Strategic Matter- Spring 2012 V1

The Cost Is Right: ( continued from page 3)

Door Number One

Billable Percentages Taking a simpli ed example, if a hypothetical rm is paying $10.00 for an overnight package, is shipping 20,000 packages per year and billing 70% of those packages to a billable client matter number, their cost recovery revenue and overhead situation is as follows:

However, suppose instead of focusing on price reduction, this hypothetical rm focused on increas- ing their billable percentage from 70% to 85% (Mattern Method® Benchmark). With price remaining constant at $10.00 from the rst example, the results in this scenario would be as follows:

Let’s say our hypothetical rm, having now been apprised of the impact of billable percentage, is able to both increase their billable percentage to 85% and decrease their costs by 10%.

Cost at $9.00 per package, 85% Billable Percentage Cost per Package

$9.00 20,000

Cost at $10.00 per package, 85% Billable Percentage Cost per Package

Packages per Year Billable Percentage Billable Revenue Overhead Impact

Cost at $10.00 per package, 70% Billable Percentage Cost per Package

85%

$10.00 20,000

$153,000 $27,000

$10.00 20,000

Packages per Year Billable Percentage Billable Revenue Overhead Impact

Packages per Year Billable Percentage Billable Revenue Overhead Impact

85%

70%

$170,000 $30,000

is allows the rm to reduce their billable charges to their clients by $17,000 and their non-billable charges (overhead) by $3,000.00. is is a nice improvement, but we can now see the majority of the overhead savings can be attributed to the increase in billable revenue. e above example, shows in a very simpli ed way, that pricing exercises are good, but cost recovery analysis and implementation of strate- gies to increase the billable percentage are better and will have a much greater impact on the bottom line.

$140,000 $60,000

e net result here when increas- ing billable percentage only is a bottom line increase for the rm of $30,000. is result comes directly from increasing the rm’s billable revenue which manifested in a signi - cant decrease of $30,000 to the rm’s overhead charges. In this scenario, focusing only on increasing billable percentage resulted in a remarkable 500% impact in comparison to only reducing the rm’s price by 10%.

Let’s say a er a round of negotia- tions with the overnight vendor, this hypothetical rm succeeds in reduc- ing the price to $9.00, a solid 10% decrease. e rm under this scenario realizes an overhead savings of $6,000 per year and is able to save their clients $14,000. Overall, this would be deemed a successful project and possibly worthy of bragging rights.

Cost at $9.00 per package, 70% Billable Percentage Cost per Package

$9.00 20,000

Packages per Year Billable Percentage Billable Revenue Overhead Impact

70%

$126,000 $54,000

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