Discover the 5 pillars of professional service profitability
In professional services, a minority of companies show results far beyond those of their competition.
These results are measurable across three key indicators. Top performers have:
An average EBITDA of around 23%
An average 85% utilization rate
An average of less than 15% of time spent on non-chargeable work
And their impressive metrics aren’t just down to luck; companies in the top 20% behave very differently from their competitors. In everything from the way they handle project management to the way they handle invoicing.
We call the 5 most important of the behaviors that are keeping the top performers on top the 5 Pillars of Profitability. Each pillar works together to create a virtuous cycle that leads to continuous improvement across all the factors that affect performance on our 3 key metrics.
1. Carefully selected new business growth
Top performing companies see an average of 27% growth in new business each year. But they’re very careful about which projects they take on.
The reason for this is simple: if you take on projects which are likely to be unprofitable for any reason, winning new business will steadily erode your ability to deliver a good level of service.
If you aspire to become a top performer, you’ll need to win new contracts. But you’ll need a reporting system that can reconcile your sales pipeline with your deployment schedule. And project management tools that let you keep track – and control – of the profitability of projects.
2. Closely monitored project profitability
Rather than wait for review season, top performers are constantly observing the profit margins and expected profit margins of every project. PMs are given access to real-time progress indicators that make any potential cost overrun obvious long before it happens. Allowing the business to more accurately assign resources at the outset to maximize profitability. And making it clear exactly how requirements will need to change if the scope of the project changes – helping prevent the negative consequences of project creep.
3. High invoicing rates
We all know that reducing outsourced resource by just a small amount can have a huge effect on project profitability.
Keeping careful track of your in-house resources and ensuring that their invoicing rate is high is a sure-fire way to boost the profitability of all your projects.
Top performers constantly monitor and forecast their resource invoicing rates and utilization in the short, medium, and long term. This requires a high degree of integration between Operations and Human Resources, but pays off in the form of incremental increases to profitability.
4. Reliable invoicing processes
One of the most common causes of delayed income realization (and subsequently of depressed financial performance) is staff invoicing incorrectly.
Automating your invoicing process – from the collation and validation of information through to issuing to the client – virtually eliminates this problem.
Even if your consultants and admin staff always invoice promptly (and never make mistakes), the process is still time consuming and costly – as it diverts effort that could be spent on chargeable activity.
Top performers invariably take advantage of modern technology to expedite the invoicing process, allowing their people to focus on profitable work.
5. Carefully controlled operating costs
As mentioned above, the most successful companies work hard to keep their non-chargeable time below 15% of overall resources. This means keeping a close eye on operating costs – and demands fully leveraging all the potentials for integration and automation that modern technology has to offer.
As with many of the other pillars, this will mean carefully selecting an operational management or ERP platform that can help reduce admin bloat through automation, data integration, and the destruction of silos between different parts of the business.
Learn more about the 5 Pillars of Profitability and how to bring them to bear in your organization.