performance indicator for Professional Services companies

Associate Success in Professional Services

Organizations that successfully integrate their financial plans have a competitive advantage over their counterparts, by linking operational and strategic data with financial planning to give a comprehensive overview of the organization. This is true for Professional Services organizations, who must consider capacity, demand, and margin when preparing their plans.

Capacity is a key metric for Professional Services companies. Successful organizations need to have a good understanding of the number of billable hours an individual consultant is capable of, as well as the possible billable hours of the team at large. Understanding market demand for particular services is also critical to planning staff capacity. Demand can be anticipated in conjunction with an organization’s sales team, who should have a broad understanding of the planned services billings in any given fiscal year.

Key performance indicator for Professional Services companies
A broad understanding of available revenue

However, an inability to fulfill demand can result in an overgrown services backlog or even a complete loss of a revenue opportunity, if potential customers balk at lead times. As such, it is critical that Services organizations carry enough staff in any given fiscal period to effectively churn through the backlog, and maximize the revenue opportunity. Similarly, operating with excess capacity will mean underutilized talent, as well as carrying costs without the associated revenue. There must be a balance between capacity and demand. An integrated financial plan helps organizations predict high and low ‘seasons,’ which allows them to structure their utilization accordingly.

Organizations have a few levers to manage this operationally. One of which is to precision-hire. In effect, resources are brought on board just in time to address increasing demand or seasonal ‘spikes.’ Another method can be to increase or decrease utilization of the team throughout the year to correspond with market demand. Instead of hiring additional staff, companies can be transparent about work schedules during the high season (i.e. no holidays during the summer months) and more flexible during low seasons. These interrelated variables, capacity and demand, stress the importance of margin in Professional Services companies, who should aim for a 30-40% margin at any given time, depending on the marketspace.

In sum, integrated financial planning in Professional Services organizations must consider the seasonality of the business, what the anticipated billings are, just-in-time hiring, flexible utilization, as well as cost per resource. Corporate Performance Management (CPM) software solutions, such as Prophix, can provide Professional Services organizations a holistic view of their KPIs, driving both short- and long-term organizational success.


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