The secret to “enviable” financial results in professional services – learn from The Best and compare with The Rest
Posted by Bas van Woudenberg
What do the top 5 percent of the survey’s professional services organizations (PSOs) have in common, apart from earning “significantly” more net profit than the rest of the market? The answer, according to a new benchmarking report, lies in their use of technology.
The Professional Services Maturity Benchmark report (PSMB) says 2017 was the “best year ever” for global PS industry, which is “poised for another record year” in 2018.
2018 PSMB talks of “enviable” financial results from this year’s top 5 percent (The Best), which produced “significantly” more net profit (26.3 percent compared to 16.1 percent) than average firms (The Rest) in the benchmark.
The 11th annual report from third-party research firm, Service Performance Insight (SPI), says this high level of profitability is derived from earning more revenue per employee, project, and consultant. For The Best, annual revenue was $221k per employee and $265k per billable consultant, compared with $155k and $191 respectively for The Rest.
The Best have higher margins for subcontractors (41.8 percent), for time and materials projects (50 percent) and fixed price projects (52.1 percent) than The Rest. And these market-leaders enter each quarter with “significantly” more revenue in backlog (66.9 percent) than The Rest (44.9 percent), says SPI, which creates greater financial stability and predictability.
How do they do it?
According to SPI, all of this year’s top performers have deployed a commercial finance and accounting solution which is partially integrated with their professional services automation (PSA) application for billing and revenue recognition.
“The Best-of-the-Best can be characterized as running a very tight financial ship as they are appropriately metrics-driven and have real-time visibility to all facets of the business,” says SPI. “They are frugal with a non-essential expense. In particular, they refrain from overspending on fancy offices and non-billable travel, preferring to invest in the skill and career development of their employees.”
Get the inside track
2018 PSMB allows you to gauge your organization's process ‘maturity’ against the top-performing firms as well as against similar organizations in terms of vertical market, size, business type and geographical location.
Download the 2018 PSMB report for free.