Is your business missing out on revenue? Maybe.
During the pandemic, many professional services firms knocked their prices down in a bid to retain as much business as possible.
While this may have worked as a temporary solution, it’s unsustainable in the long-term.
But there are a series of straightforward ways you can take right now to correct course and boost your profits. Read on to find out exactly what they are and how you can get started.
Here’s what we cover:
Boosting profitability in professional services
Globally, the average profit margin for professional services firms in 2021 sits at around 36%, but varies depending on the type and complexity of the service you offer.
Commodity firms – which help clients with basic, routine problems quickly and efficiently – tend to see margins in the single digits.
Meanwhile, ‘rocket science’ services addressing specific, difficult problems for their clients can see profit margins over 50%.
No matter what kind of practice you’re running, the bottom line is the same: you need to protect your bottom line.
As the world opens up again, it’s the perfect time to revisit your strategy.
Widening your profit margins starts with a deep dive into how you and your team spends your working hours each day.
Start by breaking down the real cost of doing business, and work out which areas you can fine-tune or completely revamp to do things more efficiently.
It all boils down to protecting your most valuable resource: time.
Below, check out four ways you can boost profitability at your business.
1. Keep non-billables to a minimum
The idea that every minute of every workday could be dedicated, unflinchingly and fully focused, to project work, is unrealistic.
And activities such as creating marketing materials, answering emails, preparing pitches, doing research, and so on might not directly make money for the business, but they’re a vital part of winning – and retaining – clients.
There are non-billables that can be cut down to size by making sure you and your team aren’t getting bogged down in unnecessary admin or overly complex processes.
One way to do this is to ask your team to record their non-billable hours in the same way they do for their billables.
Talk to your people and ask them what parts of their job they feel might be sucking up more than its fair share of time.
Remember, some employees might feel uncomfortable speaking about this face-to-face or in a group, so make it possible for your team to share their thoughts on this anonymously.
2. Track project spending
Making sure your estimates are as accurate as possible is vital because this helps you kick things off on the right foot.
But it’s even more important to keep a close eye on your project spending over time.
There are three key things to keep in mind here:
- Any client requests that go beyond the original project scope need to be documented and billed for, no matter how little the additional time may be.
- Use real-time tracking to make sure projects are on track and not at risk of overrunning their budget.
- Create standardised processes to help your employees save time, and be clear on what needs to be done and how they can do it.
3. Boost your utilisation rates
Leading a team successfully isn’t just about hiring the right people with the right skills.
It’s about knowing which employees are the best fit for each project, and how much time they need to do a great job.
The key to keeping your utilisation rates high is in your data.
Cloud-based software allows you to get an easy-to-digest view of your team’s projects, including where their time is going and the skills each employee brings to the table.
That data empowers you to make better staffing decisions and see your employees shine on the right projects, keeping clients happy and saving you time and money.
4. Review your pricing
If you find your cash flow is experiencing regular pinch points, it might be a sign that your prices are set too low or you’re underestimating the work each project calls for.
To get to the root of the problem, dig down into the costs of running each project and compare that to how much revenue it brings in.
Using this kind of historical data, you can work out where to raise prices and by how much.
Increasing your prices might feel like a bold step to take, particularly if you’re operating in highly competitive markets.
But that fear might be misplaced.
Upping your prices could actually boost your profits without taking on new clients and stretching your team too thin.
A study by McKinsey & Co. found that increasing prices by just 1% could see your profit margins grow by 11%.
Next steps: The metrics for professional services firms to track right now
If you can’t measure it, you can’t manage it.
Knowing which key performance indicators (KPIs) to track – and how to track them effectively – is the key to unlocking your business’s potential.
Dig down into the data to find out where your strengths lie and what parts of your organisation could use a little extra attention.
Use that information to refine your strategy and help your team thrive.
6 key metrics for professional service organisations
Discover the KPIs that can help you benchmark your firm's financial data and identify where you need to focus as you strive for continuous improvement and growth.
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