These 3 Reports are a Must in Making More Profitable Decisions.
It might surprise you to know that many consulting firm leaders think their company is doing well based only on top line revenue and profit. It feels good to see the coffers grow, but that does not tell you how each customer, and consultant affects your growth, or if you are susceptible to the competition. You have no way of knowing how much revenue and profit you are leaving on the table. That old way of making decisions based on gut instinct, revenue, profit, and some spreadsheets is giving way to an easier, but at the same time more powerful and reliable reporting model. Imagine the financial impact on your business if at any moment you had answers to questions such as:
Smaller to mid-sized consultancies with 25+ employees are not usually set up to answer such questions. They have some idea, but not enough reporting to make the best decisions. Good reporting gives you accuracy and clarity on how your people, and customers affect your revenue and profit, so you can guide business growth and employee success with confidence.
These three reports provide a strategic view to the core of your business. If you say you are a data driven decision maker, but are not using these reports, then you are a “decision guesser” using “your gut” and estimates, which means you are probably leaving revenue and profits on the table and exposing the business to competitive threats. The good news is these reports are easy to set up, the technology to do this is accessible and affordable, and you probably already gather the data.
Understand the Relationship Between Capacity and Profitability
Utilization is a key measurement for professional services companies. It helps you forecast and drive revenue by showing you how much of your organization’s billable time is actually getting billed, which represents revenue. A few percentage points increase in overall utilization rate can equate to hundreds of thousands or more in profitability. Yet, it’s the #1 underutilized report.
Here is an example of how utilization information helps you. Think of salaried consultants who are paid whether working on billable client projects or not. If a consultant is billable for 30 hours but only bills for 20 then you can investigate to find out if they are underutilized and should take on more, or simply working harder and faster and so should be billed at a higher rate for delivering work more quickly or moved to a more challenging lucrative project. If they are underutilized, you can look for ways to generate more billable business. But, if your utilization is too high, and they are billing all thirty hours plus they have worked fifteen unbillable hours, then you’re stretching the staff too thin which leads to a dreaded retention issue that can benefit competitors by allowing them to poach your best people. Also, armed with this information you can confidently approach clients about new projects and bigger budgets.
There are three views of Utilization that you need:
How are you measuring utilization today? Which aspects of utilization do you track, and which ones do you wish you could? The more precisely you measure it the better you can drive your business.
Ranking Based on Consultant Contributions
Profitability by Consultant measures Revenue, Profit, and Margin for each consultant. Most companies do not have a reliable consistent answer to this.
For example, while gathering data we asked the management team of a consultancy with 75 employees to each name their top 5 most profitable consultants. Each executive came up with a list which was similar, but not the same as their peers. When we set up and ran a report, it showed that each only got 3 out of 5 correct.
Astonishingly, the #2 top producing consultant was completely overlooked by the entire management team! She was delivering outstanding results – yet not one leader knew how much she was contributing and helping the business.
This is all too common with companies in this industry that have 25+ employees, so you have to ask yourself how well do you know your business if you don’t know who your number #2 revenue generator is and what makes them your second best? And worse, how caught off guard will you be if that #2 employee leaves for another opportunity?
Customer Ranking Based on Margins
Similarly, you want to know who your most valuable customers are, and which ones place a heavy load on the business without delivering as much value. If you do not know your individual client margins, then you are susceptible to a common pitfall which is spending the most time on your least profitable and most draining customers.
Usually, the draining ones are the noisy ones (professional tip: the squeaky wheel should not always get the grease). Then you have great customers who may be quieter and easy going but get less attention or even ignored. That creates a major vulnerability because over time your high value clients leave due to neglect, and the low value ones leave because they will never be happy, so you must keep seeking new customers. This slows growth, reduces profitability, plus it is far more expensive in time and budget to find new customers than retaining the ones you have.
A better approach is to lavish your attention on the best customers and either reduce the efforts on the burdensome ones or speak to them or even cull them if need be. Well, that makes great sense and is all and good, but you cannot do any of that if you do not know who they are. You need a report at your fingertips for that and you need to watch it because sometimes good customers go bad and bad ones get their act together.
Without real-time, accurate, reliable reports like these tied to your data sources you open yourself to blind spots across the business. If your decision-making process relies too much on estimating, best guesses, memory, word of mouth, and outdated information, then you are already behind the competition.
There is no reason to put yourself at a disadvantage when information technology can easily give you the information you need to understand what’s really behind your revenue, making evident the best ways to grow revenue and increase profits.
See Reports in Action and Learn More
Schedule a 20-minute complimentary consultation call to see reports in action. During the call, you’ll view:
• Examples of live reports running in real time
• Case studies of companies who have thrived with these reporting tools
Schedule a 20-minute complimentary consultation to see reports in action.