How to achieve “enviable” financial results in professional services organizations — learn from The Best and compare with The Rest
Posted by Henk Jan Onstwedder
What do the top five percent of 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 2019 Professional Services Maturity Benchmark report (PSMB) predicts growth will continue for the professional services (PS) sector in 2019 — although turbulence lies ahead — after overall year-over-year net profit reached a record high of 18.5 percent.
PSMB 2019 talks of “enviable” financial results from this year’s top five percent (The Best), which produced “significantly” more net profit (26.5 percent compared to 17.6 percent) than average firms (The Rest) in the benchmark.
The 12th 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 $213k per employee and $251k per billable consultant, compared with $163k and $203 respectively for The Rest.
The Best have higher margins for subcontractors (35 percent), for time and materials projects (50 percent) and fixed price projects (51 percent) than The Rest. And these market-leaders enter each quarter with “significantly” more revenue in backlog (58 percent) than The Rest (44 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.
“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
PSMB 2019 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 2019 PSMB report for free.