By Neil Davidson, Regional Vice President EMEA at Deltek.
Traditionally, professional services firms such as architects, engineers, and management consultants thrive on strong profit margins derived from efficient utilisation of resource in the business. In 2021, for example, research found that for professional services businesses the average billable utilisation sat at 73.2%, while net profit remained strong at 15.7%. This mirrored the economy at the time, so the concern now is that, without taking steps to actively protect profit margins, these firms could see tough times over the next few years as the economy is predicted to go through a downturn.
On the other hand, the same research shows that significant profit margins of up to 60% can be achieved by consolidating all professional services firm’s project management tools into one place, providing a single source of truth. This is because a grand overview of the firm’s operations allows business leaders to identify where there are pockets of untapped resource and making planning and delivery more straightforward when looking to take on new projects.
In this article, we will consider the importance of visibility in setting KPIs (key performance indicators), adapting business strategy and choosing where to invest to maximise profit margins during turbulent times.
Understanding how revenue forecasting impacts KPIs
Thinking back to 2019, the world in which businesses operated was very different. And the KPIs businesses were measuring against have more than likely changed from then to today. Whilst it is still difficult to predict the economy over the next few years, any turbulence will again mean organisations need to be able to adapt their KPIs to meet evolving forecasts.
Constantly monitoring the market and having a full picture over profit and loss (P&L) is crucial for businesses. Having complete end-to-end visibility means plans and revenue forecasts can be accurately adjusted as required. Predicting performance against KPIs is critical to preserving cashflow and the bottom line. In an economic downturn, maintaining revenue may become a key indicator of success and holding onto a profit margin, rather than increasing it, equates to a healthy business. As revenues potentially fluctuate and KPI targets evolve, businesses that can identify where time is best spent to remain operationally efficient are ultimately going to see the largest profit margins – or know where to make the changes needed to weather the storm.
Acting in real-time
While forecasting and measuring are great ways of keeping the business honest with what is feasible in terms of profit margins, thoughtfully acting on these shifts is also a crucial part of the puzzle. Visibility into the business’ performance – both at a project-level and overall birds-eye view of the company – is essential for professional services leaders.
Real-time data provides visibility into actionable insights, making it clearer to see where a business should lean forward or pull back. It is these actionable insights that allow strategic decisions to be made not only fast, but confidently, as they are based upon real-time data. The ability to modify strategic and tactical plans in an agile way so they address shifts as they happen, can allow the business to keep their momentum and remain calibrated.
For example, a company may look at their customer landscape and see a change in requirements that mean certain services are more in demand than others. Focusing efforts on selling and resourcing specific service offerings can mean a business gains a competitive advantage as well as achieving its revenue goals. As priorities shift or strategies change, business leaders can continue monitoring the data to evaluate where there are new opportunities, as well as understanding where margins and profits are consistently low. Armed with this information, business leaders can not only demonstrate the impact they have made through their changes but predict the next steps that need to be taken to safeguard revenue growth and profitability, because they have been thorough in capturing and analysing their data.
Safeguarding core business functions through technology
To further remain on the front foot, business leaders should consider what they need to put in place to support further growth. While growth is always attractive, it also brings with it some complexities.
Implementing integrated business solutions that improve operations, such as project management software can radically improve efficiency and create tremendous value. Every business is unique, but the right software tools to support core business functions such as forecasting, marketing, talent and sales channels can provide deep insight into opportunities of growth, existing profit pools and where corrective action is required.
Taking talent as an example, as a business grows, it may need talent both to manage demand but also to bring new skills into the business, such as a specific in-demand specialist expertise. Equipped with the right tools to have full visibility over the organisation, those in charge of resource management can see where pools of existing talent can be used internally, but also whether hiring into the business or sending current staff on training courses would be the most cost-efficient route. In this example, it is easier to see which scenario is an asset to the business versus an unnecessary spend, further increasing profit margins as well as client satisfaction.
While the next few years may be a slightly more uncertain time, businesses can drive value creation and outperform their competitors during a downturn. The key here is full visibility into the business’ operations, so that an organisation understands their preferred areas of growth and constrains efforts where KPIs are below par. Investing in smart digital technologies and evaluating now what is needed to succeed in the coming year and beyond should be a top priority for all professional services organisations.
Uma Rajagopal has been managing the posting of content for multiple platforms since 2021, including Global Banking & Finance Review, Asset Digest, Biz Dispatch, Blockchain Tribune, Business Express, Brands Journal, Companies Digest, Economy Standard, Entrepreneur Tribune, Finance Digest, Fintech Herald, Global Islamic Finance Magazine, International Releases, Online World News, Luxury Adviser, Palmbay Herald, Startup Observer, Technology Dispatch, Trading Herald, and Wealth Tribune. Her role ensures that content is published accurately and efficiently across these diverse publications.