The Importance of Project Size on Profitability
By Natasha Engan, SVP, Deltek Global Consulting Services
As the leader of Deltek’s 400-person global consulting practice, I face many of the same challenges you face, so I get it: Some prospects can be gun-shy about pulling the trigger on large projects, since they carry more potential risk. While it may be more difficult to sell one $100K project than sell three consecutive $35K projects to the same company, the financial advantages outweigh the challenges.
The 2019 Service Performance Insight (SPI) Benchmark Study* confirms that when it comes to projects, size directly impacts the success or failure of IT and management consultancies.
Following are several ways that project size impacts your firm:
- Higher billable utilization: The 47.4% of companies in the SPI 2019 Benchmark Study that routinely package and sell $100K+ projects have billable utilization of 76.7%. Those whose projects are routinely under $100K have utilization of 68.6%, a relative deficit of 12%.
- Revenue per billable consultant: When typical projects exceed $100K, each billable employee yields $220K in revenue per year, as opposed to $194K at companies with smaller projects. That’s better performance to the tune of 13%.
- Revenue per employee: The same holds true for this metric. Annual revenue per employee for companies with $100K+ projects is $178K compared to $162K at other companies, a differential of 10%.
- Quarterly booking forecast: When you consider that deal pipeline for companies with typical project size of $100K+ is 203%, that’s a delta of 24% over the 163% seen by companies with smaller projects.
- New clients: As for how well those forecasts convert to actual new clients, firms that regularly do $100K+ projects win 32.1% new clients compared to 28.2%.
- Quarterly revenue target in backlog: Companies that consistently book $100K+ projects have understandably higher numbers than companies with smaller projects: 48.6% versus 40.4%, to be exact.
- Project margin: Larger projects realize a better margin, on the order of 38.6% versus 36%.
What About Profitability
“What about revenue and profitability?” you may rightly ask, since they are still the gold standard of KPIs. Here goes:
- Year-over-year revenue: Firms that regularly book $100K+ projects saw an increase of 13.3% against only 8.7% for those with smaller projects. That’s a relative difference of 53%.
- Profit: Larger projects reap larger profits, at 17.5% versus 14.4%, a relative gap of 22%.
OK, So Now What?
So we have established the financial advantages of larger projects. However small, agile, iterative projects are becoming the norm, so it behooves companies of all sizes to staff, deliver and bill projects of all sizes efficiently. When you’ve built the credibility required to sell large projects on the shoulders of your high performance on smaller projects, you can start to farm out the smallest projects, but you’ll still need to deal with the stresses that project size variability puts on resource management.
That’s why I leverage the right project management technology and focus on key metrics. Doing so allows me to continually move the needle forward for our consulting business—and it can do the same for your firm. Deltek’s purpose-built project management solution, Vantagepoint, and the assessment and guidance that the Service Performance Insight (SPI) Benchmark Study provides will help get your company where you want it to go.
With Vantagepoint in your corner, your employees will have the right data to measure performance. Because the software streamlines and automates many aspects of engagement management, they’ll also be able to spend more of their valuable time and skills building efficient business processes, hiring and retaining top performers and managing truly impactful transformation.
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*Service Performance Insight (SPI) is widely regarded as the leading analyst group covering the PS market. SPI’s PS Maturity Model is the industry-leading performance improvement tool used by over 25,000 service- and project-oriented organizations to chart their course to service excellence by assessing, prioritizing and implementing service performance improvement.
About the Author
As Deltek's Senior Vice President of Global Consulting, Natasha Engan is responsible for leading the company’s services business, Deltek Global Consulting. A 20+ year veteran of the software and services business, Natasha has a strong background in managing cross-functional, customer-facing teams in a global workforce. Connect with Natasha Engan on LinkedIn.