The Five Most Important KPIs for Services Companies
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The 5 financial metrics critical to the success of services organizations. How to apply these KPIs to drive new levels of growth and profitability. Near, and long term, recommended actions.
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The Five Most Important KPIs for Services Companies
- 1. CONFIDENTIAL | 1 The Five KPIs that Matter for Professional Services SHARON CARNICELLI Sr. Product Marketing Manager Intacct DAVE HOFFERBERTH Managing DirectorService Performance Insight
- 2. CONFIDENTIAL | 2 Housekeeping Type questions into the chat box or the Q&A box to submit it to our panelists We’ll try to get to all the questions during the course of the webinar. If we do not get to your question, we’ll make sure to follow up afterwards. We’ll send a copy of the presentation and recording of the webinar in follow up emails after the event Please take a moment to fill out the survey at the end of the event
- 3. CONFIDENTIAL | 3 Today’s Agenda Introduction to Intacct The 5 KPIs –2014 Professional Services Maturity™ Benchmark –Market dynamics and trends –Where to start –Five KPIs to help drive greater financial success –Integrate your information infrastructure Summary and additional resources
- 4. CONFIDENTIAL | 495% Customer Satisfaction Services Companies Rely On Intacct Real Value 7,300+ Growth Companies 43,000+ Business Entities Growing with Intacct
- 5. CONFIDENTIAL | 5 Partnering for Success120+partners75% of our customers integrate with 2+partners
- 6. CONFIDENTIAL | 6 Capture Comprehensive DataAutomate Project Delivery and Project Accounting ResourceScheduling Billing $ RevenueRecognition Time, Expense, Materials Fixed Price $ Project, Task, Budget
- 7. CONFIDENTIAL | 7 Today’s Agenda Introduction to Intacct The 5 KPIs –2014 Professional Services Maturity™ Benchmark –Market dynamics and trends –Where to start –Five KPIs to help drive greater financial success –Integrate your information infrastructure Summary and additional resources
- 8. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. Introduction 8 Service Performance Insight (SPI) is a global research, consulting and training organization dedicated to help professional service organizations (PSOs) make quantum improvements in productivity and profit. In 2007, SPI developed the PS Maturity Model™ as a strategic planning and management framework. It is now the industry-leading performance improvement tool used by over 10,000 service and project-oriented organizations to chart their course to service excellence. The core tenet of the PS Maturity Model™ is PSOs achieve success through the optimization of five Service Performance Pillars™: 1. Leadership – Vision, Strategy and Culture 2. Client Relationships 3. Human Capital Alignment 4. Service Execution 5. Finance and Operations SPI provides a unique depth of operating experience combined with unsurpassed analytic capability. We not only diagnose areas for improvement but also provide the business value of change. We then work collaboratively with our clients to create new management processes to transform and ignite performance.
- 9. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. Today’s Agenda 9 2014 Professional Services Maturity™ Benchmark Market dynamics and trends Where to start Five KPIs to help drive greater financial success Integrate your information infrastructure Conclusions and recommendations
- 10. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. Professional Services Maturity™ Benchmark 0% 20% 40% 60% IT Consulting PS within Software company Management Consulting Other PS PS within SaaS company Advertising (Marcom) Architecture/Engineering PS within HW & Networking Accounting Percentage of Observations Market 238 PSOs completed the survey in 2013 74% North America 18% Europe 8% APAC 10
- 11. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. Financial Maturity Matters! 234 PSOs Level 1 Initiated Level 2 Piloted Level 3 Deployed Level 4 Institution. Level 5 Optimized Annual revenue per billable consultant (k) $159 $188 $223 $251 $252 Annual revenue per employee (k) $115 $156 $180 $211 $215 Project Margin 26.4% 35.6% 37.3% 40.0% 47.3% Quarterly revenue target in backlog 29.4% 38.4% 45.0% 54.0% 63.5% Percent of annual revenue target achieved 85.3% 91.0% 91.0% 96.3% 96.5% Percent of annual margin target achieved 79.9% 86.8% 87.1% 94.1% 97.7% Earnings before Income Taxes, Depreciation & Amortization (EBITDA) 1.3% 9.8% 13.2% 27.1% 37.0% 11
- 12. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. Financial Maturity Cuts Across All Departments 12 • Services offered • Market expansion Executive • Mktg. & Sales cost • Bid price • Client profitability Marketing & Sales • Employee cost • Recruit/hire • Pay • Benefits • Training Human Resources • Time & expense • Project margin • Invoicing Service Delivery Accounting & Finance
- 13. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. Market Dynamics How things can change so rapidly 2010 was about Sales 2011 was about Execution 2012 is about Talent 2013 was about Profit 2014 is about All of the above Executives must prepare Create loyal clients Develop flexible workforce Deliver on time and at high levels of quality Improve financial security 13
- 14. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. Four Major Trends Impacting Profit 0% 2% 4% 6% 8% 10% 12% 14% 2009 2010 2011 2012 2013 3.6% 7.6% 13.7% 11.5% 10.0% Year-over-Year change in PS Revenue Year 4.70 4.80 4.90 5.00 5.10 5.20 5.30 2009 2010 2011 2012 2013 5.30 5.19 5.21 5.19 4.96 Bid-to-Win (per 10 bids) Year 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 2009 2010 2011 2012 2013 6.1% 6.8% 7.4% 7.2% 8.3% Annual Employee Attrition Year 66% 67% 68% 69% 70% 71% 2009 2010 2011 2012 2013 67.6% 67.5% 69.6% 70.3% 69.7% Employee Utilization Year 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 2010 2011 2012 2013 16.1% 13.5% 16.8% 11.4% EBITDA 14
- 15. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. 2013 Planned Steps Taken to Improve Profitability Steps Taken to Improve Profitability Survey Embedded Independent Improve sales effectiveness 3.91 3.78 3.99 Improve utilization 3.86 3.88 3.85 Improve methods and tools 3.78 3.95 3.68 Improve marketing effectiveness 3.72 3.36 3.92 Improve solution portfolio 3.65 3.71 3.61 Improve hiring 3.55 3.75 3.43 Reduce non-billable time 3.51 3.75 3.37 Increases rates 3.04 2.61 3.28 15
- 16. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. Polling Question Does your company have plans to improve profitability in 2014? A. We don’t really have a specific plan B. We have very early plans to improve profitability C. We feel ready to execute a plan to improve profitability
- 17. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. It’s not just as easy as getting the red out 17
- 18. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. Focus on Profit 18 • Charter • Portfolio • Alignment • Differentiation • Pricing • Satisfaction • Cost • Quality • Timing • Skills • Compensation • Training PS Revenue Profit Quality
- 19. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. Understand how profit is made Profit Bill Rate Hours Overhead Labor Cost Revenue Cost • Move to more strategic services • Longer duration projects (man-months) • Improve utilization • Capture and invoice all costs • Dedicated sales and delivery roles • Invest in superior talent • Service Packages demonstrate value • Great references and client results • Reduce fixed costs • Staff with high margin resources • Reduce non-billable time • Pay for performance • Optimize sales / marketing focus • Reduce overhead • Use technology to optimize resources and reduce cost 19
- 20. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. Follow the Money Cash is the Lifeblood of PSOs Employees (internal and external) Recruit / Hire Train Compensate Project Costs Travel Materials SG&A Sales / Marketing IT Office Costs Administrative Financing 20 Cash out the Door Cash in the Door Billings!
- 21. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. It should be an easy process …… Work • Plan, execute and complete work • Capture costs Invoice • Create / review invoice • Send invoice to client Collect • Collect money from client • Account for money collected 21
- 22. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. ..…. But it is not Work is completed late Invoices go out late The wrong work is done Write-offs Invoices are incomplete Revenue leakage Invoices are wrong Redo Payments are slow DSO 22
- 23. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. Polling Question Do you have a set of standard service-focused profitability KPIs? A. We track just a few regular KPIs B. Sometimes we measure better than other times C. We are happy with the metrics we measure but not the methods of measuring D. We are happy with both the metrics and the methods we use to track those metrics
- 24. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. Maximize Annual Revenue per Billable Consultant KPI Over $200k Under $200k ▲ Annual revenue per employee (k) $220 $101 117% Average revenue per project (k) $273 $137 100% Quarterly revenue target in backlog 53.5% 38.0% 41% % of billable work is written off 2.64% 3.51% 25% Average project overrun 7.8% 9.2% 15% Billable utilization (2,000 hours) 77.3% 66.9% 16% EBITDA % 13.4% 8.5% 58% 24 Revenue per Billable Consultant (k) 1 0% 10% 20% 30% Under $100k $100k - $150k $150k - $200k $200k - $250k $250k - $300k Over $300k Percentage of Observations Average Revenue per Billable Consultant
- 25. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. Focus on Revenue per Employee KPI >180k <180k ▲ EBITDA % 16.0% 9.6% 67% Annual Revenue per Billable Consultant (k) $293 $157 86% Employee utilization 73.1% 69.0% 6% Year-over-Year change in PS Revenue 11.7% 9.4% 25% Average Project Overrun 7.8% 8.8% 11% Quarterly Revenue Target in Backlog 54.7% 42.4% 29% Bid-to-Win ratio (per 10 bids) 5.24 4.86 8% 25 Revenue per Employee (k) 2 0% 10% 20% 30% Under $100k $100k - $150k $150k - $200k $200k - $250k $250k - $300k Over $300k Percentage of Observations Average Revenue per Employee
- 26. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. Maximize Billable Utilization KPI Over 70% Under 70% ▲ % of billable work is written off 2.45% 3.67% 33% Average project overrun 7.8% 9.6% 18% % of "referenceable" clients 77.8% 70.5% 10% Projects canceled 1.8% 2.1% 1.8% Projects delivered on-time 77.2% 77.4% 77.2% Annual revenue per employee (k) $168 $147 14% 26 Annual Employee Billable Utilization 3 0% 20% 40% Under 50% 50% - 60% 60% - 70% 70% - 80% 80% - 90% Over 90% Percentage of Observations Billable Utilization
- 27. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. Minimize Project Overrun KPI Under 5% Over 5% ▲ Projects canceled 1.7% 2.2% 23% % of billable work is written off 2.34% 3.70% 37% % of "referenceable" clients 78.0% 71.3% 9% Bid-to-win ratio (per 10 bids) 5.04 4.78 5% Project Margin 36.3% 33.9% 7% 27 Project Overrun 4 0% 10% 20% 30% 40% Never 0% - 5% 5% - 10% 10% - 20% 20% - 30% Over 30% Percentage of Observations Average Project Overrun
- 28. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. Maximize Project Margin KPI Over 40% Under 40% ▲ Annual revenue per consultant (k) $223 $172 30% % of billable work is written off 2.24% 3.39% 34% Annual revenue per employee (k) $176 $143 22% % of "referenceable" clients 77.0% 73.1% 5% Revenue leakage 3.49% 4.44% 21% Deal pipeline relative to qtr. bookings forecast 206% 186% 11% 28 Project Margin 5 0% 10% 20% 30% Under 20% 20% - 30% 30% - 40% 40% - 50% Over 50% N/A - Not Applicable Percentage of Observations Project Margin for Time & Materials Projects
- 29. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. Integration with ERP Matters! Over 100 employees Levels 1 & 2 Level 3 Levels 4 & 5 Survey percentage 55% 25% 20% CRM integration 24.7% 32.1% 51.4% PSA integration 57.1% 78.1% 91.7% HCM integration 40.0% 44.4% 74.0% Earnings Before Income Taxes, Depreciation & Amortization (EBITDA) -1.3% 9.0% 25.0%
- 30. www.spiresearch.com SPI Research People Process Capiittall Copyright © 2014 Service Performance Insight All rights reserved. Not for distribution. Conclusions & Recommendations 30 1. Improving financial performance means first aligning the organization 2. Focus on clients and services that deliver the highest margins and profit 3. Build your organization’s backlog 4. Focus on larger project acquisition 5. Manage all project cost 6. Manage overhead 7. Use your integrated ERP solution to analyze all financial information
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