Management of Professional Services
Organizations through Metrics
Technology companies often struggle with managing their
professional services departments because as a business
they are focused on software development, sales, marketing
The key to optimizing resource allocations and driving operational
excellence within a professsional services is simply disciplined
project management and coordination. The challenges with
managing large teams of people can be overwhelming, however at the end of the day .. it is simply a case of making sure people are managed and supported such that they understand the priorities, performance expectations and pricing levers for themselves and their organization to be successful.
Developing key metrics for analyzing pricing models, marketing investments, service profitability, and other financial decisions is critical. The top six metrics all software as a service companies should use to manage their professional services teams are:
1) Available hours
Service colleagues often overestimate how many hours are actually available to sell. Holidays, meetings, training, and internal projects typically take out 25%-30% of the total hours available for client work. If your available hours fall much below 50% of a normal work week, it's hard to be profitable unless you make people work longer hours and weekends. Available hours typically range from 1500 - 1800 hours per year, depending on the organization, country, etc.
2) Billable hours
The amount of geniune revenue-producing time must be tracked. Optimal organizations will bill 60%-80% of their available hours (or 40%-50% of total hours).
3) Average billing rate
Amending hourly rates can have a significant impact on profitability. Clients can be tough on product prices, however if they want a specific person or team there is often very little sensitivity on service fees. Do not be tricked by clients pushing for a discount, many CFOs will ask, but they do not usually walk away if you hold firm on service fees.
4) Profit margin
Services are usually a high-margin business, but profits evaporate if fixed costs get out of control. "Payroll and benefits can cost you 60% of revenues, and other overhead will add another 10% or so," Saleh says. "However, the goal is to keep improving your margins--usually by investing in more efficient methodologies, better processes, reusable code and documents, and even better client relationships. If you're just selling the same old services, it's like mice running around in a cage."
5) Average term of the delivery or service engagements
Long engagements are also the most likely to leave clients unhappy at a lack of well-defined results. Shorter projects are more likely to be completed on time without scope creep or misalignment developing between key stakeholders. Average engagements terms should be no more than three months.
6) New vs. Expanded / Repeat Engagement Ratio
Repeat engagements are an important measure of client satisfaction. If you're not developing ongoing relationships, you'll spend too much time and money on finding new clients. However, equally you need to bring in a constant flow of new business. For most professional services groups, he says, a healthy ratio is an average of one new client engagement for every expanded deal.