Key Performance Indicators (KPIs) will vary from business to business and industry to industry. The metrics that matter to a Manufacturing business will not necessarily matter to an Accounting practice. When determining KPIs for your business, it’s important to assess your core activity and understand what you need to measure in order to measure your business value over time.
For project-based, Professional Services firms there are certain KPI’s which are essential to measure. These KPIs will likely be the same across Architecture, Consulting, Engineering, Legal, and Marketing & Communications firms.
In a study by IDC – Managing your firm for growth – Professional Services firms were asked to identify the KPIs that matter most to their business and the results clearly show the top 10 KPIs which all Professional Services firms should measure. In this blog, we specifically look at the four metrics that every CFO or Finance Director needs to know – we’ll tell you what they are and how to measure them.
Top 10 KPIs for project-based businesses
1. Revenue Growth
49% of survey respondents rated this as Very Important
Revenue Growth was rated as the number one metric to measure for Professional Services Firms in the IDC study. Revenue Growth is a clear indicator of business performance as it shows that your are securing more work and operating more efficiently. If your revenue is falling over a number of reporting periods, it is an indication that business performance has dropped.
You can measure Revenue Growth by analysing profit and loss data along with project specific metrics like Days Sales Outstanding and Project Schedule Variance. This will give you an indication as to whether revenues really are increasing steadily or if current positive results are a deviation from the norm.
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2. Days Sales Outstanding - DSO
42% of survey respondents rated this as Very Important
Days Sales Outstanding (DSO) is a measure of the time taken between invoicing and payment. A low DSO KPI, will indicate a better cash flow position. Having a good understanding of your DSO value will help your Project Managers who build these costs into their project estimates from the outset.
You can measure DSO values by using the accounts function in your ERP system. This information needs to be shared with project managers in order to be of maximum value to your business.
3. Customer Lifetime Value
41% of survey respondents rated this as Very Important
The Customer Lifetime Value (CLV) gives you an indication of exactly how profitable and therefore valuable each client really is to your business.
You can calculate Customer Lifetime Value by assessing:
- the cumulative profit earned form all of a clients projects
- Less the cost of acquiring the client
- Less the ongoing costs of managing the customer relationship
- Less any other costs associate with the client
CFO’s should be able to get most of this information from their ERP system, but may need additional input from client account managers in order to accurately make each calculation.
4. Market Share
31% of survey respondents rated this as Very Important
Market Share is a percentage value that indicates how well you are performing against your competition by showing you how much of the available market you currently occupy.
You can calculate Market Share (MS) using this three stage process:
- Calculate your company’s total revenue (TR)
- Calculate the total market value (MV) – you may need to refer to your industry trade associations to obtain this figure
- Divide your total revenue by the total market value (TR/MV = MS)
If you want to find out more about KPIs for Professional Services Firms you can download our Ultimate Guide to KPIs for a Project Based Business.
The top 10 KPIs for your project-based company