For professional service organizations (also known as PSOs), monitoring your metrics is vital. A professional services organization provides services across various sectors, including finance, legal, marketing, development, and nearly any consultant. Other firms provide physical items, whereas professional services organizations sell information and skills. As a result, to be successful, these firms must track metrics.
In this guide, we’ll break down a few professional services metrics you should monitor.
While overall utilization is essential, it does not reveal the entire story. It can’t tell if certain employees are overworked or underworked, which is crucial for assessing bottlenecks and employee morale. This metric’s acceptable aim varies per industry.
However, regardless of industry, 100% utilization should never be the objective. When a resource is fully used, they have little scheduling flexibility and cannot engage in critical duties such as continuing education, employee development, and other firm-related activities.
This statistic belongs to the process category and offers an overview of your team’s and processes’ productivity and overall profitability. Divide your last 12-month income by the number of billable team members to arrive at a figure.
Annual income per billable team member is an essential consideration in workforce and growth planning, and it may be combined with utilization to determine team member efficiency. The industry average for this metric for early-stage professional services businesses is $114,000 annually.
This metric, when combined with your utilization rates and sales funnel, can assist you in determining whether it’s time to hire new employees. As you measure the metric monthly, you’ll see how your team’s productivity is changing and how critical projects affect your company’s capacity to serve consumers.
The overhead per billable team member metric complements the revenue per billable team member metric by providing a baseline statistic for the amount of revenue required per billable team member to cover operational expenditures.
This metric is determined by dividing the trailing 12-month overhead expenses (costs of running a firm other than the cost of team members) by the number of billable team members, which is included in the process category.
This metric aids in the visibility of your organization’s operating costs, which is especially crucial for startups because each new hire can significantly influence overhead costs. This metric’s trend is particularly significant in setting the billable rate for your team members. It may measure whether your organization’s efficiency is improving and whether expenses are increasing or decreasing about growth.
Regarding profitability as a financial performance metric, two key indicators to include in your dashboard are gross margin % and realization rate. Gross margin %, assessed in the aggregate for your company or at the project level, is a vital indicator of profitability and may also help you control “scope creep” or mispricing owing to inaccurate estimates of the work required.
Gross margin % at the project level indicates if you are adequately staffing your engagements (i.e., too many high-cost team members for a low-revenue customer) and which service offerings are doing well.
The gross margin % is derived by dividing gross margin by the company’s revenue over time, where gross margin equals total revenue minus service delivery costs (primarily the cost of your team members).
The realization rate is the second parameter to consider when determining your profitability. The realization rate is derived by dividing the billable hours performed by the hours billed to clients. Your realization rate would be 50 percent (30 hours billed divided by 60 billable hours) if your company spends 60 hours on a project, but your contract only enables you to bill 30 hours to the customer.
The realization rate is a revenue-specific metric representing your capacity to profit from each delivery hour. The realization rate is a revenue-specific measure considering your ability to monetize each hour spent on delivery.
While the overall gross margin percentage considers your specific cost of delivering different services, the correct realization rate is a measure specific to revenue. It looks at your ability to monetize each hour spent on delivery. It, like gross margin, may provide a plethora of information regarding profitability and is commonly used to aid in project planning. Calculating overall hours worked that are subsequently written off to reduce overall fees.
A project that lasts more than a few hours is always over budget. Cost overruns may devastate a project’s profitability and leave customers and employees dissatisfied. Noting this measure if a project is over or under budget may allow you to modify the resource mix or make other course corrections.
Budget vs. Actual should be recorded in real-time so that problems may be identified and rectified as soon as possible. Late and over-budget projects can cascade effects on tasks and milestones farther down the line.
Although margins vary by sector, a 40 percent margin is a healthy and long-term aim. If you can’t maintain 40% margins, you either overestimated the number of hours necessary or underpriced the engagement when it was sold. Poor project margins can hurt staff retention and negatively influence wages and incentives.
It’s critical to have plenty of work for employees to accomplish to keep other metrics in check. Long delays in business development may wreak havoc on profits and undermine staff morale. Follow up on sales leads and keep track of them at different levels (either timeframe or percentage likelihood to close.) Poor sales pipeline monitoring can negatively influence business preparedness and resource allocation.
Now that we have established the importance of these metrics in measuring your progress in the professional service industry, you need a helpful and functional tool to help you keep track of these KPIs without any hassles.
This is where we introduce DashboardFox and highlight its advantages for your needs.
With DashboardFox, you can easily keep track of your employees’ numbers and figures with so much ease. You don’t need to rummage through tons of paperwork to check if your employees are doing well and if the targets are hit appropriately.
DashboardFox is designed to easily convert raw figures and data into something everyone can digest during meetings to easily see where the company is heading in terms of setting and hitting goals. It has helpful data visualization features that effortlessly convert data into information you can use to implement changes or innovations for better numbers in the coming months.
You needn’t be proficient in any computer programming language when using DashboardFox. The brains behind DashboardFox created this with most business owners in mind — most of them not knowing what business intelligence even means. With its codeless reporting, you can use it as soon as you pay.
Speaking of payments, you only need to pay once. That’s right — no monthly, quarterly, or annual subscriptions to keep. We will only charge you one time, and that’s it.
Take your business to higher levels with DashboardFox.
Schedule a free live demo session or book a meeting — both of which work. We’ll be waiting!