Regardless of your professional services firm’s specialty, there are some important metrics that you should track and analyze on a regular basis. Later sections of Compass will go into more detail about these metrics and many others.

Client Satisfaction

Simply put, if client satisfaction is consistently low, your firm will eventually go out of business. To measure this metric, survey clients at least once per year and consider utilizing the Net Promoter Score approach to maximize the response rate. Leverage survey comments to develop plans for providing a better overall client experience.

Employee Satisfaction

Professional services firms are literally nothing without their employees. You should conduct an anonymous employee survey at least once per year and encourage candid feedback. Take the time to understand employee concerns and develop a plan for improvement. Track and publish your firm’s scores on an ongoing basis to measure progress in areas of dissatisfaction.

Weighted Sales Pipeline

Not all sales pipelines are created equally. It is entirely possible that a pipeline with $10M in gross value is better than a pipeline with $100M in value. Why? Because the gross pipeline doesn’t tell you how much actual revenue is likely to come out of it. To understand that figure, we need to analyze the weighted pipeline. The weighted pipeline considers both the projected revenue of each opportunity and the probability of the opportunity closing. A $1M opportunity with a 5% probability of closing would contribute just $50,000 to the weighted pipeline whereas a $100,000 opportunity at 90% would contribute $90,000.

Revenue Backlog

The revenue backlog captures all sold project work that has yet to be delivered. By evaluating the total revenue backlog and weighted sales pipeline together, you can produce a reasonable forecast of the amount of work that will need to be delivered in the next few months. When both the sales pipeline and revenue backlog move significantly in the same direction (up or down), it can signal that you need to take action (such as hiring additional employees).

Project Gross Margin

You should track several important metrics for every project that your firm delivers. The most important of these metrics is gross margin. To calculate the gross margin, you first have to determine the project’s gross profit. The gross profit is simply the revenue generated minus the costs of delivering that revenue. Those costs typically include the salaries of the people on the project and any non-reimbursed expenses. To calculate the project’s gross margin, you divide the gross profit by the revenue, and you express the result as a percentage. A $100,000 project that produces $35,000 in gross profit would yield a 35% gross margin.

It is important to calculate gross margin on a per-project basis as well as across the portfolio of projects as a whole.

Billable Utilization

Billable utilization is the number of billable hours delivered in a given timeframe divided by the available hours in that same timeframe. If a consultant bills 30 hours in a 40-hour week, the consultant’s billable utilization for that week is 75%. Billable utilization is an important metric to review regularly but should be evaluated in conjunction with other utilization metrics (as described in a later section of Compass). It is important to measure billable utilization for each employee as well as for the workforce as a whole.

Realization Rate

The realization rate is the percentage of billable hours worked that result in actual revenue. At first glance, this can seem confusing because all billable hours create revenue. But there are times when that isn’t true. If there are mistakes made on the project’s deliverables or work simply takes too long to complete, firm leadership may opt not to charge the client for some of the worked hours. If, during the course of a month, a consultant bills 140 hours but only 100 of those hours result in revenue, that yields a realization rate of 71.4%. You should strive for an overall company realization rate that’s as close to 100% as possible.

Effective Bill Rate

In addition to realization rate, it is important to evaluate the effective bill rate of projects and the variance of that rate from the original plan. The effective bill rate is the total revenue earned to date divided by the total number of hours worked (including billable and non-billable hours). While a fixed fee project could have a 100% realization rate (since all hours are considered billable), its effective bill rate could be well below the original plan.