As your professional services firm grows, you continue to face new challenges. With higher expectations, more data to process and more people to manage, orchestrating everything becomes harder and harder for those who need to track and control the business.
We recently discussed some of the challenges that firms like yours face when you push past the limitations of your current business management solution, but today we would like to turn our attention to the importance of measurement at your growing business.
Measurement Keys to Grow Your Business
For today’s business, your ability to make decisions requires you to have the right information at the right time, empowering the right people to act on it. Decisions can’t be based strictly on historical information compiled “when it’s available.” You need to track metrics in real time from a variety of data sources and present them to the people who can act. Through integration, automation, business intelligence and dashboards, today’s decision makers can be better informed than ever, all with less analysis work.
The Power of KPIs
As your business grows, you need to blend at-a-glance analysis with long-term measurement. You also need to know what you need to measure. Key performance indicators (KPIs) give your users industry-specific metrics by which you can measure your business, presented to decision makers through dashboards and reporting functionality specifically tailored for each person and their role.
For businesses in the professional services industry, everything from profit per consultant to staff utilization needs to be explored and measured to provide insight for everyone from the CFO to the project manager.
In their whitepaper Five KPIs for Professional Services, Sage Intacct states the following metrics are necessary to track if you hope to see the entire picture of your business:
- Annual Revenue per Billable Consultant (Total Revenue/# of Billable Consultants): This measure of consultant productivity is highly regarded by SPI Research, but it must be measured in conjunction with labor cost. Depending on the industry, a fair expectation for this KPI should minimally equal one- to two-times the fully loaded cost of the consultant — with revenue multipliers of three or higher for architectural, engineering, legal and management consulting.
- Annual Revenue Per Employee (Total Revenue/# of Total Employees): Annual revenue per employee is different from revenue per billable employee, as it measures overall organizational effectiveness. Revenue per employee is a powerful indicator of the overall profitability of the firm because if the average cost per employee is known, profit can be estimated representing the difference in cost per employee and overall revenue per employee.
- Billable Utilization (Billable Hours/2,000): Utilization is a major indicator of opportunity and workload balance, as well as a signal to expand or contract the workforce. Although professional services firms would like to abandon the billable utilization metric (and all the accompanying time tracking it entails), unfortunately there is no other metric that provides as good a picture of workforce productivity.
- Project Overrun (Percentage above Budgeted Cost/Time vs. Actual Time):This KPI is important because any time a project goes over budget in either time or cost, it cuts directly into the PSO’s profitability.
- Project Margin (% of Revenue after Costs):Because project margin is the fuel that drives overall profit, PSO financial performance suffers greatly when margins drop below 40% on average.
Can Your Solution Deliver?
As you grow your business, understanding where you are and where you need to be not only delivers your business increased profitability but also lets you leverage new methods of measurement to take advantage of opportunities. At Wipfli, we help implement, customize and design solutions that make your job easier, and we highly recommend Sage Intacct for our professional services clients. Learn more about Sage Intacct and contact us for a free consultation.