12 Critical Performance Indicators in addition to the Billable Hour

What gets measured gets improved. Many professional services firms fail to measure critical performance indicators for their business, clients, and staff, and are therefore failing to track the behaviours and strategies which correlate with future financial and strategic success.

It’s common for firms to focus only on individual billable hours as a success measure. While on the surface this seems to make commercial sense, it actually drives attitudes and behaviours that are detrimental to the firm’s future success.

Although fees are important – and relatively easy to interpret – looking at fee generation in isolation can hide or disguise important realities and encourage short-term focus on the single behaviour being measured (fee generation now).

It also only represents a quantitative and not a qualitative measure of the business.

Create incentives and motivation for staff to concentrate on critical performance metrics that generate sustainable growth and development in the long-term. Qualitative performance measures, formalised and communicated, can enhance quantitative measures such as fee-revenue.

For some firms and practice groups, two or three simple metrics are sufficient. But in many areas, a wider range of contributions is worth measuring.

Alternative success measures: What to consider

Change the culture of your organisation by challenging the status quo with these alternative success measures for your business, clients, and team.

Your business

1. Revenue growth rate – what is the pace at which you are growing firm income, compared with:

   • last year?

   • this year’s target/budget?

   • the overall marketplace?

2. Net profit (billings minus expenses) – what is your 3 year net profit trend?

3. Gross profit margin – what is the percentage of margin that is gross profit?

4. Utilisation rate – what spare capacity do you have to service new clients?

Your clients

1. Net promoter/satisfaction score – how likely is it that your clients will recommend you to someone else? Do you deliver more than they expect?

2. Customer profitability score – what profit do individual clients bring to the business after taking into consideration the cost of attracting and keeping them.

3. Sales conversion rate – how well do you turn referrals, telephone calls, face to face meetings and web page views into paying work? No point spending more on lead generation if you cannot close the leads you have.

4. Relative market share – how big is your share of total client spend when it comes to comparing with the competition?

Your team

1. Staff advocacy score – how likely are your staff to recommend you as a firm to work for? Remember, clients will not fall in love with your firm until the staff do!

2. Employee engagement level – how does staff behaviour contribute to the goals of the business?

3. 360-degree feedback score – how do staff rate each other, as well as themselves?

4. Absenteeism factor – how much is staff absenteeism costing the business?

This is far from an exhaustive list of critical performance indicators. But if you regularly review your performance in just a few of these areas, you will build a firm of motivated and focussed staff, happy clients, and ultimately see more profitability than firms who insist that billable hours are the only metric worth measuring.

If you need some help to work out if you are winning or losing, or know you need some assistance on how to grow your practice, do get in touch.

Why should I choose you?

Recently, I had an interesting experience on the receiving end of half a dozen pitches from firms offering their services.

In each instance, I asked myself which ones would make good partners for the business, and decent referrals for our client base?

Some talked a lot without asking me any questions or finding out what I was looking for.

Others, when asked why I should choose them over the competition, had no real perception of who the competition were, and how they were better than them.

Nobody gave me a definitive reason as to why they were different from anybody else. Most offered “good service” as the reason why I should choose them, but couldn’t verbalise what “good service” was. One provider even forgot to turn up for our meeting!

What makes you better than everyone else?

My experience is consistent with findings from Julian Midwinter & Associates and ALPMA’s Taking the Pulse research: firms are really struggling to positively differentiate from competitors.

Fewer than half of the respondents (44%) agreed or strongly agreed that their firm is strongly differentiated from the competition.

Comments included: “we are undifferentiated generalists in a crowded market place”; there are “too many firms offering the same services with no remarkable distinction”, making it difficult to “stand apart from the ‘vanilla’”.

How to work out your competitive advantage

With this in mind, please, please, please, sit down with your colleagues and come up with a list of challenges that your professional services help solve. Add to this three reasons why clients should do business with you, rather than someone else. What is your competitive advantage?

You must be able to articulate how your services differentiate from your competitors’ – is it based on your experience, technology, speed of delivery, specialist sector knowledge, value for money, or some other feature?

I cannot stress enough how powerful it is to be able to clearly differentiate yourself from competitors to potential clients. And for those firms who remain undifferentiated generalists, they must expect price competition to become central to their world.

If you need assistance in working out how you are different to the competition, do get in touch.

Does your firm have a marketing problem or a sales problem?

In my work, I come across many professional services firms that lump marketing and sales together under the heading of ‘business development’ (BD), though they are each very different disciplines.

And when they come to me for help to improve their BD function, they don’t know whether they have a sales problem or a marketing problem. And misdiagnosis can lead to wasted time, effort, and money.

In fairness, there are many firms with unsophisticated BD functions who indeed suffer from both marketing and sales problems.

MARKETING VS. SALES

The two disciplines are mutually dependent: it is very difficult to sell your services unless you have first resourced time, money, and effort to the marketing function; and why spend money on generating more leads and enquiries if you have not yet mastered your conversion tactics?

How your BD problems are defined (marketing or sales) will determine how you should tackle them. Let’s look at some typical examples which cause confusion.

1. Not enough of our target clients know who we are, and we struggle to attract enough new business leads

It’s a marketing problem.

You need to raise visibility of your firm and/or your personal brand in the target market place. The best options involve speaking, writing, and networking which require little or no financial investment. Most firms waste inordinate amounts of cash on advertising, sponsorship, and hospitality without accurately measuring any return on investment.

Changing attitudes and behaviour of decision-makers in your firm towards business development is likely to ensure sufficient non-billable time is committed to the cause. Remember, only what gets measured gets done and can be managed. If you only measure billable hours, you will really struggle to succeed.

2. We convert fewer than 50% of the new business enquiries we receive

Probably a sales problem.

You need to raise your credibility. You also need to be able to close, and ask for the business. How well educated and trained are the people who deal with the enquiries?

But it’s also likely to be a marketing problem.

The marketing problem starts with taking the wrong message to the wrong people. For example, telling everyone you can do everything. Nobody wants to hire the generalist anymore, only the specialist. You cannot just tell people you are an expert without having tangible evidence to support your claim.

3. We rely on word of mouth referrals, but don’t get as many as we used to or as many as we would like

It’s a marketing problem, if you’re not worth referring.

Whilst referrals from joint venture partners are the quickest route to exponential growth, it’s also very dangerous to rely on other people talking about you as the main route to maintaining a sustainable and profitable business.

It’s a sales problem, if you never ask for referrals.

I’ve found that humans are inherently greedy, so incentives for both staff and intermediaries often work well. The process starts with really understanding where your value lies to a specific client in specific situations, and being able to articulate the value you offer both verbally and in writing – which goes back to being a marketing problem.

4. The aspiration to cross-sell departments, individuals, and services remains exactly that: an aspiration

It’s a marketing problem and a sales problem.

Cross-selling still remains the Achilles heel of many professional services firms, and is a missed golden opportunity. Cross-selling is often the path of least resistance to generating new revenues.

Four key factors need to be in place to maximise results:

• compensation for the achievers

• control of the client relationship is agreed in advance

• competence of individuals to do the technical work is not in doubt

• communication between colleagues and sharing of information.

5. We struggle to raise our prices in line with delivery costs, and clients are continually insisting on discounts

It’s a marketing problem.

Your clients don’t ‘get’ your value because you’re seen as a commodity supplier. Remember, technical ability no longer guarantees financial success. You must be able to explain the value in your service offering by talking results rather than process.

Experts don’t charge low fees. There are numerous ways to charge clients and remain profitable without reverting back to the billable hour.

You can’t do today’s job with yesterday’s methods and still be in business tomorrow.

Growing a business is not a spectator sport, and hope is not a strategy. Make tough decisions, take responsibility, and make yourself accountable.

Should any of these scenarios sound familiar, do get in touch.