In today’s volatile market, professional services firms face numerous bottlenecks such as cost pressure, labor shortage, high competition, etc., which adversely affect their profit margins.
So, how can PS firms stay ahead of the competition in this business scenario?
They need to tap into the true potential of their workforce and implement measures to maximize billable utilization. This helps avoid billing loss, increase profit margins and improve overall revenue. In addition, it improves the morale and productivity of the workforce, thus reducing attrition risks.
This blog discusses strategies to maximize billable utilization in PSOs and how SAVIOM‘s advanced resource management software can help.
But first, let’s begin with the basics-
No matter the size of a company, all professional service firms always have a perennial goal- To get their employees more billable & productive!
Workforce utilization is a metric that measures how effectively a company is using its employees against their availability and capacity. However, the key factor driving a PSO’s profitability is billable resource utilization. It is calculated by dividing the amount of billable time consultants have to work on client projects by the total available time.
PSOs typically bill clients hourly or a base fixed fee depending on the expected average number of hours required to deliver a service. As a result, the higher the utilization percentage, the more profit and ROI the consultants, generate for the firm.
Thus, high workforce utilization is critical for PSO’s profitability and strong company growth.
The benefits of enhancing the consultant’s utilization rate are clear. But what exactly needs to change within your firm to improve its billability rate? Let’s have a look.Also read: 5 Best Resource Capacity Planning Tools for Teams
According to SPI Research, when a firm optimizes the billable utilization of its employees, project margin and annual revenue per employee increases to 86.9%, 51.2%, and $313, respectively.
This indicates how critical optimal resource utilization is for project profitability. So, here are a few strategies to help maximize it.
Based on project requirements, most PSOs leverage permanent and on-demand consultants for service delivery. Therefore, it is imperative to set utilization targets to check if the resources are optimally utilized against their capacity. When they fail to set targets, it leads to operational inefficiencies and challenges in performance evaluation.
For instance, the utilization target of permanent consultants can be set around 75-80% to balance their time spent on billable projects and non-billable activities. In contrast, the utilization target for contingent consultants can be set close to 100% since they are hired for project-specific tasks and are expected to be fully utilized during that period. These benchmarks help ensure that consultants are used efficiently and that financial objectives are met.
Stretch assignments are a strategy for maximizing utilization and employee development. Managers can keep consultants engaged and motivated by assigning tasks that provide learning and personal growth opportunities. This enables consultants to gain new skills and competencies while demonstrating their merit.
For example, if a PSO is experiencing a lull demand period, then it could assign stretch assignments to the consultants to keep them meaningfully occupied. These assignments could be related to training/upskilling, business development, or other areas that would benefit the employee and organization in the long term. It increases the chances of these consultants being considered for multi-faceted projects with higher charge-out rates and helps bring in more revenue for the company.
When consultants are deployed on admin and BAU tasks, they don’t generate revenue for the firm. Therefore, the onus is on the resource managers to periodically track and mobilize professionals from non-billable activities to billable & strategic opportunities. This way, PSOs can improve resource billability and enhance organizational profitability.
For instance, a financial services firm has a team of consultants specializing in regulatory and compliance requirements. However, some consultants spend most of their time on non-billable activities such as training or admin tasks. This means they are not utilizing their skills and competencies optimally. By deploying them to billable and strategic tasks requiring specialized skill sets, managers can improve billability rates and enhance profitability.
Professional service firms often experience sudden changes in demand during seasonal fluctuations. Therefore, it’s imperative for them to effectively meet the evolving requirement and keep their operations running smoothly. For this, managers must assess and determine if the pipeline project demands are one-time or recurring. Accordingly, they can hire and create a blended workforce to avoid the loss of potential opportunities.
For instance, a PSO specializing in providing consulting services to large technology companies receives a request to conduct a large-scale market research study within a tight deadline. However, the firm’s permanent employees are fully booked on other priority projects. In this case, managers can leverage a contingent workforce to meet the sudden increase in demand and provide high-quality services to its client.Also read: How to Calculate Your Body Temperature with an iPhone Using Smart Thermometer
To accommodate the diverse needs of their clients, PSOs often have to expand the range of services they offer. However, constantly hiring skilled professionals with the necessary expertise to meet these demands can be expensive. As a result, managers should implement training and development programs to equip employees with multiple skills and competencies.
For example, In an IT consultancy firm, managers can provide training and development opportunities for employees. This will enable their workforce to stay up to date on the latest programming languages and technologies. It also allows employees to work on diverse future projects and maximize their profitable utilization.
Given the effective ways to maximize billable utilization in professional services firms, let’s look at how resource management software can help.
Monitoring the utilization rates of consultants in a professional services firm can be challenging. However, by leveraging Saviom’s resource management software, firms can effectively track and maximize the utilization of their workforce.
Maximizing the utilization of your existing workforce is crucial for sustained growth and profitability in professional services firms. Therefore, by combining the abovementioned strategies with advanced resource management software, PSOs can achieve their business objectives and drive higher profits.
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