What are the Standard Metrics for Consulting Services?
We love to get into the details of professional services organizations. It’s no wonder we geek out on professional services KPIs. Before we look at services organizations its interesting to look at other industries as well. Specifically if you look to the SaaS world, the metrics that matter are well defined, distributed and debated:
· SaaS Magic Number
· Sales Efficiency
· SaaS Efficiency
· Net Dollar Retention
· Annually Recurring Revenue
· The list goes on…
When you enter into a professional services world it almost feels like the cobblers kids have no shoes. Professional services organizations guide amazing strategy work, solve difficult problems, implement complex technology and work tirelessly to deliver great work for their customers. Look no further than the maturity curve that SPI Research published to confirm that there are a large number of “have nots” lacking the same level of strategy, technology and insight into the metics that mater for their own organization.
But What About Professional Services KPIs?
For the past 15 years, we have worked with hundreds of professional services organizations to illuminate and measure key performance indicators (KPIs) for professional services organization. These are the metrics that keep them in business (and growing) year after year.
We like to think of KPIs for consulting as regularly asked questions that, when answered, determine the health of the organization. Some metrics around consulting performance measurement answer “What happened?” and some “What can that happen?” When combined, they work to balance the shifting priorities of projects, people and revenue in a services organization — ultimately resulting in a growth strategy for consulting.
Professional Services KPIs Are Nuanced
Regardless of whether you’re a software solution measuring SaaS professional services KPIs, or a consulting company focused on KPI metrics for professional services, there is no one size fits all model. As the famous British statistician George Box said, “all models are wrong, but some are useful.” Let’s take a look at 6 useful KPIs for services organizations:
Lagging Indicator KPIs for Services Organizations:
1. Revenue: The amount of money the organization generated through delivery of services. Also known as gross sales. It answers the question “what did we earn for what we sold”. As a backward looking view, revenue has implications with the type of contract signed. Project accounting is a foundational practice to measure revenue well across all projects.
2. Project Profitability: Every project needs to be measured financially. Profitability is a key element to that. How much does the project cost us (time, expense, overhead) against how much revenue the project is creating and what project margins were. If we do this at a micro project level, it makes measuring overall profit margin significantly easier at a macro level.
3. Utilization: Utilization is a key metric to understand the well-being of your team (burn out) but also the productivity of your organization. This should be measured in a more nuanced way – billable, productive and chargeable utilization are three different ways to understand time inside a professional services organization.
Professional services KPIs measuring what has happened is by far the easiest and most common way to think about your performance. Revenue, for example, paints a nice picture of what has happened in the past.And if you add in project based accounting, you’re able to get some great understanding of fixed price projects.
And while measuring the past is interesting and important, it doesn’t always answer “What can we do?” For that, turn to leading indicators.
Leading Indicator KPIs for Services Organizations:
The past is interesting but if we make decisions off of what has happened only, it will not allow services leaders to get to the outcomes. Professional services KPIs have to include the future to accurately and effectively grow a services organization. A few of the KPI examples worth surfacing are:
1. Sales Pipeline: The majority of services organization go back to what they can measure readily– pipeline. There are plenty of ways to measure pipeline weighted, unweighted, using interesting tools like Clari to bring AI into your forecast. Ultimately what we want to measure with the sales pipeline is capacity planning so that we can manage the supply and demand of the delivery team.
2. Scheduled Billable Hours: Tells you how busy billable employees are planned to be. Critical to understand this is actually having the ability to schedule and actively manage all projects and resources across the organization. This coupled with utilization tracking informs expected revenue per billable consultant and helps delivery organizations understand what to sell and when it can start.
3. Forecasted Revenue Recognition: Knowing when you can recognize revenue over the course of your projects is critical for accounting rules and has to be informed by accurate project tracking to determine key milestones and percent complete. The next level of that is being able to forecast that into the future. Professional Services KPIs that include this metric provide visibility into the future of the business.
Tracking and managing leading indicators will directly impact the lagging ones. If scheduled billable hours decline, so will revenue and utilization. All professional services firms’ KPIs need balance. Thinking about leading and lagging indicators provide a view into the past and prediction into the future.
Getting the Measures Right: Professional Services Management Software
Most mature services organizations need a system to track their KPIs. PSA software is an example of a system that can synthesize data to track lagging and leading KPIs while also answering “what’s happening now?”.
A PSA tool like Projector enables project cost tracking and syncs with project accounting software. Project resources are managed against one or more utilization targets (Projector PSA offers the ability to measure three types of utilization), and project profitability is visible not just at a portfolio level, but at a manager level where changes made can most affect outcomes.
All these underlying data points feed your organizational KPIs. Billable utilization, time to staff, even customer churn and NPS scores can be tracked, and may even ultimately be more important than the high level KPIs you set out to track.
The best PSA system will also allow for hypothetical modeling based on the very same data you depend on to run the business. We’ve built our Projector BI tool to manage service KPIs at every level of the organization, enabling visibility and accountability across the business. Our preconfigured service dashboards address the specific KPIs of services organizations, and allow for customization and deeper analysis as your business grows. With a solid PSA system and a BI tool purpose built for PSOs, we’re enabling services organizations to not just look to current business questions, but look ahead of them and answer “what if.”
Learn more about Projector and Projector BI by getting a demo. We’ll talk about your specific business questions and how our PSA solution can help.
GET THE EBOOK TODAY!