November 15, 2001

So you’re in it for the money

  • Four steps for engineers to make more money
    FMI Corp.


    Well, it’s about time! Why not?

    There is no reason on earth why you can’t or shouldn’t make a whole whack of money as a consulting engineer. Problem is, no one’s ever told you how. They made you a fine engineer, they just forgot to show you how to make money. And the meager advice you were given in school — just do great engineering and everything will work out — was a lie.

    I’m going to tell you the four-part secret to making money but be warned: Once you know it, you’re now obliged to make huge profits in the next fiscal year!

    Step 1: Sell something that can’t be bought on just any street corner

    The Summerians were great engineers. So were the Romans and the builders of the medieval cathedrals. There have been great engineers for thousands of years and that’s a problem for you.

    "There isn’t an engineering firm in business today that couldn’t increase profits by 50 percent."

    Why? Because in the minds of your customers “great engineering” can be purchased from a thousand sources. What’s the difference between the pump you specify and the one your competitor does? Do you use a different formula to calculate the loads on your structures?

    The bad news is, engineering is a very mature industry. When an industry matures there are way too many competitors and the products and services they sell are commodities — the only difference between buying from one source or another is the price.

    Don’t get me wrong, there is nothing wrong with selling commodities. It’s a perfectly viable business model. The secret to success is to cut costs as low as possible, then cut them some more and sell in high volume. One day, someone is going to open “Tony’s Super Engineering Discount Warehouse Direct!” “We’re open Sundays till midnight and we won’t be undersold!”

    But if you don’t want to compete against Tony, you’d better make sure the services you sell are unique or “packaged” in a way that is appealing, convenient or new to your customers.

    Frankly, there is very little to offer in engineering that is truly unique. “Unparalleled customer service” offers a whole world of possibilities, but our industry hasn’t even begun to scratch that surface.

    Targeting particular niche markets or providing rare technical expertise also qualifies as “unique” but most of your opportunities lie in “re-packaging” the services you already offer.

    Design/build is simply re-packaging. So are construction management and program management. Performance contracting; bundled services that include financing and engineering; commissioning; and facilities management are also innovative ways to polish up traditional services so they look new.

    If you’re scoffing at what you see as window dressing, check the profit margins of the firms that have replaced “engineering” with some of these other words on the sign above their door.

    Step 2: Market like hell

    “Build a better mousetrap and the world will beat a path to your door.” This is also a lie. If the world doesn’t know about your mousetrap, they won’t know to come.

    If you want to make money, you’ve got to make noise. Lots of noise. Get out in the community. Join client-rich organizations. Speak from the podium and write for the journals. Shake lots of hands. Get your name in the paper. Learn how to use direct mail. Learn how to use public relations.

    The world’s wealthiest people are also the world’s best self-promoters. In contrast, most engineering firms are rank amateurs when it comes to marketing. They blow the opportunity to build name recognition and “mind share” by seeing marketing as a cost, instead of an investment.

    Become a student of marketing. Learn its subtleties and how you can use them to advantage. The most profitable firms are spending in excess of 10 percent of their revenue on aggressive, proactive marketing.

    Step 3: Use profit-oriented pricing strategies

    What is the highest hourly rate your firm can ever charge? $150 per hour? $200 per hour? $250 per hour? Let’s say it’s up there in the stratosphere at $250 per hour. That means there is absolutely nothing you can accomplish in one hour’s time that is worth more than $250.

    What nonsense!

    Hourly fees, and especially hourly fees with a not-to-exceed cap, are absurd for an engineering firm. They doom you to subsistence-level survival and they completely discount the value you bring. The most profitable firms focus on clients and markets that can be priced on value, not cost. They turn down work that doesn’t allow them to make a high profit and they position themselves by proactively educating their target markets about the value they add.

    How often have you sat in a one-hour meeting with a permitting agency and negotiated a concession on behalf of a client that saved that client $10,000 in project costs? What did you charge the client for that one-hour meeting?

    You can’t make money selling hours by the pound.

    Step 4: Keep what you make

    On average, engineering firms leave somewhere between 25 percent and 50 percent of the fees they are paid sitting on the table. How do they manage this remarkable feat?

    • Poor project planning

    • Working outside the paid scope

    • Lack of inter-discipline coordination

    • Lackluster negotiation skills

    • Over-designing

    The list goes on. And on.

    Poor project management is like a giant hole in the bottom of your bank account. The money just pours right through. Sure, you’ve got a project management manual. But do people actually use it? Consistently? What are the consequences to an employee who prefers to do things his or her own way? Are your project managers really trained? What qualified them to be project managers in the first place?

    There isn’t an engineering firm in business today that couldn’t increase profits by 50 percent with a little effort towards improving the way projects are managed. If you really set your mind to it, you could probably raise profits by 100 percent or more.

    What could you do with that money?

    Your engineering firm should be wonderfully profitable. The fact that it isn’t is not the fault of your clients, your competitors, the government or the ACEC. It’s your fault. If you’d like to do something about it, why not start today?

    David Stone is a senior consultant with FMI Corp., a management and consulting firm specializing in the design and construction industry. He can be reached at (303) 398-7256 or

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