Six essential KPIs for running a management consulting business
To meet growth and profitability objectives, consulting leaders need to have a clear understanding of what targets they aim to hit, and monitor if they are making the right level of progress to succeed. But what are the top key performance indicators (KPIs) consulting firms should set and track? Experts from Deltek share six of the most used KPIs.
KPI: Net Revenue Growth
Net revenue growth is a clear indicator of business performance. When net revenue increases, the business is securing more work and operating efficiently. If net revenue falls over consecutive reporting periods, it is an indication that something is amiss.
Net Revenue Growth should also be evaluated in two ways – forecasts and actuals, as well as the difference between the two.
How? By analysing profit and loss (P&L) data along with project-specific metrics like days sales outstanding (DSO) and project schedule variance, team will be able to understand the progress of revenues.
KPI: Employee Billable Utilisation
Employee billable utilisation, sometimes known as billable efficiency or utilisation rate, shows the amount of an employee’s available time used for productive, billable work, expressed as a percentage. This is a critical metric for consulting firms to track to ensure they are charging efficiently and to ensure the firm is billing enough to cover its costs plus overheads.
Understanding the utilisation rate at a business and individual consultant level can help with forecasting, resource optimisation and rate setting. According to the latest Professional Services Benchmark Report from SPI, consulting firms should be aiming for a utilisation rate of 80% (average across all levels).
How? To calculate employee billable utilisation, divide labour costs against project-related hours by the total hours worked and then turn that number into a percentage.
KPI: Projects on Budget
Monitoring projects on budget enables consulting firms to see if their projects are being delivered on budget. Project overruns kill profitability, in addition to limiting the launch of new projects. High overrun typically correlates with decreased customer satisfaction and indicates that a firm’s project management, planning and delivery processes need improvement.
This KPI is a crucial one for consulting firms to track because it offers insight into whether a firm is managing projects effectively. Project managers are expected to monitor this closely on a project-by-project basis.
How? Calculating if a project has overrun is a simple formula, basically divide the budgeted delivery cost by the actual delivery cost.
KPI: Effective Billing Rate
The effective billing rate is one of the most important financial-focused project KPIs for consultancies. Understanding the effective billing rate gives an accurate picture of the profitability of a project and can be used to compare one project to the next, helping decision-makers to tighten up proposals for future work.
While billing rates can be transparent at the start of projects, the effective billing rate can later on vary wildly depending on the delivery of the project. Unexpected costs or delays can for instance impact the overall billing rate.
How? The effective billing rate is calculated by dividing the total revenue of a project by the total number of hours (both billable and non-billable – but not including time spent on the sales process or general relationship management).
KPI: Client Profitability
Not all clients provide an equally profitable contribution to the firm. Worst case, some clients may actually be costing money. It is therefore important to assess how much revenue each client is generating, and the margins plus profitability of that revenue.
Understanding client profitability can help predict how much revenue each client could potentially bring into the consulting business, and shed light on future sales and account management strategies.
How? To understand client profitability, aggregate revenues earned from a customer in a given period and then subtract from that the cost of supporting the customer in the same period. Information is gathered from finance, project management teams, and business development.
KPI: Employee Satisfaction
People are the top asset of any consulting firm, and keeping employees satisfied and committed is therefore a key priority. To foster a positive and productive culture and work environment, is is important to measure employee satisfaction levels.
Overall, if employees are happy and engaged, they will stay with the business, be more productive and contribute towards the firm’s success. Measuring the satisfaction of employees is also essential to keep talent on board, bringing down employee churn.
How? While there is no specific KPI to measure how satisfied and engaged employees are, there are a couple of ways how this could be done. Using employee feedback surveys or employee NPS scores are common methods.