PAC on Professional Services – exploring the financial future of your industry | Unit4
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PAC on Professional Services – exploring the financial future of your industry

from  April 27, 2022 | 4 min read

The professional services industries are emerging from a period of massive disruption, and we’re keen to help you understand how your market is faring – and what the future might hold.

Research undertaken by PAC (a Teknowlogy Group company) on behalf of Unit4 – based on the views of leaders at 250 firms – sheds some light on both recent performance, and priorities for the futures of Europe’s 2 million service-based businesses. This survey checks the pulse of organizations as they rebuild their strategies for the post-pandemic world. Including short-term expectations for revenue and profit development, and what they anticipate will be their main growth engines in the future.

In this blog, we’ll look at the report’s findings with a focus on the financial outlook: how firms are performing, how they expect to perform in the future, and their main priorities for boosting their financial performance.

Three key takeaways

  1. Most professional service firms expect a healthy improvement in revenue, profitability, and cashflow.
  2. This will hinge largely on the performance of sales teams in targeting new logos – and on the ability of firms to smoothly integrate new acquisitions into their operational systems, structure, and culture.
  3. Deal sizes are increasing and firms will have to work harder to deliver on their expectations for profitability and cashflow – especially with working costs and salaries on the rise. Planning and control will be vital to your firm’s success.

Hopes for a year of solid growth ahead

Despite economic turbulence and continuing volatility, service-based businesses are upbeat, and all indicators suggest we’re about to experience a growth period. 83% of firms anticipate their top line to increase in the current fiscal year, with the UK and France being the most bullish about their prospects – with 54% and 43% respectively stating they envisage either strong or very strong growth.

IT services firms are the most confident in Europe (46% expect >6% growth over the next year), while management consultancies remain cautious – although 66% expect some growth, 32% believe they will experience a slight dip in their sales.

When it comes to growth, it’s all about winning new customers

While it is generally accepted that acquiring a new customer can cost at least 5 times more than simply increasing purchases from an existing account, new customer acquisition will be the primary growth engine across the region.

82% of business leaders predict their number of accounts to increase in the current fiscal year – with 94% of IT services firms and 87% of financial services firms stating this. Firms in the UK (84%) and DACH (82%) regions are the most confident in their abilities to secure new logos.

Outside of new business wins, consolidation is seen as another important engine of growth. Professional services is one of the fastest consolidating sectors in Europe, and over a third of businesses are planning merger and acquisition activity to be a primary growth driver over the next year. Many firms are also responding to the shortage of talent by acquiring other businesses to address their skills gaps.

New product and service launches are seen as a secondary growth driver for over half the companies surveyed in the study – with firms extending themselves into non-traditional business areas. For instance, many view sustainability as a commercial opportunity, turning their skills to helping clients achieve net-zero status.

Managing profitability as deal sizes and costs rise

Over the past five years there has been a trend within the European professional services sector towards smaller deal sizes. This has been driven in part by a shift away from big-bang transformation programs towards iterative, agile projects focused on delivering faster ROI.

But in the wake of the pandemic, organizations are becoming more and more ambitious in terms of engagements with their external partners.

Mid-sized companies in particular are winning projects that have historically been the dominion of bigger established players. But this can pose challenges around cashflow management. The costs associated with bidding for opportunities increases, and dependence on a smaller number of projects means leadership teams must manage the “lumpiness” of their business cycles and income very carefully.

Cashflow has been an issue over the past several years – but most firms are looking to do well in the coming year. Only 17% expect their cashflow position to worsen, while 27% expect improvements in excess of 6%.

Management consultancies are by far the most cautious on this front – 40% consider it likely they’ll see a decrease in their cashflow position.

This is driven by higher talent costs, higher bid costs on contracts, a more mature portfolio diversification, and M&A integration. Management consultancies also find it harder to build business models that reduce reliance on traditional “time and materials” propositions and take advantage of the economies of scale, such as global offshoring/sourcing, that other service firms can rely on.

IT services companies, to contrast, are much more bullish (54% expect strong profitability increases) as they are confident in their ability to pass extra costs onto their customer base.

But across the sector, the need for greater operational control is highlighted as key – especially in those firms that are highly susceptible to changing economic conditions.

Ready to learn more?

To read the full report and understand the complete picture of the professional services sector as we move into 2022, check out the PAC Research Study, Professional Services in Europe: A Benchmark for 2022, which you can download here.

To learn more about how Unit4 can transform your operations and help you to capitalize on the promise of the year ahead and beyond, check out our dedicated professional services industry page or click here to book a demo of our products.