5 KPIs for Professional Services to Increase Performance

KPIs that will help you make more strategic decisions for the growth of your business

Ever find yourself wondering if your professional service business is truly hitting its stride? One powerful way to gauge your business’s success is by using KPIs (Key Performance Indicators). Think of KPIs as your business’s vital signs – they are the specific metrics that help track performance in important areas, identify inefficiencies, and ensure you and your team are working towards growth and profitability.

Not every KPI fits from business to business, however. Different industries have different benchmarks for success. Understanding and leveraging key KPIs for professional services specifically can help you make smarter, strategic decisions in a constantly changing market.

Here are five KPIs for professional services to consider using to increase performance in your business.

Utilization Rate

The utilization rate measures the percentage of time that employees spend on billable client work compared to their total available working hours. A high utilization rate indicates that employees are effectively being utilized on revenue-generating tasks, which directly impacts the company’s profitability. By using this KPI, business owners can keep a track of the efficiency of its workforce and ensure that the team is optimally utilized for productivity while not being overworked.

Formula: To calculate the utilization rate, divide the total billable hours by the total available hours.

Project Profitability

Project profitability calculates the financial gain from a project after accounting for all related costs, including labour, materials, and overhead. Understanding which projects are more profitable can help business owners make better decisions about where to focus their efforts and resources. It ensures that the company is not just generating revenue but also maximizing profit from each project.

Formula: To calculate the basic project profitability, minus the direct costs from the actual revenue. (Note: There are a number of considerations in calculating a project’s profitability, including the cost breakdown, resource use, possible risks, project profitability index (PI) among other factors. It’s best to consult with your Finatics accountant to get a project profitability analysis, and how best to maximize profit.)

Cycle Time

Cycle time is the total time taken to complete a project from start to finish. Shorter cycle times mean that projects are completed more quickly, allowing the business to take on more work and increase its output, while longer cycle times may indicate the operations are not working the most efficiently. This KPI helps business owners identify areas of improvement in its operations and reduce areas that may be slowing down production.

Formula: To calculate the cycle time, divide the net production time by the number of units produced. (Note: Units may refer to tasks such as completing one blog post, or cold-emailing 50 potential clients.)

Planned vs. Actual Hours

This KPI compares the number of hours initially planned for a project with the actual hours spent upon completion. Identifying the discrepancies between the planned and actual hours can highlight issues in project estimation and management. This metric allows more consistent and accurate planning for better resource management, client satisfaction, and profitability.

Formula: To calculate the discrepancy percentage between planned and actual hours, subtract the planned hours from the actual hours, then divide the total by the planned hours then multiply by 100.

Client Acquisition Cost

Client acquisition cost (CAC) measures the total expense incurred to acquire a new customer, which may include marketing, sales, and onboarding costs. Essentially, it’s the metric that shows the return on investment in acquiring the client. Knowing the CAC helps professional service businesses evaluate the effectiveness of their sales and marketing efforts.

Formula: To calculate the CAC, divide the total cost of sales and marketing by the number of customers acquired.

These are just a few of the KPIs that could be helpful to professional services businesses. It can be intimidating knowing the best metrics to use when there are so many to choose from.  Your trusted Finatics Accounting team can help guide you through the ideal KPIs for your business and to advise on strategies for growth.

Interested in understanding the health and performance of your business? Get in touch.