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 The most challenging types of services are those engagements that are ‘fixed quote’, involving a ‘scope’ of services.  These are becoming more prevalent as clients become savvy and there is more competition.  Examples of these types of services providers are

• Accountants
• Solicitors
• Surveyors
• Allied Health (occupational therapist etc.)
• Architects
• Town Planners
• Engineers (civil, environments etc.)
• IT consultants
• Web Designers
• Graphic Art
• Plus many more

How do these types of businesses quantify performance levels? 

When someone mentions their performance has been good or bad, how are they forming that opinion (good or bad relative to what)? 

• Last year’s performance plus a fudge factor? 
• The owner’s required level of drawings?
• Some other arbitrary number?

The best way to ensure profit in a service business is to apply the 3x model.  Put simply the 3x model is:

Revenue earned from charging staff time should be equal or greater than 3 times salaries paid.

For example: A firm pays salaries to its staff of $450,000.  Revenue earned for services provided by staff should be at least $1.35m (which is $450,000 x 3).  This could be considered as the revenue ‘target’ or budget for the firm.

Here’s an example:

The revenue equation is therefore:

Our 3x model suggests revenue should be 3 times salary, which equals $60,000 x 3 = $180,000

The business income statement should look like this:

An extension to this form of income statement can also be useful: