How to Master KPIs for Professional Services Excellence by Leading Performance Advisor, Luk Smeyers

Guest Author: Luk Smeyers, Consulting Expert & the Founder of The Visible Authority

Since late 2022, the professional services industry has been facing economic uncertainty – brought about by fluctuations in the global economy, geopolitical tensions, and cost inflation (to name a few). Before that, we had unlimited post-pandemic growth in consulting during 2021 and 2022, but I consider these two years an anomaly.

The most common challenges that firms bring up in our conversations is that they are losing out on work due to reduced client budgets, project indecisiveness, and lack of revenue reliability.

All of this indicates that clients' budgets, needs and expectations have evolved rapidly, which, in turn, requires consultancies to be more agile, innovative, and client-centric than ever before.

And it's precisely this required 'greater agility' that leads me to focus on specific consulting KPIs, which I recommend professional service firms monitor regularly so that leaders always have details of the firms' and projects' performance 'at their fingertips'.

Thinking Outside the Box to Move from Lagging to Leading

Performance is often assessed solely through financial metrics, primarily the P&L statement. The financial indicators are important, but a pure P&L play has its limitations as it relies on lagging indicators and overlooks critical consulting-specific aspects that define excellence.

According to the 'Ultimate Guide to KPIs' from Deltek, 40% of consultancies surveyed in EMEA are not using KPIs to track their performance. I am not surprised by the low level of solid KPI tracking in general, but 40% that aren't monitoring KPIs at all surprised me.

To help professional services leaders, I started to look at performance holistically. I began to document the characteristics of high-performance firms, and step-by-step, I started adding the core KPIs to measure and monitor those characteristics.

This approach proved to be more insightful for business owners, partners and leaders. It helped them understand why these KPIs are critical to embed in the management of a professional services firm.

A Two-Step KPI Maturity Improvement

There are hundreds of KPIs that can be measured, and it's easy to get overwhelmed. If professional service firms are not yet fully KPI-mature, I always suggest improving the maturity in 2 steps:

Step 1: Make sure you start with the basic KPIs: Revenue, margins, cash flow, and the most important client and project-related measures, such as client satisfaction and project accomplishments: on time, on budget, and goal achievement.

Step 2: Start measuring an additional small group of - what I call - growth-oriented, more advanced KPIs:

1. Revenue-based:

• Revenue per full-time-equivalent (FTE): a crucial indicator for business development capacity, productivity, service design, and utilization.
• Revenue reliability: pipeline quality, pipeline management & revenue forecast accuracy evaluation.

2. Client-based:

• To fuel growth: +/- 30% of revenue coming from 'net new' inbound inquiries, which leads to lower customer acquisition cost (CAC), higher win rates per proposal, shorter sales cycles, bigger average deal size, and improved pricing levels.
• To fuel stability: +/- 70% of revenue coming from developing existing clients, most likely leading to a better Revenue/FTE ratio, improvement of margins and reliability of revenue and resource planning.

3. Gross margin target 50%: moving from basic margin information to more advanced margin management per client, per project, per service line, and pre & post-project to evaluate underestimations, overservicing or scope creep.

4. Key player attraction and retention: I urge leaders to obsess about employee satisfaction; it's essential to monitor the team's pulse consistently by asking a few open questions on a quarterly basis. This approach ensures that team members feel valued and heard and identifies areas for improvement in the work environment, fostering a culture of transparency and team member support.

Finally, I also advise firms to define KPI accountability and frequency of measurement, for example:

• Owner, partner, leaders are responsible overall (to avoid silos)
• Per KPI, appoint an operational follow-up role, e.g.,
• project leaders manage scope & project margin
• business development leader manages pipeline & forecast
• owners/founders monitor cash flow, etc.
• Plan the measurement frequency, e.g.,
• weekly: pipeline, project scope & cash flow
• monthly: revenue, client accounts review, and overall gross margin
• quarterly: employee satisfaction & retention, Rev/FTE & overhead cost

The Impact of Technology

Maintaining the agility I talked about and achieving a higher level of performance (such as revenue & planning reliability, Revenue/FTE improvement, or project margins >50%) isn't possible to achieve with spreadsheets once a firm gets to a certain size.

I see a lot of boutique firms starting to struggle when they reach about 20 employees, and this should signal that it's time to upgrade their IT infrastructure. So, one could say that the tipping point is beyond 20 employees.

I've been there myself. When iNostix was acquired by Deloitte, we were able to leverage their fantastic infrastructure, and that made a whole world of difference in managing the performance of our practice.

If a firm has ambitious growth plans, I'd recommend implementing a CRM and PSA sooner rather than later to help supercharge the journey to scale.

Conclusion

Based on my experience working with a diverse array of firms, it's evident that evolving from basic KPI identification to measuring specific success characteristics or strategic objectives marks a critical juncture.

The example of assessing recurring revenue from sustained client development and the revenue/FTE ratio as success metrics provokes a shift from conventional short-term thinking and measuring. This shift not only grants a more nuanced understanding of a firm's operational vitality and strategic direction but also underscores the critical need to nurture lasting client relationships and plan for long-term stability.

By extending the metrics to include those that genuinely mirror a firm's unique goals and challenges, the firm not only differentiates itself but also lays a robust foundation for growth and a unique stance in the marketplace. From my perspective, adopting a strategic approach clarifies the route to fulfilling a firm's highest aspirations and boldly challenges the traditional, often short-sighted parameters of success in the professional services industry today.