Evaluating the Value of a Potential Project – A Practical Cost Benefit Analysis
Practical tips for calculating the real value of a project.
Many of my clients are creative entrepreneurs or established professionals – people who quote custom projects or create a scope of work before serving clients. Our work together focuses on profit first, so we can build marketing strategy around the services that are most sustainable for the business. Often, this means doing a scaled-back type of cost benefit analysis.
Wondering what I mean? A cost benefit analysis is (at its core) a simple review of the positive and negative effects an action (or project) will have on a business. Professional people in a number of disciplines – accountants, economists, engineers, analysts – work through a cost benefit analysis in many different scenarios as a part of their work. My guess is that you do something similar, although you might not realize it.
As leaders and business owners, we need to pause before accepting a new project to consider the impact the decision will have on the other things we’re doing to generate revenue and grow our organization. We have to consider our team (if we have one), our resources, and our current workload. These are all factors that make up this fast and loose type of cost benefit analysis.
Too often, however, we get caught up in the excitement of making a sale. The project captures our imagination and we say yes before ever really evaluating it for fit into our business model. This is dangerous, my friends.
Here are some things to consider before taking on a new project or client. While not a traditional cost benefit analysis, I recommend making these questions a part of your normal sales and proposal process.
Does this project fit within your core competencies?
Work is most profitable when it fits within our strengths and when it relies on systems and skills we have mastered over time. This simple truth creates a bit of a conundrum for creative entrepreneurs.
Let’s face facts – – > We thrive on creative challenges. We want to take on the next interesting thing; want to flex our innovative muscles; want to solve new problems we haven’t encountered before. Just like you, I get energized when tackling a new and complex problem or creating a great new offer or solution.
Work like this is thrilling, but it isn’t necessarily profitable. Typically there is a fair bit of research and skill development involved. We might need to find a new way to do something or try multiple solutions before we find something that works. There are a lot of variations in projects like this and often some big unknown twists we can’t plan for or build into our project quote.
It’s okay to say YES to a project like this… but you want to keep this type of project to a minimum and build your profitability around lots of the stuff you do well. Of course, if a potential project fits right into your area of expertise, you can move ahead with confidence.
Do you want more projects or clients like this one?
Recently I was asked to work with a client who is an outlier for me – – > a company in my local area with a need that aligned with my services, but who was not really my ideal client. The project was interesting and the work was within my core competencies, but I don’t usually market my services locally or in this particular industry.
We moved forward with the project, but I knew from the beginning that this client was not a good source for a case study or someone I would look to for referrals. This was intentionally a type of profitable one-off… a job I could make money completing, but wouldn’t use as marketing material for future work.
Why does this matter? Every project is one part profit and one part marketing potential. Satisfied clients are marketing gold – a source of referrals, testimonials, and even sometimes case studies. We build a reputation upon the goodwill of former clients.
I will at times charge a bit less to work with a client who has a large marketing upside for me. I will occasionally provide a price credit to a client who agrees at the beginning to become the subject of a case study sharing their experience and our work together.
If a project has limited – or no – marketing potential for my business, I want to get top dollar for the work. Why? Because my only benefit comes through the revenue the work generates. Not a reason to say no… but certainly a factor to consider.
Will you need to add resources to complete this project?
There’s a wooden plaque on the wall in my office. It reads Just because you can doesn’t mean you should. Not necessarily the best grammar, but certainly a thought I need to keep in front of me at all times… because I’m often quick to commit to things I probably should reject.
Our businesses have a certain capacity. If you are a maker or a manufacturer, you have finite resources – equipment, raw materials, personnel – to work with as you create products. If you are primarily a service provider, like my firm, you have a similar set of finite resources – time, creative energy, skills – to put to use serving clients. Peak profitability happens when you stay within these resources and use them efficiently to generate revenue.
So, what happens when you accept a project that requires you to stretch? You find yourself exceeding your capacity. For me, this means overbooking myself or my team, feeling depleted and drained creatively, and risking the quality of a result… because I overstepped our skills as a firm. None of those scenarios are positive.
Can you take a project that requires an expansion of your existing resources? Sure… as long as you do so intentionally. For example, you might book a project in advance of hiring someone in order to fund the decision to add this person to your team. That’s strategic, and I approve 100%. In order to think strategically, however, you need to take a moment to evaluate the needed resources BEFORE you agree to the work.
What will you need to sacrifice to do this work?
This last evaluation point is often the most challenging (and insightful) for me. It calls me to count the real costs of the project in front of me. Will I need to sacrifice my weekends or those of my team? Will I need to give up a planned internal project or initiative in order to take on my client work? Will this project require us – as a team – to burn through energy we would rather allocate elsewhere?
Every project we say YES to creates an equal NO somewhere else in our professional or personal lives. We can’t be in two places at once or focus on two things at once. There have been times in my life as an entrepreneur when I’ve committed to a boring or low-paying project a few weeks before an exciting or highly profitable opportunity came my way. Sadly, I had to decline the better thing because I’d already agreed to something sub-optimal.
Don’t do this, my friends. It’s painful.
Cultivate the strategic practice of a well-placed pause.
While we often want to move ahead quickly, there’s power in taking an intentional and well-timed break in the action to reflect. Consider your sales and proposal process… and think about how you might cultivate the practice of pausing to consider before creating a proposal you might regret. Trust your intuition… and ask yourself the questions I’ve listed above – plus any others that seem meaningful to you. While it might feel strange, sometimes the most profitable answer you can give to a potential client is NO.
Improved lead generation is one way to increase overall profitability. Want your marketing system to create a steady stream of high-value leads? Let’s talk.
While client work and operational tasks feel incredibly valuable, they are actually less important than the work we do strategically inside our businesses.