The 5 Essential KPIs for Professional Services Companies

Running a professional services company is complex. It requires effective selling as well as quality project delivery at the same time. Today, with customer being the king, the challenge is to balance customers, employees, partners and operations. It is also necessary to expand the business while keeping the revenue and costs aligned as well as providing the right tools for consultants to deliver supreme quality products.

With over 200 possible measures for a services organisation, it’s critical to know which key performance indicators (KPIs) are essential for the successful running of a professional services company.

1.Revenue

  • Annual revenue per billable consultant – This depicts the company’s total revenue divided by the number of billable consultants, which indicates the productivity of the consultant. This considered as one of the most important KPIs when measured along with labour cost. Maximize annual revenue per billable consultant
  • Annual revenue per employee – This is a powerful indicator of the overall profitability of the firm. Revenue per employee is essential in determining the size and financial health of the organization as profit can be estimated using the difference in cost per employee and overall revenue per employee.

It is important for a professional services company to maximize annual revenue per billable consultant and focus on annual revenue per employee.

2.Billable utilization

This KPI is necessary to determine the organizational profitability. It indicates opportunity and workload balance thereby signalling whether to expand or contract the workforce. A company should work towards maximizing billable utilization. There are different ways and parameters for measuring billable utilization. Regardless of a specific utilization formula, it is important to develop a standard method and consistently measure it throughout the organization.

3.Project overrun

This KPI may be expressed in actual time against planned time, actual cost against planned cost, or both. It is the percentage above budgeted cost to actual cost. This indicator helps to check that the company’s profit is not affected by time or cost going over budget. A high value of project overrun may limit the company’s progress and profitability, hence it should be minimized.

4.Project Profitability

Most professional services companies undertake projects for their clients, and must therefore pay significant attention to the profitability of each project. The key components of project profitability are:

  • Project revenue
  • the actual effort spent on the project (versus planned effort)
  • the salary cost based on actual effort spent
  • allocated overhead costs

Project margins post allocation of overhead cost, gives the correct picture and will significantly help organisations invest their money where their mouth is.

5.Profit margin

Profit margin is measured by the percentage of revenue that remains after paying direct costs. It is relevant to manage all revenue and cost information and work to maximize the profit margin, for a professional services company to be successful in business.

Though there are many levers for improving financial performance, it is recommended to pick the right ones that are essential to optimize the operations and show significant growth. Financial performance excellence can be achieved with the help of these KPIs, integrated business applications and a plan for continual advancement.

 

Karthik Ganeshan

Co-Founder and Director, BeyondSquare Solutions.

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