SPI 2019 Benchmark Study Reveals Profitability Tips from Best-of-the-Best Firms
What the highest-performing consulting firms do differently to improve profits
The just released study by Service Performance Insights (SPI) Research – the 2019 Professional Services Maturity™ Benchmark – identifies that the Best-of-the-Best firms know how to make money, as they are certainly focused on financial success as a means of growth. But another key to their success revealed in the survey is that their leadership was also laser-focused on an employee-centric culture, coupled with employee success & collaboration, and a strong sense of community.
As benchmark author, Dave Hofferberth states, “this year’s Best-of-the-Best are characterized by high growth, profit, and high levels of client satisfaction. Every year we find the best firms are also the fastest growing. On average, they grew year over year PS revenue by 14.5%; 54% more than the revenue growth of average firms (9.4%). Year-over-year employee headcount growth was also impressive at 11%. For these fast-growing firms their top challenge is finding and growing the talent they need to sustain their dynamic growth while maintaining a culture of excellence.”
Key Stats of Best-of-the-Best Firms vs Rest:
- EBITDA: 26.5% vs. 17.6%
- Average revenue per project: $278K vs. $145K
- Projects delivered on-time: 88.2% vs.76.3%
- Employee billable utilization: 74.5% vs 69.4%
- Bid-to-Win ratio (per 10 bids): 5.97 vs.4.86
Here are 5 common practices shared by the Best-of-the-Best firms that you can copy to improve your consulting firm’s profitability:
1. Create the right firm culture: As mentioned above, firm leaders in Best-of-the-Best firms strive to create an employee-centric culture that leads to profitable growth and success for all. An emphasis on profitability is critical to keep employees focused on the bottom line. Look for ways to constantly improve your talent, processes and technology to competing in today’s environment. Share firm goals, regularly review key metrics, and partner with employees to foster a culture that guarantees profits as your firm grows.
2. Improve your firms win rates: Best-of-the best firms sell their engagements based on value, not price. If your pursuit of new business is not strategic or intentional, you may find your teams bidding on engagements that are not profitable or not the right work for your firm. Increased competition and poor customer insight have led firms to bid on projects with low margins, setting them up for potential budget overruns, impacting profit. Ensure your book of business is based on the value you bring to clients, rather than just on price to ensure a higher win rate.
3. Price engagements correctly: Estimates are the key to the entire engagement, forming the basis for the proposal, contract, scope, and budget. You need to understand your clients’ objectives and develop an agreed upon requirements analysis process. Ensure your fee estimates are spot on, by reviewing similar projects your firm may have successfully executed. If you start with the right estimating processes and templates and ensure that there is consistency in the way that your estimates are prepared and approved, you will set your firm up to exceed margins.
4. Ensure high quality service execution: This is key in setting Best-of-the-Best firms apart. In order to make a profit you must control engagement costs including labor, expenses and subs, within the scope of the project. Project managers must have effective processes for communicating the scope to the team, monitoring real-time costs against budget, and recovering extra services. Special attention to the processes and systems your firm uses to manage scope creep will pay off with higher profit margins and less problems with clients on engagements.
5. Provide integrated project-based solutions: If your firm is using outdated systems for capturing time and expense, managing engagements, preparing proposals and scheduling resources, chances are your projects could be more profitable. Look for ways to automate processes to help your employees get the most value in their day. Continually improve your technology and systems to boost financial success and stay ahead of your competition.
Take the next step
To aspire to be a Best-of-the-Best firm in 2019, your firm must continuously strive to improve and become more efficient and profitable while leveraging innovative systems and tools to run your business. Why not start now. Download your complimentary copy of the 2019 Professional Services Maturity Benchmark report and begin to boost your firm’s profitability today.