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Business


10
Oct 11

Track your hourly rate over time to make decisions easier

Our Hourly Rates © by SMcGarnigle

As part of my series on simple business metrics, here is an elaboration on metric #5 – Overall Hourly Rate Over Time., to wit,  are you more productive per hour than you were in the past?  You won’t know this if you don’t track your hourly rate over time.  It sounds simple, and it mostly it is.  I’ve found that tracking your hourly rate over time makes many decisions easier.    Here is a partial list of the insights:

Insights from a Rising Hourly Rate

  • In general you are on the right track
  • You are doing more or less the right mix of tasks
  • Your capital investments (computer hardware, software and training) were a good idea
  • Now is a good time to bring on new people, especially people with similar skillsets to you
  • Your clients are solid – and you need to find more just like them

Insights from a Falling Hourly Rate

  • It might be a good time to invest in new software or hardware
  • The market might have shifted away from your bundle  of offerings, there might be new things to learn and offer your customers
  • Your might want to find new clients, and new types of clients.  Some clients will run you ragged if you let them, and it looks  like your current clients are doing just that.
  • You might want to reduce your outsourcing, or at least modify it - outsourcing should raise your rate (by allowing you to do higher dollar things)

 Why you need to use tools to track your time

I have found that my internal estimates of how much time projects (and clients) is distorted by personal enjoyment of the clients company (or lack thereof) and how much fun the project might be.  For example, a client that was a joy to work with who had an informative project might generate an off the top of my head estimate of 60 hours, when in fact it took 90 hours.  Similarly, a client that was torture to work with a project of pure drudgery has generated an off the top of my head estimate of 110 hours, when it took only 60.  Use an online time tracking service to record the actual data.

 

Editor’s Note

This blog post originally appeared on the Profit Awareness Blog - as that app is up for sale, it has been consolidated into the main Digital Tool Factory blog.


7
Oct 11

Internal Projects – What are the good ones and how much time should you spend on them?

Internal Project Intro

As part of my series on simple business metrics, here is an elaboration on metric #4 – External vs Internal Projects. What are those? As I (and most people) define them, external projects are paying projects for other people and internal projects are projects that help you land external projects (like a marketing campaign or software upgrade).  Please note,  internal projects do not include routine tasks like accounting or business development.

Internal Projects – The list

That being said – here a non-definitive list of what I consider to be worthwhile internal projects for a web development firm

  1. Short- term custom software – anything that speeds up data entry for example
  2. An Intanet (for your people)
  3. An Extranet (for your clients)
  4. Your website
  5. SEO campaigns
  6. Marketing honeypot sites that can be used for publicity – like eNormicon was for 37 Signals.
  7. Projects that allow you to learn and explore a new technology at your own pace – that was how I learned ASP.net MVC 3 and Silverlight.
  8. Explicit learning of new technologies and techniques.
  9. Short- term collaborations with other firms that allow some “code bonding”
  10. Prestige projects that you do for free to meet people – sites for symphonies or influential charities woudl fall in this category.
  11. Genuine pro bono work for kind hearted reasons – it sharpens your skills and you feel good at the same time.
One thing to bear in mind – any project like this that goes on for more than, say six months becomes:
  1. A hobby
  2. A vested interest – there will be internal constituencies both for and against it (nobody likes change)
  3. Difficult to modify in your workflow
  4. An entitlement to clients or the public if they’ve become used to it
  5. Psychologically difficult to remove – it’s like giving a way a puppy you’ve had for six months

And now for the big question – how much time should you spend on internal projects?

In my experience, you reach the point of diminishing returns if you spend more than 30% of your time on internal projects.  30% is just a general rule I have arrived at over many years in the business.  Your mileage may vary.

Why measure the time you spend on internal projects?

Internal projects are way more fun than external projects.  No one to tell you to make the logo bigger, no exact specification to match, no conference calls, no rush deadlines – just a lot of doing what got you into the industry in the first place.  You get to do things YOUR WAY.

I’ve found that the internal work can come in the way of paying work in some circumstances, and (unless precautions are taken) it gets in the way of unpleasant but necessary routine work in most circumstances.  Isn’t working on the SEO campaign more fun than doing accounting?  Isn’t coding up that new app for the animal rescue more fun than prospecting new business?  It’s way more fun, and you deserve the fun, but just keep it to 30% of your total work.  If you measure your time via some sort of time tracking service, and then analyze your time – you can see the true cost of that new app.

 

Editor’s Note

This blog post originally appeared on the Profit Awareness Blog - as that app is up for sale, it has been consolidated into the main Digital Tool Factory blog.


3
Oct 11

What is the right size for web development projects?

As part of my series on simple business metrics, here is an elaboration on metric #3 – Project Size., to wit,  what is the right size for web development projects for your firm?  The answer is not necessarily “Larger”.

I’ve found that my projects consist of varying percentages of:

  1. Graphic design
  2. Client Management
  3. Project Management
  4. Web Development
  5. Estimating, proposals and accounting

Each of the above varies by client of course.

Each of the above tasks requires some overhead in terms of dollars, time and energy.  The cost of client management and project management will increase disproportionately with the size of the project.  Maybe you are an extrovert.  Higher amounts of items client management and project management will be easy for you.  If you’re an introvert you will prefer graphic design and web development.  Client management and project management will be draining for you.  The percentages that are right for you will depend on your skills and personality.

After a few years you will have some notion of what the right size is  for you and your company.  Too far below this size and you find yourself spending too much time and money on estimating, proposals and accounting for the project to be profitable.  Too much above this size and you find yourself outside your comfort zone and spending too much time and energy on client management,  project management, and one time capital items.  You can lose money on projects that are too small or too large.

However, one happy thing about doing multiple projects for the same client is that client management and project management will decline over time (as percentages).

So, in sum:

  • There is a right size for web development projects.
  • That size will vary from firm to firm
  • That size should vary by client.
  • The right size for web development projects should increase over time.

In closing – I ran this by several friends as I was considering the article and got a wide variety of opinions, some agreeing with me, some not.  This is only my experience, your mileage may vary, etc.

 

Editor’s Note

This blog post originally appeared on the Profit Awareness Blog - as that app is up for sale, it has been consolidated into the main Digital Tool Factory blog.


30
Sep 11

How to raise your hourly rate? Start by calculating it properly

As part of my series on simple business metrics, here is an elaboration on metric #2 – which client has the highest hourly rate.  Calculating this seems simple, and for the most part it is.  You just have to make sure to include all time involved with the project.  It’s easy to omit non-billable time, hopefully you are including practicing  time tracking with some automated software.  You can only raise your hourly rate if you know what your rate truly is.  When calculating the rate, make sure to include all of your non-billable tasks.

Over the years, I’ve found non-billable tasks often include:

  1. Meetings
  2. Travel to meetings
  3. Phone calls
  4. Meeting prep (no one ever remembers to account for this)
  5. Pitch rehearsal
  6. Task disruption – on average, I have found it takes 15 minutes minimum to get back into psychological flow after a phone call or “urgent” email.
  7. Project research
  8. Client Research
  9. New software evaluation (ideally this should be spread out over several clients)
  10. Writing contracts and proposals
  11. Negotiating prices and contracts
  12. Consulting with outsiders (lawyers and advisers) about contracts
  13. Status emails

Have I missed anything?

Update: Bill From Coding Out Loud suggested the following points (which I have reworded slightly)

  1. Contract review and legal overhead
  2. Collections
  3. “Goodwill” support, i.e. items outside of the contract but needed to maintain the relationship (like when a client asks for the same file for the third time.).

Editor’s Note

This blog post originally appeared on the Profit Awareness Blog - as that app is up for sale, it has been consolidated into the main Digital Tool Factory blog.


28
Sep 11

Six simple business metrics for your web development company

After nine years in business at the best web development shop in Atlanta, here are the simple business metrics I wish I had kept from the beginning.

  1. How long do clients take to pay their invoices – it’s easy to overlook, bit if you don’t manage these they can creep up fast and it is hard to rachet expectations back down.  Read more
  2. Which clients has the highest hourly rate – Not always the easiest thing to track, particularly if you have a mix of hourly and fixed price projects, but you have to know who gets the extra effort – Read More
  3. Project Size – for all of the obvious reasons, and remember, a lion does not live on mice. – Read More
  4. Internal vs External Work – This metric has a host of obvious benefits, and it will usually show you where and what to outsource to outside services. – Read More
  5. Overall hourly rate over time – If it trends down for more than two consescutive months, you need to start retooling your business – Read More
  6. Project Length – How many days from start to finish?  It is easy to confuse this with project size, but how much time is lost in delays and approvals? – Read More

I track all of these simple business metrics in my Profit Awareness web app.  Indeed, I wrote the app because it is too much of a pain to do it manually, and QuickBooks is of absolutely no help at all with most of them.

Editor’s Note

This blog post originally appeared on the Profit Awareness Blog – as that app is up for sale, it has been consolidated into the main Digital Tool Factory blog.

 


16
Aug 11

The case against scratching your own itch when building a product

I recently spoke on Atlanta Business Radio and after the interview I spent some time talking about with the hosts about TimeProducer.com and Stronico.  One of the hosts had some interesting, and mildly troubling throughts.  He asked me outright if I was “scratching my own itch”.  He then presented a compelling case against doing that.  To wit

  • If you are solving your own problem, you have much less pressure to come up with a commercially viable solution because total failure is unlikely.  At least the product will work for you, and you get to use it.
  • You have no pressing need to get out of the building and talk to people.  You know the market right?  After all, you’ve been in it for XX years.  The reality is you know your segment of the market, and a lot of your assumptions are no longer current.  If you are building something for someone else, you can’t fool yourself as easily.
  • If the industry is foreign to you, you are less likely to have fewer emotional attachments to tools, methods, or industry players.  Product features will be worth a lot less too.

In short, if you build a product solely for other people, you avoid all of the psychological traps that people fall into with product development.

I’m not sure if the case against scratching your own itch outweighs the case for it, but the decision is not as clear cut as I once thought.

 

Editor’s Note

This blog post originally appeared on the Profit Awareness Blog - as that app is up for sale, it has been consolidated into the main Digital Tool Factory blog.


2
Aug 11

Why you should NOT burn your boats, bridges, or escape routes

I recently came across the blog post “Founders: Burn Your Boats” on Hacker News and found it to be the exact wrong advice.  The logic behind the argument is that by removing your escape routes (boats) you are committing totally, and focusing your attention on your startup company, and you will of course be happier. will be more successful.   A good example would be not doing consulting work while working on your startup.  “Burning boats” works for marriage, where “forsaking all others” is one of the main points of the whole endeavor.

However. if you have a startup company, you’re only trying to make a product.  Total commitment is, at best, a necessary evil, not a virtue.  Sure, you’re showing commitment to other people, but why not just show them an  awesome product?  By “burning boats” the only thing you’re doing is putting yourself in a weaker negotiating position with venture capitalists, and looking good instead of doing good.

 

Editor’s Note

This blog post originally appeared on the Profit Awareness Blog - as that app is up for sale, it has been consolidated into the main Digital Tool Factory blog.


20
Jul 11

The introvert’s guide to getting out of bank fees

Do you wind up paying bank fees because you’re introverted, shy, quiet, or just too well bred to complain about such things?  There’s no need to pay the fees.  Here’s how to get out of them.

I recently bounced a check because I chose the wrong account in the online bill paying process (I have two accounts with that bank, one of which I rarely use).  I had tons of money in the other account.  I got hit with a $35 fee and a warning that they would hit me with another fee if I did not make the account cash positive in five days.

This fee annoyed me.  I started with this bank  in 1998, how dare they charge me anything?

I decided to get out of the fee, with a modified version of the script from the best personal finance blog ever.  I say modified because the past few times that I’ve used Ramit’s script verbatim it hasn’t worked, so I changed it to fit the situation and my conversational strengths.

Here’s what I did

First I put money in the account to show good faith and put myself on the moral high ground.  Then I waited two days.

Then I called, somewhat awkwardly (I’m not great at this sort of thing, but I’m getting better) and asked nicely for the bank to remove the fee.  The customer service rep very nicely refused.

I then

  1. Explained what happened, telling him how I made an innocent mistake
  2. Told him I have money in the other account, (politely saying I’m not a deadbeat)
  3. Reminded him that I demonstrated good faith by putting money in the account (politely saying I won’t bounce another check)
  4. Told him that I expect the fee to be removed (politely saying I know my position in the relationship with them)
  5. Went into a detailed history of my dealings with this bank for the past many years
  6. Name dropped (I made up the names) the people I have dealt with at the bank over the years

Then I come to a full stop and enjoyed the silence, waiting for him to move next.  Note, I did not end with a question.  This is key.  If you end on a question, people can give you a short answer.  If you bury the question within a wall of statements,  people feel obligated to refute your entire argument (which took me about five minutes to deliver).  Did he check with his supervisor if it was okay to refund the money “Just this once”?  Yes he did.

Why did all of this work?  I emphasized

  • I was a good, loyal client
  • Management notices when long-standing clients leave
  • I was nice
  • I was long winded
  • To tell me no again would extend the call by at least ten minutes, I clearly had all the time in the world and he had no clear reason to hang up on me
  • All it would take to get me to go away is the refund

If they are going to bend the rules for someone, they are going to bend them for me, so they did.

The takeaway:- If you’re long-winded and don’t end with a question you make customer service do more work, which they don’t want to do, so they give in.  Try it out.

PS – the code word for this type of fee forgiveness is “Relationship Refund“.

 

Editor’s Note

This blog post originally appeared on the Profit Awareness Blog - as that app is up for sale, it has been consolidated into the main Digital Tool Factory blog.


15
Jul 11

What having a daughter taught me about business – Part I

My wife and I (mostly her) had out first child (a girl) five months ago.   For various reasons we take her to lots of doctors, including four specialists, I thought I would share a bit of what I’ve learned on the topic of doctors and specialization by having a daughter.

Observations

  1. You have to wait every time
  2. Doctors do only medical work
  3. Doctors only do a small percentage of the medical work, the majority of the work (blood pressure, measurements, samples, etc) is done by nurses and PAs.
  4. If it can be measured, a doctor does not do it.  They make determinations, not observations
  5. Specialization is advertised,
  6. Generalization is practiced, but not advertised
  7. Everyone is perfectly content to treat you like cattle UNTIL you see the doctor.  Then you are special.  Once the doctor leaves you’re back to being cattle
  8. Everyone we’ve encountered got there via a referral from some other doctor
  9. The dress code (white lab coat) is universally followed
  10. People love going to the best person in the building/city/state/country

What have I learned from the above observations?

  1. Being the best, and being known as the best is the crucial thing, even is what you are the best at is a very narrow field.
  2. Being known as the best requires maintenance, and constant attention to detail.
  3. Your client should only see you in your area of expertise, nothing else, let other people be seen doing the boilerplate work

Much, much more to come..

 

Editor’s Note

This blog post originally appeared on the Profit Awareness Blog - as that app is up for sale, it has been consolidated into the main Digital Tool Factory blog.