Making professional service firms (PSFs) grow is hard – you not only need to compete for business, but also for the professionals that deliver your services.
You also have to allocate your time wisely between business development and project delivery.
We have built a little game to test your entrepreneurial skills: every month you decide how many people to hire and how to allocate your current staff between business development and project delivery. The challenge is to end up with at least EUR 26,000,000 of cash in the bank at the beginning of month 24!
It is not as easy as it sounds, it is actually quite difficult to end up with more cash than if you had done nothing at all.
And once you have managed your cash target, try and reach the expert cash target of EUR 42,000,000 – most likely you will find that the tactic you use to achieve the first cash target will not help you to reach the second target.
Here are the assumptions underlying the game:
The average project volume is 16 person-months
The average project duration is 2 months, i.e. 8 project delivery staff are involved for 2 months.
The prospecting effort to generate a lead and write a proposal is 4 months.
The project acquisition duration is 6 months, i.e. it takes 6 months between generating the initial lead before a newly acquired project starts.
Market conditions are perfect, i.e. both the prospecting and acquisition success rates are at 100%.
The project delivery fee is EUR 17,600 per person-month, i.e. the daily rate per consultant is EUR 880.
Projects are charged on a monthly basis.
The collection duration is 2 months, i.e. it takes 2 months after revenue is collected and arrives in the bank.
The workplace cost per staff member is at EUR 1000 per month (rent, laptop, software licenses and services,…).
The company has an overhead cost of EUR 306.000 per month (administrative cost,…).
The average salary per staff member is EUR 100,000 per year.
The hiring duration for new staff is 3 months
The initial cash is at EUR 1,000,000.
The company initially has 200 professional staff members, 20% of which are assigned to business development. In this setting, the company is stable.
The initial backlog of project weeks is 320 person-months, and the initial number of prospective projects/proposals in the sales pipeline is also 320 person-months.
See whether you can make your firm grow and reach the desired cash level.
We have a number of blog posts that investigate the business model of professional service firms and analyze the game above in more detail:
You may also be interested in our blog post on
We also maintain a Github repository
that contains Jupyter notebook versions of these blog posts along with the simulation models we used to analyze the growth strategies.