How to achieve “significantly” more net profit in professional services — learn from The Best and compare with The Rest

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.

According to the 2020 Professional Services Maturity Benchmark report (PSMB), 2019 was “a year of smooth sailing” for the industry, with improvement in “most major metrics,” as the market continues to grow. The report’s author, Service Performance Insight (SPI), predicts further smooth sailing for 2020.

PSMB 2020 talks of “enviable” financial results from this year’s top five percent (The Best), which produced “significantly” more net profit (23.3 percent compared to 14.6 percent) than average firms (The Rest) in the benchmark.

The 13th annual report from SPI says this high level of profitability is derived from earning more revenue per employee, project and consultant. For The Best, annual revenue was $237k per employee and $276k per billable consultant, compared with $165k and $203 respectively for The Rest.

The Best have higher margins for subcontractors (41.5 percent), for time and materials projects (45.6 percent) and fixed price projects (44 percent) than The Rest. And these market leaders enter each quarter with “significantly” more revenue in backlog (55.6 percent) than The Rest (44 percent), says SPI, which creates greater financial stability and predictability.

Integrated solutions

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.”

Learn from The Best and compare with The Rest

SPI’s report is an objective, fact-based strategic planning and management framework for performance improvement. It is used by more than 35,000 service and project-oriented organizations to chart a course to service excellence.