The devil is in the details, don’t you think? For professional service organizations (PSOs) it’s especially difficult to review detailed financial reports and analyses. Selling services rather than goods gets very complicated, very fast. All the numbers start looking the same, your eyes glaze over, your concentration wanes, and you often end up going down a different financial path altogether. At this point, you’ve lost track of the insights you were searching for to begin with!
Isn’t there an easier and better way to comprehend what your PSO financials are trying to so hard tell you? The short answer is a resounding yes.
There are five key performance indicators (KPIs) that can quickly show the financial health of your PSO. Even better, a first-rate ERP system, such as Sage Intacct, will swiftly crunch all the numbers required for each. Let’s do a shallow dive on these five KPIs:
Annual Revenue per Billable Consultant
How to calculate: Divide the business’ total revenue by the number of employed billable consultants.
Why it’s important: PSOs with higher annual revenue per billable consultant tend to be more successful. Revenue per billable consultant should equal one- to two-times the labor costs of employing each consultant.
What it indicates: Higher rates equate to better consultant productivity, more revenue in backlog, and more on-time and on-budget completions.
Annual Revenue per Employee
How to calculate: Divide the business’ total revenue by the total number of both billable and non-billable employees.
Why it’s important: Measuring how much revenue each employee brings in relative to how much they cost is an excellent way to determine an organization’s financial health.
What it indicates: High annual revenue per employee is strongly related to the company’s profitability and efficiency.
How to calculate: Divide annual billable hours by 2,000. (SPI Research defines employee utilization on a 2,000 hour per year basis.
Why it’s important: By tracking work hours for billable employees, an organization can get a better picture of workforce productivity.
What it indicates: Utilization helps determine not only organizational profitability but whether to expand or contract its workforce.
How to calculate: This is the revenue that remains after all direct costs of delivering a project are paid.
Why it’s important: High project margins help to boost overall business profits.
What it indicates: Low project margins are directly indicative of poor financial performance.
How to calculate: Determined as the percentage above budgeted cost versus the actual cost of a project.
Why it’s important: Anytime a project goes over its budgeted time or cost, it cuts directly into profitability.
What it indicates: Overruns can reveal internal inefficiencies, identify management issues, negatively impact client satisfaction, and even hamper incoming sales opportunities.
So the big question remains — can your current software accurately and effectively calculate all of these critical KPIs for your PSO? If not, you owe it to yourself and your business to learn more. Get an edge on your competition. Contact Roghnu Today!