Having worked in the Professional Services industry for nearly 25 years, I have helped numerous PSOs and IT organizations utilize software solutions to manage their businesses. My extensive experience as both a management consultant and software design has given me a unique perspective into Services Resource Planning. As the need for it becomes increasingly prevalent, I am eager to share my insight on 13 key metrics vital to profitability for tech services companies.
Services Resource Planning (SRP) is critical for success for all service-driven companies, particularly in the technology services industry. Accurately identifying project requirements and optimizing resources to deliver those projects is essential. This two-part blog series will provide a high level overview of the types of metrics and dashboards that are commonly used in tech services organizations that have mastered SRP.
Fundamental to managing any services business is good visibility across a number of functional areas. Insight into how each area is contributing to or hindering profitability is vital. There are key metrics that need to be monitored from three perspectives: Enterprise-wide, Services and Client. Looking across the enterprise, the starting point is on the financial side. There must be a clear understanding of:
- 1. Total Revenue – a sum of revenues from individual projects, including consulting revenue by service type and location
- 2. Margin – revenue minus direct costs
- 3. Overhead costs – indirect costs such as facilities and administration, etc.
- 4. Profitability – margin minus overhead costs
From a services perspective, metrics should be broken down by service type, from implementation to training. Analytics will help determine:
- 5. Revenue by each service
- 6. Margin by each service
- 7. Which services are driving revenue and growth
- 8. Which services are under performing
- 9. What factors may be driving margins down, such as revenue leakage and low billing rates
From a client perspective, the focus is always on keeping the client happy and buying additional services. Client retention is based primarily on client satisfaction, which can be measured with surveys and post-implementation reviews. To ensure client satisfaction and ongoing revenue, however, there should be tools in place that provide real-time access to:
- 10. Project Status, including milestones, financials and risk
- 11. Revenue & Margin from current and completed projects
- 12. Demand for additional services reflected in the pipeline
- 13. Cost of sale per client (effort taken to close a deal) – this can have a significant impact on the true profitability of a project
As previously stated, visibility into all areas of the business is paramount. Beyond the financials, resources are another major component to consider because tech services companies aren’t selling a product as much as the knowledge of their people. Employee satisfaction and turnover rates, in addition to utilization, are valuable metrics to observe since good, skilled people take their knowledge with them when they leave an organization. This puts the company at increased risk of being unable to deliver the expected service without interruption or modifications.
Decisions that change and improve a services business rely heavily on all of these metrics so their accuracy and reliability must be ensured. When companies understand what’s driving the top level revenue and margin, they have greater control in boosting profitability across the business.
Do you have visibility into the metrics from the enterprise, employee and client perspectives? What are some of the key metrics that drive profitability in your organization? Share by leaving a comment below.