollars for midsized companies. The winner of over 2 dozen prestigious national and statewide "entrepreneur of the year" awards, Ambler is available to speak about “profitable growth during any economy” and/or serve on the board of a growth-oriented privately-held company.