The services industry is experiencing new types of pressures that are changing businesses around the world. In this blog series, we will examine the six major pressures facing services firms today, their causes, and how you can successfully respond.
Pressure #6 - Eroding Margins
Mavenlink’s 2019 State of the Services Economy report polled services organizations from around the world about their biggest challenges and found that improving margins was the second biggest obstacle, following increasing revenue. Despite the continual growth of the services industry, the pressure to maintain strong margins is a consistent challenge.
What’s Causing This Pressure?
As seen in previous entries in this series, businesses must become faster, more agile, and provide a greater variety of projects in order to stay competitive and successful in the industry. However, fulfilling these demands can often cut into profit margins as businesses make financial sacrifices to meet client expectations.
Businesses may be tempted to meet these rising expectations by completing additional work, undergoing additional revisions, or lowering costs that are outside of the original statement of work to prevent a client from seeking out competitors.
These costs, as well as the complications that can arise from taking on new types of projects, mean that while clients may be satisfied, the organization may be losing money by the end of a project. This can end up seriously impacting the business if it becomes a regular occurrence and clients begin to expect compromises to be made for their ultimate satisfaction.
Alleviating the Pressure
The solution to margin erosion is not to stop offering new services or to revert to old business processes. Instead, businesses need to push further into the future, embracing new, streamlined business processes that decrease the average amount of time spent on each task and eliminate costly downtime.
Adopting stronger project and resource management solutions will help managers put the best team members on the projects that are right for them and adjust to any sudden project changes that would otherwise cost both time and money.
Finally, a well-coordinated distributed workforce that includes contract workers can help a services business bring in specialized skills for new types of projects without needing to hire additional full-time employees unless it is absolutely necessary.
Together, these new ways of doing business combine to help organizations provide new types of work while steadily increasing profit margins over time.
Succeeding in the Modern Services Industry
Understanding where fast and efficient improvements can be made to strengthen margins is the first step to greater profits, but beating back eroding margins takes continual effort. Understanding industry trends regarding margins, streamlining processes across the business, and constantly driving toward more efficient work from every resource will all play a role in creating sustainable profits for a company in the long term.