Cost recovery: 450% more important than expense reduction

Our 2012 Cost Recovery Survey is wrapping up shortly and promising to be the most rewarding to since its inception.  It is interesting how different people and firms react when they learn that we conduct a national survey every two (2) years.  Some can’t wait to participate and share in the results; some show absolutely no interest, indicating that they believe cost recovery is dead–or at best dying–in the near future.

There is no doubt that soft cost recovery is under siege; however, it is not only not dead nor dying, it can be a powerful tool if used properly.  Here’s how.

Many firms have focused lately on expense reduction instead of increasing their billable percentage of the expense.  The smart firms have focused on both.  As an example, take overnight deliveries.  Say I am spending $250,000 per year and billing 70% of those costs to my clients.  If I am focused solely on expense reduction and am able to reduce this expense by 10%, I will save a total of $25,000, with $7,500.00 in savings for the firm.  This is because the non-billable 30% and $17,500 of the total savings goes to the client, whereas the billable 70% is a direct pass-through of the firm’s cost.  As a result of the 10% expense reduction, then, the firm’s overhead impact is reduced to $67,500.00 from $75,000.00.

However, if I am able reduce my costs by 10% and increase my billable percentage to 85% from 70%, then the overall savings picture is as follows:

Total new annual cost:                      $225,000 ($250,000 x 10% price reduction)

Client (billable) impact:                     $225,000 x 85% = $191,250.00

Firm (non-billable) impact:                $225,000 x 15% = $33,750.00.

The additional impact of the increase in the billable percentage is an increase of $33,750.00, a 450% increase over the $7,500.00 achieved through cost reduction alone.

Pretty amazing, isn’t it? The message is simple:  expense reduction is important, expense recovery and realization is 450% more important.

Just like starting a diet, the initial step is to weigh yourself to know where you are at. The 2012 Mattern & Associates Cost Recovery Survey is that 1st step in improving your cost recovery process.   If you have not signed up to participate, please do.  The 2012 Cost Recovery Survey will close May 30th; simply email Charlene Hagerty at chagerty@matternassoc.com for the required link.

I promise you, it will be highly valuable.

2018-09-20T22:40:24+00:00