Companies that provide project-based services need to grow successfully. They do this by balancing margin and profitability against the value the deliver to their clients. How can they monitor and measure this critical balance? According to SPI Research, these are 5 critical metrics:
- Annual Revenue per Billable Consultant
Understanding how much revenue each consultant is producing is a key indicator of financial success, but it must be assessed in relation to labor costs. Revenue per billable consultant should ideally equal one- to two-times the labor costs of employing each consultant.
Organizations with high annual revenue per billable consultant tend to do well because higher rates indicate better consultant productivity with respect to larger projects, more revenue in backlog, as well as more on-time and on-budget completions.
- Annual Revenue per Employee
Higher annual revenue per employee is strongly correlated with profitability and efficiency. By measuring how much revenue each employee brings in relative to how much they cost, you can quickly determine the financial health of an organization.
- Billable Utilization
Utilization is central to accurately determining organizational profitability, as well as a key signal to expand or contract the workforce. By tracking work hours for billable employees, an organization can get a better picture of workforce productivity. You should base this metric on a 2000 hour per year average.
- Project Overrun
Project overrun is the percentage above budgeted cost versus the actual cost of a project. Whether a project goes over in either budget or allotted person-hours, it can limit future work and, in many cases, reveal internal efficiency or management issues, which also negatively impact bottom-line results.
- Project Margin
Keeping project margins high is essential as it ultimately drives overall profits. Poor financial performance can often be directly correlated to low project margins, as organizations are no longer able to invest in future growth activities.
If your finance system cannot easily measure, track and provide these key metrics immediately, then it may be time to reevaluate it. We will be happy to provide you with a complementary assessment of your current finance system. Feel free to contact us.