5 essential KPIs for professional services

Key Performance Indicators serve as the compass guiding any kind of company, and professional services aren’t the exception. With the right KPIs for professional services, firms can shift towards outcome-based engagements, utilising accurate, real-time data to win bids, track progress, and demonstrate the impact of investments to clients.

The importance of KPIs

In 2024, the emphasis on data-driven decision-making has never been more critical. KPIs are essential metrics that set the stage for continuous improvement, providing insights into business performance and acting as a guidepost when plans face challenges.

In the world of professional services, KPIs play a crucial role in understanding customer behavior, improving business performance, driving revenue, identifying waste, and more.

Choosing the right KPIs for professional services

Selecting KPIs is a strategic decision that varies for each organization. These metrics act as targets for teams and individuals, offering a clear view of where improvements are needed. Importantly, good KPIs answer specific questions about the business, facilitating actionable insights.

Let’s delve into five key KPIs that every professional services firm should consider incorporating into their strategy:

Profit margins, calculated as (total revenue – delivery costs) / revenue, represent the percentage of revenue left after covering all project costs. Despite its critical importance, managing profit margins is challenging, with factors like late time-sheets and underbidding affecting accuracy. Monitoring profit margins aids in identifying top-performing service offerings, optimising staffing levels, and preventing revenue leakage.

Resource utilisation, influencing profitability and client satisfaction, measures how effectively teams use their workforce. Tracking utilisation against various factors like total revenue, client satisfaction, and backlog value provides detailed insights into performance. Striking a balance between short and long-term goals is crucial, avoiding burnout while maximising revenue.

Year-over-year (YoY) revenue growth gauges the effectiveness of a firm’s strategies, people, and technologies. This high-level metric helps identify operational issues, guiding a deeper analysis of sales performance, customer retention, and other factors influencing growth.

Measuring employee output against client impacts, revenue per billable resource calculates total revenue divided by the number of billable employees. This metric offers insights into team productivity, ROI for annual spending per team member, and informs decisions on training, hiring, and technology investments.

Forecasted revenue recognition predicts income within a specific timeframe, crucial for understanding cash flow. Essential for IFRS compliance, this metric requires detailed project tracking and offers insights for generating accurate cash flow forecasts.

While the outlined KPIs are pivotal, every organisation’s unique goals, strategies, and definition of success determine the metrics they track. The right infrastructure and tools, including ONE source of data within a robust ERP system, are vital for accurate measurement. With clear goals and comprehensive data, professional services firms gain control over projects, profits, and long-term performance.

Built on Microsoft Business Central, Advanced Projects caters to the needs of professional services businesses such as project accounting, project management, project resource management, and project reporting.

Advanced Projects was built by professional service industry experts who understand the complex requirements of the professional services industry.

Interested in learning more? Check out our ERP guide for professional services. 👇

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