Consulting Firms: Explore the Leading KPIs to Measure Business, Talent and Project Success

Consulting firms specialize in helping their clients solve business challenges and plan for sustainable growth and success through actionable guidance and advice. However, to ensure their own success, these firms must also focus on their own goals and challenges.

In the 5th Annual UK and ANZ Deltek Clarity Study, we surveyed hundreds of professional services organizations, including consulting firms, to learn more about their business goals and challenges and how they plan to address them. The results provided some valuable insights.

Survey respondents were concerned about winning profitable projects, attracting and retaining talent, protecting their profit margins and managing resources to meet client expectations. Many firms also admitted that they have yet to implement processes for the measurement of relevant metrics and key performance indicators (KPIs) to track their progress towards achieving their goals in these areas.

Why Should Your Consulting Firm Have a KPI Strategy?

KPIs are metrics that provide insights into various aspects of a firm's operations, enabling leaders to make informed, data-driven decisions. A well-defined KPI strategy allows firms to benefit from actionable insights, predict profitability, gauge project performance and client satisfaction, and ultimately drive their business strategy.

Measuring the right KPIs for consulting firms fosters accountability within teams, ensuring everyone is aligned with the firm's objectives and contributing to its success. In a competitive industry where delivering exceptional value is crucial, following a robust KPI strategy can distinguish a consulting business from its competitors and enhance its overall performance.

Read on for the key metrics you should measure across your business, people and projects and discover why it pays to centralize KPI management with the support of the right technology.

KPIs to Measure Business Growth and Profitability

Despite the challenges highlighted in the Deltek Clarity Study, 86% of consulting firms anticipate an increase in profitability in 2024, a significant rise from 67% in 2023. To effectively monitor business growth and financial success while ensuring progress toward strategic objectives, it is essential to track the following KPIs:

Net revenue growth

The finance director should monitor key metrics for net revenue growth while the business development team focuses on strategic forecasting.

This process thoroughly analyzes essential financial indicators such as profit and loss (P&L) statements, days sales outstanding (DSO) and project schedule variance. By closely monitoring these metrics, consulting firms can better assess their financial health, make informed decisions and drive sustained growth and profitability.

Client profitability

Collaborate with your finance department, business development and project management teams to pinpoint the most and least profitable clients within your client portfolio. This involves calculating the total revenue generated from each client during a specific time frame and deducting the associated costs to serve them in that same period.

By understanding client profitability, consulting firms can decide which projects and clients to pursue and maximize revenue generation.

Employee billable utilization rate

The CFO, finance team and project manager play crucial roles in calculating employee billable utilization—a KPI that measures how much of your employees' available time translates to billable hours. According to the 2024 SPI Professional Services Maturity Benchmark Report, consulting firms should aim for a billable resource utilization rate of 80%.

To determine this metric, divide the total labor costs associated with billable projects by the total hours worked by employees, then multiply by 100 to obtain a percentage.

Monitoring this KPI helps firms boost operational efficiency and maximize revenue per employee by optimizing billable hours and rates per consultant.

KPIs for Project Management

Delivering projects on time, within budget, and within scope is critical to retaining a competitive reputation and healthy cash flow.

Focusing on project efficiency and performance enables professional services firms to understand whether they are meeting client expectations.

To ensure that you are delivering positive project outcomes, consider measuring the following KPIs:

Projects on budget

Your project managers must closely monitor each project to evaluate how effectively the team is managing project expenses against the budgets.

To see if a project is over budget, compare the budgeted delivery cost to the actual delivery cost. This helps track overspending, manage unexpected expenses, improve financial performance and protect profit margins.

Projects on schedule

Meeting the agreed delivery timeframe is as crucial as managing project costs; any delays can harm cash flow and raise delivery expenses.

Although there's no exact formula for this KPI, project managers should regularly review their plans and timelines. The business should also review its overall project management processes and the methodologies used to ensure maximum efficiency. These ongoing evaluations are key to effective planning and time management, which are vital for the successful delivery of consulting projects.

Effective billing rate

The effective billing rate is a valuable metric for consulting firms. This KPI not only reveals the profitability of a specific project but also aids in optimizing future project proposals.

To calculate the effective billing rate, divide the total revenue generated from the project by the total number of actual hours worked by your consulting firm's employees.

Monitoring this metric is essential for assessing financial health and fostering informed decision-making in project management and pricing strategies.

KPIs for Talent Acquisition and Retention

The need to attract digital-native talent, upskill and build a team of engaged employees can be felt across all industries, and failing to do so could cost firms their competitive advantage. According to the most recent Deltek Clarity Study, many firms struggle to engage employees and provide a healthy work/life balance, leading to excessive employee churn.

To help identify gaps in your talent management strategy and track progress towards your staffing and resourcing goals, measure these key metrics:

Employee turnover rate

Your human resource (HR) department must routinely calculate the employee turnover rate, also known as employee churn, to monitor the firm's progress towards employee retention goals. Identifying the trends that lead to low or high turnover rates is crucial for developing strategies to enhance employee engagement and retention.

To calculate your employee turnover rate, divide the total number of employees who left the company during a specific period by the average number of employees during that same timeframe and then multiply the result by 100.

By measuring this KPI, your consulting firm can gain valuable insights into the success of your talent management and HR practices, enabling you to benchmark your firm against industry peers.

Staff growth and decline

Similarly, HR can calculate your consulting firm's employee growth rate by comparing the current number of employees to those at a designated previous period.

You can calculate your company's growth rate by comparing the number of employees at two different points in time and dividing that number by the number of employees at the second time interval.

The growth rate is usually expressed as a percentage. It provides valuable insights into your firm's workforce expansion or reduction, helping you monitor progress towards achieving a larger or more streamlined organization.

Employee satisfaction

Employee satisfaction is a vital KPI in talent management, and it emerged as a significant challenge for 35% of consulting firms we surveyed. While there isn't a standardized method for measuring employee engagement and job satisfaction, regularly conducting anonymous employee surveys and holding retention discussions with staff can provide valuable insights into their sentiments about the organization.

Monitoring this KPI allows firms to take actionable steps to enhance employee engagement, reduce turnover, and ultimately achieve better business outcomes and enhanced service delivery.

How an ERP Can Support Your KPI Strategy

A project-based enterprise resource planning (ERP) system consolidates data from finance, resource management, project delivery and customer engagement into a single platform. This centralized approach allows professional services firms to track KPIs across their business, people and projects effectively and in real-time, providing a comprehensive view of project performance and overall business health.

With streamlined data collection and reporting capabilities, project managers can generate interactive dashboards highlighting critical metrics such as budget adherence, resource allocation and resource utilization rates. This saves time and fosters a culture of accountability and transparency among team members.

A project-ERP empowers consulting firms to enhance their financial management and project delivery processes, improve client retention rates, and ultimately drive profitability by enabling timely interventions and informed decision-making. In an industry where agility and responsiveness are paramount, adopting a project-ERP can substantially elevate a firm's ability to meet client needs and stay ahead of the competition.

Discover Project-Based Enterprise Resource Planning (ERP)

To learn how to measure these KPIs for consulting firms and discover more growth and project delivery indicators, read the KPI Handbook for Consulting Firms. You'll also see how a cloud-based ERP can centralize KPI management, enhancing accountability and providing more accurate and effective measurements.