(KPIs) for the service industry CFOs

CFOs can then bring a financial discipline to

support and extend the above strategy process
by addressing questions such as:
1. Are the financial goals of the company viable?

2. What products and markets deliver the greatest promise for revenue or margin
growth?

3. How should the company organize and structure financing of key investments to
generate competitive advantage?

4. What structures (for example, business models; legal and tax entities; onshore,
offshore, or outsourcing talent models) and processes (automation, build vs. buy,
networking, and so on) enable competitive advantage and deliver superior market
valuation and returns?

5. What financial and management reporting enables management to effectively

execute and deliver the strategy?

“If you can’t measure it, you can’t manage it.”

Using NetSuite’s dashboard interface, executives track and compare their Key
Performance Indicators (KPIs) in real time while comparing different time
horizons. With NetSuite’s central database for all your business information,
your data is easily accessible in one place, providing you with one version of
the truth.
Many of our professional services clients use the below KPIs on their
custom NetSuite Dashboard and KPI Scorecard.

1. Annual Revenue per Billable Consultant

Total Revenue/Number of Consultants

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Revenue per billable consultant is key to tracking productivity. Compare this
number against labor costs to get an overall view of your effective billable
output. Depending on the industry, revenue per consultant should be roughly
two-to-three times the full cost of that consultant.

2. Annual Revenue per Employee

Total Revenue/Total Number of Employees
Revenue per employee differs from revenue per billable consultant in that it
measures overall organizational efficiency. Generally, the more non-billable
employees an organization has, the less revenue each employee is bringing
in. This KPI is important for determining the appropriate size of the
organization and how resources should be distributed. This number highly
correlates with overall organizational health.

3. Billable Utilization
Billable Hours/2,000
This KPI is an indicator of how well you are utilizing assets. It can be
important in letting you know if you need to expand or contract, as well as how
well you are maximizing opportunity.

4. Project Overrun
Budgeted Cost/Actual Cost
Project overruns kill profitability, in addition to limiting the launch of new
projects. High overrun typically correlates with decreased customer
satisfaction and indicates project management needs improvement.

5. Project Margin
Project Revenue/Project Cost

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There are numerous ways for service organizations to bill their projects.
Regardless of how you price your services, it’s vital to keep your margins
above 40%. Low margins kill an organizations ability to invest in the future.

6. Sales Pipeline
Are there enough leads and prospects in your pipeline to meet your revenue
goals? Are your sales teams generating enough opportunities and closing
enough deals to achieve your revenue targets? Track your lead/prospects and
the opportunities by status and estimated close date. Project a weighted
revenue projection (estimation) based on the status in the pipeline. The Sales
Pipeline is standard in NetSuite.

5 KPIs that Matter for Professional Services

SPI has spent the past several years benchmarking PSO operational performance or “maturity” to
determine the characteristics and appropriate behaviors for PSOs based on their organizational
lifecycle stage. In its research, SPI drilled deep to determine trends in the 200 key performance
indicators (KPIs) demonstrating overall performance improvements as PSOs matured by aligning
people, processes and systems.

The most mature organizations exhibited, according to SPI, high levels of organizational visibility
with optimized business processes and integrated systems, which spanned all major functional
groups. With a focus on profit improvements, SPI highlighted the five most important and
influential financial metrics for the professional services market.

Annual Revenue per Billable Consultant

Annual revenue per billable consultant depicts the service organization’s total revenue divided by
the number of billable consultants. Revenue per consultant provides an indication of consultant
productivity. SPI Research considers revenue per billable consultant to be one of
the most important KPIs, but it must be viewed in conjunction with labor cost. Revenue per
billable consultant should minimally equal one- to two-times the fully loaded cost of the
consultant. Revenue multipliers of three and higher are typical for engineering and architecture
firms, as well as in management consulting and legal professional services.

Annual Revenue per Employee

Annual revenue per employee is different from revenue per billable employee, it focuses on
organizational effectiveness. It is similar to annual revenue per billable consultant; it divides total

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revenue by the total number of employees so it includes both billable and non-billable employees.
Revenue per employee is a powerful indicator of the overall profitability of the firm because if the
average cost per employee is known, profit can be estimated representing the difference in cost
per employee and overall revenue per employee. Similar to revenue per consultant, this KPI
is highly correlated with profitability, utilization and bill rates. PSOs with a high percentage of non-
billable employees have lower annual revenue per employee. Revenue per employee is very
important in determining the appropriate size and financial health of the organization. Based on
the high cost of talented consulting staff, SPI Research believes this figure should be close to two
times the fully loaded cost per person to maintain strong financial viability.

Billable Utilization
SPI Research defines employee utilization on a 2,000 hour per year basis, and is calculated by
dividing the total billable hours by 2,000. This key performance indicator is central to organiza-
tional profitability. Utilization is consistently the most measured key performance indicator but
must be examined in conjunction with overall revenue and profit per person along with leading
indicators like backlog and size of the sales pipeline to become truly meaningful. Utilization is a
major indicator of opportunity and workload balance as well as a signal to expand or contract the
workforce.

Project Overrun
Project overrun is the percentage above budgeted cost to actual cost. Project overruns may be
expressed in actual time versus plan or actual cost versus plan or both. This KPI is important
because anytime a project goes over budget in either time or cost; it cuts directly into the PSO’s
profitability. Project overruns, like projects not delivered on time, limits future work that can be
initiated. In many instances it shows a lack of project governance, which negatively impacts
bottomline results.

Profit Margin
Project margin is the percentage of revenue which remains after paying for the direct costs of
delivering a project. Projects can be fixed-price or milestone-based, where the PSO commits to a
“Not to exceed” price, or Time & Expense, where the PSO essentially charges by the hour with
additional payment for any materials used during the engagement. The key to any successful
professional services organization meeting its financial objectives is the management of all
revenue and cost information.

A professional services organization’s financial infrastructure can be complex, with different rules
and regulations and currencies that must be man-aged in order to reduce waste and fraud,
while maximizing profitability. The solution must also be flexible and agile, so that as conditions
change, such as mergers and acquisitions, practice changes, new regions, and other areas, that the
financial information will remain transparent, stable and accurate. How will you outperform your
competition? By monitoring the right set of financial metrics.

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Employees Revenue

1. Utilization rate 1. EBITDA

2. Attrition/retention 2. Profit margin
3. Employee satisfaction score 3. Year-over-year revenue growth
4. Employee engagement score 4. Cash conversion cycle
5. Employee health index 5. Cost of acquiring a customer
6. Performance (specific desired result by role) 6. Cost of service delivery
7. Number of open positions 7. Revenue/employee
8. Time to fill positions 8. Revenue/customer
9. Number of managers on virtual bench 9. Revenue/product line or service delivered
10. Training hours 10. Actual v. budget

Customers
Processes
1. NPS or satisfaction score
1. Project profitability
2. Retention
2. On time product/service delivery
3. Amount ($) of up-sell opportunities
3. Scheduled downtime
4. Service renewal rate
4. Unscheduled downtime
5. Customer lifetime value
5. Number of defects
6. Number of customer complaints
6. Percentage of bugs detected in-house
7. Number of open support tickets
7. Safety incidents
8. Percentage of customer requests
8. Idle time
completed in X time
9. Time to product launch
9. Number of customer testimonials
10. Length of sales cycle
10. Number of referrals