the five kpis that matter for professional services

CONFIDENTIAL | 1

The Five KPIs that Matter for Professional Services SHARON CARNICELLI Product Marketing Intacct DAVE HOFFERBERTH Managing Director Service Performance Insight

CONFIDENTIAL | 2

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CONFIDENTIAL | 3

Today’s Agenda

Introduction to Intacct

The 5 KPIs

– 2014 Professional Services Maturity™ Benchmark

– Market dynamics and trends

– Where to start

– Five KPIs to help drive greater financial success

– Integrate your information infrastructure

Summary and additional resources

CONFIDENTIAL | 4

95% Customer Satisfaction

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Real

Value 7,000+ Growth Companies

35,000+ Business Entities

Growing with

Intacct

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Partnering for Success

120+ partners 75% of our customers integrate with 2+ partners

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Capture Comprehensive Data Automate Project Delivery and Project Accounting

Resource Scheduling

Billing $

Revenue Recognition

Time, Expense, Materials

Fixed Price $

Project, Task, Budget

CONFIDENTIAL | 7

Today’s Agenda

Introduction to Intacct

The 5 KPIs

– 2014 Professional Services Maturity™ Benchmark

– Market dynamics and trends

– Where to start

– Five KPIs to help drive greater financial success

– Integrate your information infrastructure

Summary and additional resources

www.spiresearch.com SPISPIResearchResearch

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Copyright © 2014 Service Performance Insight

All rights reserved. Not for distribution.

Introduction

8

Service Performance Insight (SPI) is a global research, consulting and training organization dedicated to help professional

service organizations (PSOs) make quantum improvements in productivity and profit. In 2007, SPI developed the PS

Maturity Model™ as a strategic planning and management framework. It is now the industry-leading performance

improvement tool used by over 10,000 service and project-oriented organizations to chart their course to service excellence.

The core tenet of the PS Maturity Model™ is PSOs achieve success through the optimization of five Service Performance

Pillars™:

1. Leadership – Vision, Strategy and Culture

2. Client Relationships

3. Human Capital Alignment

4. Service Execution

5. Finance and Operations

SPI provides a unique depth of operating experience

combined with unsurpassed analytic capability. We not only

diagnose areas for improvement but also provide the

business value of change. We then work collaboratively with

our clients to create new management processes to

transform and ignite performance.


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Today’s Agenda

9

2014 Professional Services

Maturity™ Benchmark

Market Dynamics & Trends

Where to Start

Five KPIs to help drive greater

financial success

Integrate your information

infrastructure

Conclusions &

Recommendations


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Professional Services Maturity™ Benchmark

0% 20% 40% 60%

IT Consulting

PS within Software company

Management Consulting

Other PS

PS within SaaS company

Advertising (Marcom)

Architecture/Engineering

PS within HW & Networking

Accounting

Percentage of Observations

Mar

ket

238 PSOs completed the survey in 2013

74% North America

18% Europe

8% APAC

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Financial Maturity Matters! 234 PSOs

Level 1

Initiated

Level 2

Piloted

Level 3

Deployed

Level 4

Institution.

Level 5

Optimized

Annual revenue per billable consultant (k) $159 $188 $223 $251 $252

Annual revenue per employee (k) $115 $156 $180 $211 $215

Project Margin 26.4% 35.6% 37.3% 40.0% 47.3%

Quarterly revenue target in backlog 29.4% 38.4% 45.0% 54.0% 63.5%

Percent of annual revenue target achieved 85.3% 91.0% 91.0% 96.3% 96.5%

Percent of annual margin target achieved 79.9% 86.8% 87.1% 94.1% 97.7%

Earnings before Income Taxes, Depreciation

& Amortization (EBITDA) 1.3% 9.8% 13.2% 27.1% 37.0%

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Financial Maturity Cuts Across All Departments

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• Services offered

• Market expansion Executive

• Mktg. & Sales cost

• Bid price

• Client profitability

Marketing

& Sales

• Employee cost • Recruit/hire

• Pay

• Benefits

• Training

Human

Resources

• Time & expense

• Project margin

• Invoicing

Service

Delivery

Accounting

& Finance


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Market Dynamics

How things can change so rapidly

2010 was about Sales

2011 was about Execution

2012 is about Talent

2013 was about Profit

2014 is about All of the above

Executives must prepare

Create loyal clients

Develop flexible workforce

Deliver on time and at high levels of quality

Improve financial security

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Four Major Trends Impacting Profit

0%

2%

4%

6%

8%

10%

12%

14%

2009 2010 2011 2012 2013

3.6%

7.6%

13.7%

11.5% 10.0%

Yea

r-o

ver-

Yea

r ch

ang

e in

PS

R

even

ue

Year

4.70

4.80

4.90

5.00

5.10

5.20

5.30

2009 2010 2011 2012 2013

5.30

5.19 5.21 5.19

4.96

Bid

-to

-Win

(p

er 1

0 b

ids)

Year

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

2009 2010 2011 2012 2013

6.1%

6.8%

7.4% 7.2%

8.3%

An

nu

al E

mp

loye

e A

ttri

tio

n

Year

66%

67%

68%

69%

70%

71%

2009 2010 2011 2012 2013

67.6% 67.5%

69.6%

70.3%

69.7%

Em

plo

yee

Uti

lizat

ion

Year

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2010 2011 2012 2013

16.1%

13.5%

16.8%

11.4%

EB

ITD

A

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Polling Question

Does your company have plans to improve profitability in

2014?

A. We don’t really have a specific plan

B. We have very early plans to improve profitability

C. We feel ready to execute a plan to improve profitability


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2013 Planned Steps Taken to Improve Profitability

Steps Taken to Improve Profitability Survey Embedded Independent

Improve sales effectiveness 3.91 3.78 3.99

Improve utilization 3.86 3.88 3.85

Improve methods and tools 3.78 3.95 3.68

Improve marketing effectiveness 3.72 3.36 3.92

Improve solution portfolio 3.65 3.71 3.61

Improve hiring 3.55 3.75 3.43

Reduce non-billable time 3.51 3.75 3.37

Increases rates 3.04 2.61 3.28

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It’s not just as easy as getting the red out

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Performance Indicator Consulting R UsPeer

Average

Survey

AverageLevel 1 Level 2 Level 3 Level 4 Level 5

Annual revenue per billable consultant (k) $150k - $200k $201 $206

Annual revenue per employee (k) Under $100k $163 $168

Average revenue per project (k) $50k - $100k $199 $170

Project margin for fixed price projects Under 20% 37.3% 35.9%

Project margin for time & materials projects 30% - 40% 31.6% 35.9%

Average project margin — subs, offshore 40% - 50% 28.5% 29.7%

Quarterly revenue target in backlog 40% - 50% 38.3% 43.3%

Percent of annual revenue target achieved 80% - 90% 88.4% 91.2%

Percent of annual margin target achieved Under 80% 88.6% 87.7%

Revenue leakage 2% - 5% 2.8% 4.0%

% of inv. redone due to error/client rejections 1% - 3% 1.6% 2.2%

Days sales outstanding (DSO) Over 100 days 43.6 44.7

Quarterly non-billable expense per employee $2,500 - $5,000 $1,344 $1,266

% of billable work is written off Under 1% 1.5% 3.2%

Executive real-time wide visibility None 4 3

EBITDA % 20.8% 10.1% 16.8%


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Focus on Profit

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• Charter

• Portfolio

• Alignment

• Differentiation

• Pricing

• Satisfaction

• Cost

• Quality

• Timing

• Skills

• Compensation

• Training

PS Revenue

Profit Quality


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Understand how profit is made

Profit

Bill Rate

Hours

Overhead

Labor Cost

Revenue

Cost

• Move to more strategic services

• Longer duration projects (man-months)

• Improve utilization

• Capture and invoice all costs

• Dedicated sales and delivery roles

• Invest in superior talent

• Service Packages demonstrate value

• Great references and client results

• Reduce fixed costs

• Staff with high margin resources

• Reduce non-billable time

• Pay for performance

• Optimize sales / marketing focus

• Reduce overhead

• Use technology to optimize resources and reduce

cost

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Follow the Money Cash is the Lifeblood of PSOs

Employees (internal and external)

Recruit / Hire

Train

Compensate

Project Costs

Travel

Materials

SG&A

Sales / Marketing

IT

Office Costs

Administrative

Financing

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Cash out the Door Cash in the Door

Billings!


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It should be an easy process ……

Work

• Plan, execute and complete work

• Capture costs

Invoice

• Create / review invoice

• Send invoice to client

Collect

• Collect money from client

• Account for money collected

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..…. But it is not

Work is completed late

Invoices go out late

The wrong work is done

Write-offs

Invoices are incomplete

Revenue Leakage

Invoices are wrong

Redo

Payments are slow

DSO

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Polling Question

Do you have a set of standard service-focused profitability

KPIs?

A. We track just a few regular KPIs

B. Sometimes we measure better than other times

C. We are happy with the metrics we measure but not the methods of measuring

D. We are happy with both the metrics and the methods we use to track those

metrics


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Maximize Annual Revenue per Billable Consultant

KPI Over

$200k

Under

$200k ▲

Annual revenue per

employee (k) $220 $101 117%

Average revenue per project

(k) $273 $137 100%

Quarterly revenue target in

backlog 53.5% 38.0% 41%

% of billable work is written

off 2.64% 3.51% 25%

Average project overrun 7.8% 9.2% 15%

Billable utilization (2,000

hours) 77.3% 66.9% 16%

EBITDA % 13.4% 8.5% 58%

24

Revenue per Billable Consultant (k)

1

0% 10% 20% 30%

Under $100k

$100k - $150k

$150k - $200k

$200k - $250k

$250k - $300k

Over $300k


Ave

rag

e R

even

ue

per

Bill

able

Co

nsu

ltan

t


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Focus on Revenue per Employee

KPI >180k <180k ▲

Annual Revenue per Billable

Consultant (k) $293 $157 86%

Employee utilization 73.1% 69.0% 6%

Year-over-Year change in

PS Revenue 11.7% 9.4% 25%

Average Project Overrun 7.8% 8.8% 11%

Quarterly Revenue Target in

Backlog 54.7% 42.4% 29%

Bid-to-Win ratio (per 10 bids) 5.24 4.86 8%

EBITDA % 16.0% 9.6% 67%

25

Revenue per Employee (k)

2

0% 10% 20% 30%

Under $100k

$100k - $150k

$150k - $200k

$200k - $250k

$250k - $300k

Over $300k


Ave

rag

e R

even

ue

per

Em

plo

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Maximize Billable Utilization

KPI Over

70%

Under

70% ▲

% of billable work is written off 2.45% 3.67% 33%

Average project overrun 7.8% 9.6% 18%

% of "referenceable" clients 77.8% 70.5% 10%

Projects canceled 1.8% 2.1% 15%

Annual revenue per employee (k)

$168 $147 14%

EBITDA % 12.0% 10.5% 14%

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Annual Employee Billable Utilization

3

0% 10% 20% 30% 40%

Under 50%

50% - 60%

60% - 70%

70% - 80%

80% - 90%

Over 90%


Bill

able

Uti

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Minimize Project Overrun

KPI Under

5%

Over

5% ▲

Projects canceled 1.7% 2.2% 23%

% of billable work is written off 2.34% 3.70% 37%


Bid-to-win ratio (per 10 bids) 5.04 4.78 5%

Project Margin 36.3% 33.9% 7%

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Project Overrun

4

0% 10% 20% 30% 40%

Never

0% - 5%

5% - 10%

10% - 20%

20% - 30%

Over 30%


Ave

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roje

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un


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Maximize Project Margin

KPI Over

40%

Under

40% ▲

Annual revenue per

consultant (k) $223 $172 30%

% of billable work is written

off 2.24% 3.39% 34%

Annual revenue per

employee (k) $176 $143 22%


Revenue leakage 3.49% 4.44% 21%

Deal pipeline relative to qtr.

bookings forecast 206% 186% 11%

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Project Margin

5

0% 10% 20% 30%

Under 20%

20% - 30%

30% - 40%

40% - 50%

Over 50%


Pro

ject

Mar

gin

fo

r T

ime

& M

ater

ials

Pro

ject

s


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Integration with ERP Matters! Over 100 employees

Levels 1 & 2 Level 3 Levels 4 & 5

Survey percentage 55% 25% 20%

CRM integration 24.7% 32.1% 51.4%

PSA integration 57.1% 78.1% 91.7%

HCM integration 40.0% 44.4% 74.0%

Earnings Before Income Taxes,

Depreciation & Amortization (EBITDA) -1.3% 9.0% 25.0%

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Conclusions & Recommendations

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1. Improving financial performance means

first aligning the organization

2. Focus on clients and services that deliver

the highest margins and profit

3. Build your organization’s pipeline and

backlog

4. Focus on larger project acquisition

5. Manage all project cost

6. Manage overhead

7. Use your Integrated ERP solution to

analyze all financial information


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SPISPIResearchResearch

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Service Performance Insight®

Accelerate Service Productivity & Profit™

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CONFIDENTIAL | 34

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