The Professional Services (PS) industry is facing an uncertain future, as most segments are facing consolidation, price pressure and increased competition. According to Service Performance Insight’s “2017 Professional Services Maturity Benchmark” report, revenue growth has dipped to its lowest rate since the great recession and job creation is at its lowest point in years.
It seems that now, more than ever, organizations need to focus on performance metrics that can help them stay ahead of their competition and avoid becoming obsolete. Understanding which key performance indicators (KPI’s) are important to your firm is critical because they can change based on your business objectives and organizational strategy. Below are three key performance indicators we believe are important to every PS firm and should serve as a good starting point.
High utilization is critical to maintaining margins and achieving revenue goals. While utilization is one of the most commonly tracked metrics within the PS industry, it always seems to be calculated differently which makes it a difficult metric to benchmark. We suggest basing your possible hours on 2,080 available work hours per year and then deducting company holidays. We also suggest including non-billable resources in your equation because it will give you the most accurate picture of how effective your organization is at allocating resources to your portfolio of projects and engagements.
Tracking your bid-to-hit ratio is an important way to measure the success of your bidding process and serves as a key performance indicator of how competitive the market is. The important thing to understand about this metric is that it can be too high (organization is not targeting enough new clients) or too low (organization is losing to competition or practices poor qualifying processes). The industry average is 4.85 wins per 10 bids, per SPI’s study.
Annual Revenue Per Employee:
By dividing your total revenue by all employees, both billable and non-billable, you can determine the general financial health of your organization and determine if it is the appropriate size. If your organization tracks and improves utilization, as recommended earlier, it should yield higher revenue per employee and healthier margins. The industry average for this metric is about $163,000 per employee, per the SPI study.
Want to learn more about setting up the right KPI’s for your organization? Contact me directly: firstname.lastname@example.org