Management guru Dr. Peter Drucker said: “If you can’t measure it, you can’t manage it.”
KPIs are the best way to measure the results of the managerial decision within your professional service firm. The list of KPIs we present is most suitable for service firms such as accounting and financial advisory firms, law firms, marketing agencies, creative industry firms, architecture, and engineering firms, consulting firms, human resources, and recruitment firms.
You need to be careful and attentive when it comes to the KPIs you’ll use to track your business. It is recommended to choose the maximum of 7 to 10 KPIs you will use on the company level or within a specific sector. If you choose any more you can cause the ‘’analysis paralysis’’ syndrome.
The List of the Best KPIs for Professional Service Firms
1. Time Utilization
A service company sells the work hours of its billable staff. As a result managing employees’ time is crucial. Time utilization is a perfect indicator to measure the productivity of your employees. Time utilization shows a share of time work on client-related projects (billable hours) in total paid time. A perfect way to improve time utilization is to increase billable hours in projects.
The above formula is related to gross time utilization. If you want to calculate net time utilization, you can use total hours (including days off) instead of work hours.
In order to have fully control overtime utilization, the companies use some of time tracking tools but you need to match time tracking features with you business type.
This is our analysis of time tracking products depending on industry you are operating in: legal, accounting, consulting, architecture, healthcare, construction, software development, marketing and creative industry and human resources industry.
2. Billable Rate
Billable Rate is the hourly rate at which the client is billed for the work perfumed by your employees. When you agree a fixed fee with your client it is very important to calculate the actual billable hourly rate by dividing the total fee with hours spent on the project. Then you can check how much the actual billable rate differs from the planned billable rate. In order to optimize billable rates, companies need to understand the essential rules about billing hourly rate management.
3. Employee Billing Rate
Employee Billing Rate is an hourly rate billed to the client for a specific employee. By comparing actual billable rates per employee you can realize who are your top-performing employees.
4. Project Billing Rate
Project Billable Rate is an hourly rate billed for a specific project.
This billing rate is crucial for calculating the profit of each project.
5. Gross Margin Rate
Gross margin is calculated as difference revenues from sales and direct cost of services performed (COSP). Such costs usually include the cost of labor and subcontractors and should be allocated properly. This is the most direct indicator of profitability i.e. top-level indicator in the income statement that is shown at the top of the profit and loss account. The Gross marring rate should be compared with historical gross marring rates. In the case your growth marring rate is increasing during a time, that means your sales is increasing more than salaries.
6. Commercial Margin Rate
The commercial margin rate is the next level of profitability indication. Commercial margin is calculated as difference revenues from sales and total commercial costs such as marketing, leasing, education, sales costs, etc.
7. EBITDA Rate
EBITDA (Earnings before interest, tax, depreciation, and amortization) is one of the most comprehensive measures of company financial performance. This is one type of net marginal profit rate. It is usually used for company valuation as an approximation of operating cash flow. EBITDA Rate shows how much $ your company earns to one $ of revenue.
8. Net Profit Margin
The net profit rate is the bottom-level profitability indicator. It measures how much net profit is generated as a percentage of revenue.
9. Contribution to Growth
If your business is growing you need to know the structure of such growth. For example, your actual revenues are 500k USD while last year’s revenues were 400k USD, so total growth is 100k USD. Let’s assume you have four different service lines, the crucial indicator of each service line’s performance is how much each service line contributes to the growth.
10. Cost of Salaries Share
This is a typical structure analysis ratio. Such ratio numbers allow you to control a share of specific costs in the total budget (revenues)
Salaries cost share is an important KPI for the professional service industry metrics and indicate how much $ you need to spend on salaries in order to achieve one $ of sales. Besides these KPIs, a very important metric is also the cost hourly rate.
11. Return of Investment (ROI)
Return of Investment indicates how much $ you earn on one $ of investment. Return is usually equal to net profit or cash generated while investment is an aggregate amount of business asset such as property, equipment, cash, receivables, inventories, etc.
12. Return of Equity (ROE)
Equity represents the net assets of the company. That is a difference between total assets and liabilities (such as loans, unpaid bills, etc.). Return on Equity shows how efficient your company is.
13. Revenue (Profit) per FTE
Revenue per FTE (Full Time Equivalents) shows how much income you billed to the clients per one employee on average. Before calculation this KPI you need to calculate your full-time equivalent (FTE).
14. Project Efficiency
Project efficiency is an indicator of project overrun. It is an indicator are you on budget or not. Besides the costs, you can also compare the budgeted and actual time spent on the project, or budgeted revenues and actual revenues.
For better project efficiency management it is very important to track hours and expenses per projects.
Besides project efficiency, you can calculate project profitability as well.
When you calculate a specific KPI that is just beginning. You need to make relevant decisions based on the results. But in order to do this, you need to compare your actual KPIs with:
- KPIs achieved in last period
- Budgeted KPIs
- Competitor KPIs.
Monitoring of these KPIs is not possible without a work-hours tracking solution. Discover what’s possible with Time Analytics.
15. Working Capital
Working capital is the metric that shows the business’s available operating liquidity. You can use this knowledge to budget and fund daily operations.
16. Current Ratio
This indicator shows the short-term liquidity of a company. In other words, it is calculated as the ratio of the current assets and liabilities. Current assets include cash, accounts receivable, and inventory. In other words, they are the assets you would be able to convert into cash within the following year. In a similar vein, current liabilities are due within a year, including payable accounts.
In general, your current ratio being below one signifies the danger of not being able to cover its short-term liabilities with the convertible assets it possesses at the moment. Here is the current ratio formula:
17. Gross Burn Rate
This indicator shows how much available cash is used up for covering operating expenses. Loss-generating startups are usually the companies that use this KPI. The height of burn rate is inversely proportional to the time the company will take to spend its cash. In other words, the higher the gross burn rate, the faster you’re going to run out of money. The way to prevent this from happening is by receiving more means or attracting new funding. Investors usually check this KPI while they’re in the process of deciding whether to fund a project or not. This is the formula for gross burn rate:
18. Debt-to-Equity Ratio
This KPI represents the ratio that indicates the amount of equity and debt a company uses to finance itself. It shows the capacity of shareholder equity for covering debt in case of a downturn. In other words, it is a measurement of the company’s solvency. The formula for debt to equality ratio goes as follows:
19. Days Inventory Outstanding
Days inventory outstanding (DIO) is a ratio for working capital management. It gauges the number of days that a company usually holds its inventory before converting it into sales. Companies want their DIO to be as low as possible, as that means their stock will remain up to date. Additionally, it also indicates that cash isn’t trapped in inventory for a long time.
You can calculate Days Inventory Outstanding through this formula:
20. Days Sales Outstanding (DSO)
This KPI measures the number of days a company takes to collect payment for its sales. Businesses usually calculate their days sales outstanding (or DSO for short) per month, quarter, or year.
You should use the following formula to determine the average number of days your company’s accounts receivables take to realize as cash:
21. Days Payable Outstanding (DPO)
This metric converts AP turnover into time. In other words, you can find out how quickly a company pays for purchases it obtained on vendor credit terms. The lower DPO, the faster the company is paying.
This is how you can calculate days payable outstanding:
22. Cash Conversion Cycle
This is an indicator that shows the time a company needs to turn a dollar it invests in inventory into cash it will get from its customers. The KPI accounts both for the time needed to sell the inventory and the time needed to collect the payment after the sale. Similar to the previous KPIs, you calculate it as a number of days.
Here is how you can calculate the cash conversion cycle:
23. Sales Growth Rate
This KPI presents the change in net sales over time. The sales growth rate is represented as a percentage, and many companies consider it their most important revenue. It allows companies to compare their sales from the same period of the previous year or get an insight into their development from one quarter to the next.
A positive sales growth rate proves growth in sales. On the other hand, if this value is negative the sales are going down. This is how you can determine the sales growth rate of your business:
24. Selling, General, and Administrative (SG&A) Ratio
This KPI shows the percentage of the sales revenue necessary to cover the selling, general, and administrative expenses. The SG&A expenses include a plethora of operational costs. These can be advertising and marketing, administrative staff salaries, rent, utilities, etc. Companies aim to spend less money on these costs. That is, they want the SG&A ratio to be as low as possible. This is how you can calculate this indicator:
25. Interest Coverage
Similar to the debt to equity ratio, interest coverage is a solvency KPI. It assesses whether a company is capable of meeting interest payments like bonds and loans. It does this by indicating the ratio of operating profit and interest expense. You want this ratio to be high, as it proves your business will be able to pay off its debts without problems.
This is how you calculate the interest coverage:
26. Operating Cash Flow (OCF)
OCF is a metric that represents the total amount of money a company generates through its daily business operations. This KPI indicates whether a business can keep its cash flow high enough to grow. If the OCF is not doing well, you will probably need to get some financing from another source to handle your expenses.
You can calculate the operating cash flow by adjusting your net income for elements like changes in inventory, changes to accounts receivable, and depreciation. If you want to know whether your company is producing enough capital for its accounts to remain positive.
Digital marketing KPIs and metrics
27. Cost-Per-Click (CPC)
There are many KPIs that measure the operational performance of your marketing campaigns. CPC represents the effectiveness of an online campaign. You can also use it to compare the performance of different campaigns and marketing channels.
28. New leads/prospects per month
Leads are members of your target audience that start interacting with your website – i.e. creating an account or signing up for a free trial. This KPI shows the number of new leads you’ve gained in the past month. Most businesses that rely on online marketing and sales rely on this KPI, as it directly shows the growth or lack thereof of a website.
29. Qualified leads per month
A marketing campaign can’t work well if it isn’t optimized for its target audience. This, first and foremost, means showing the ads to individuals interested in purchasing your product or service. Qualified leads per month is a KPI that shows whether your online ads are targeting your intended audience or simply generating traffic from internet users who aren’t interested in becoming paying customers. The second case is extremely unproductive, as you are paying for ads to be shown to users who aren’t going to make you a profit.
30. Cost-per-lead generated
Acquiring a new prospect isn’t free. The cost-per-lead (CPL) includes your marketing campaign efforts – creation, design, campaigning, etc. This indicator represents the money needed to get a new prospect. If you combine this KPI with cost-per-conversion, you will be able to evaluate the profitability of different marketing activities.
31. Monthly website traffic
Website traffic can be an amazing asset in assessing how your business is doing. This is especially important for online stores and independent vendors. Tracking the number of visits through different periods (both compared to the same period in the previous year and the previous months) is a great way to keep track of your business’s development. However, it isn’t the only way to track traffic. You can monitor different indicators, such as
- Landing pages
- Homepage
- Pricing pages
- Blog/resources
Then you can utilize this knowledge to figure out the strongest parts of your website. That is, find the pages with the highest conversion rate. Then you can compare them and find the reason for their success, and apply the same techniques to the other pages on your site.
32. Visits per channel
Not every marketing channel works for every business. Simply put – some channels, (i.e. google ads, banners, carousel ads, different advertising sites) will do better than others. You should analyze the sources of your inbound traffic and then focus on the marketing channels that bring you the highest profit. This is also a great way to see how a new campaign is doing.
33. Average time on page
This KPI is extremely important when it comes to SEO. It is important to get your website visitors to stay on your site as long as possible. This is a great way for Google and other search engines to notice your site and rank it higher among the results. Relevance and high-quality content are the best way to increase the average time on a page. This KPI is also directly proportional to the conversion rate. In other words, the higher it is the more likely it will be for your visitors to become leads.
34. Click-through rate (CTR) on web pages
You can monitor your website’s marketing tactics and the quality of your copy and calls-to-action through the click-through rate. This KPI shows how many times your visitors have seen your ads (impressions) and decided to click on them to find out more (visits).
35. Google PageRank
Google is and has been the world’s leading search engine for quite a while. To put it differently – most people will turn to google if they are looking for a specific product or service. Google calculates the PageRank through a great number of algorithms that rank different websites by relevance and importance. Some of PageRank’s most important decisions are made due to the amount and quality of inbound links to a specific page.
36. Bounce Rate
Bounce rate is another important KPI when it comes to digital marketing. It represents the percentage of visitors who click on a ling and immediately leave it (also known as ‘’bouncing’’, hence the name). If you want your website to do well, you will need your bounce rate to be as low as possible, as it affects your site’s ranking. You can do that by making sure the site is responsive and loads quickly. Another method is being truthful about the contents of your pages and curating high-quality content. In other words – don’t clickbait and show expertise in your field.
SAAS KPIs and metrics
37. Conversion Rate to Customer
This metric represents the percentage of webpage leads who decide to convert. Usually, conversion means purchasing a product or service. In other words, this KPI represents the ratio of leads that decide to become paying customers.
Conversion Rate to Customer = New paid customers / qualified leads (or sign-ups) /
38. Average Revenue Per Account (ARPA)
This KPI is also known as average revenue per user/unit (ARPU). It represents the measure of the revenue generated per user account. It is usually calculated per month, since the biggest part of businesses that operate on a subscription model charge monthly fees.
39. Customer Acquisition Cost (CAC)
Customer acquisition cost (CAC) represents the amount of money you need to acquire a new customer. It also shows the value said customer brought to your company.
40. Customer Churn
Running a business isn’t all about acquiring new customers. Another important element of any business is to remain relevant with your current client base. Customer churn rate is a metric that shows how many customers you have lost during a specific period.
This KPI is crucial for determining customer retention and tracking the general flow of your business in real-time. You can also use it to compare to your previous results, whether from previous years or months.
41. Revenue Churn
Customer churn rate isn’t enough to determine how specific customers impact your business. That is why you also need to track revenue churn rates at the same time. This is especially important for businesses where the subscription depends on the number of users or seats a specific customer is paying for. If this is the case, the customer churn rate can be very different from the revenue churn rate, as some customers bring in more profit to the company than others.
Operational KPIs and Metrics
No company can stay afloat without its employees. They and their time are the biggest leverage of any business. Teams work on turning an employer’s vision into reality. Understanding the ways your employees function, the dynamics of their teams, and the way they view your company. That is why we have compiled a list of KPIs operations managers can use.
42. Absenteeism Rate
This is an operations metric that indicates the employees who either call in sick often or miss their shifts. The primary goal of the absenteeism rate isn’t to punish or fire problematic employees. Instead, you should try to get them to engage with their work first. There are many ways to motivate your staff and get them to become more engaged with their work. if you use them rather than scaring and punishing the employee in question, they are more likely to remain at your company, participate in the office culture, and work harder. In any case paid time off tracking is essential to get insight in this metric.
43. Overtime Hours
Overtime can signify multiple situations in your company. It can be a positive occurrence in companies that pay more for the extra hours. On the other hand, many businesses choose not to do it, so the employees end up working more for the same amount of money.
It is also important to make one distinction. Some employees are having to do a lot of overtime due to an increased task volume or difficulty or having to do their coworkers’ part of work. In contrast, there are also there are employees who commit time theft and slack off, who have to make up for their lost time. In a case you need more insight in overtime download our overtime calculator.
44. Employee Satisfaction
It has been proven again and again that satisfied employees bring more to the table when it comes to work and commitment. You need to understand that it is impossible to make everyone happy at all times, as this work model would be unsustainable. Thus, you should make sure to open the conversation about employee satisfaction. You can do this through surveys and be prepared to listen to suggestions on business process improvement. If HR and the management don’t have this information, they won’t be able to make the improvements that can propel your business forward.
45. Employee Turnover Rate
There isn’t a universal optimal turnover rate. Some industries, or even companies in the same industry, need to replace their employees more frequently. However, most businesses are looking to reduce the number of employees leaving their company. It is also important to understand the reason behind the turnover. Simply put – the more workers leave your company, the more often you will have to find replacements. This means investing time and resources in finding and training new employees. That is why you will need to analyze employee satisfaction carefully and continuously invest in making the workplace more employee-friendly.
Why is a time tracking important for KPI calculation?
A good part of these business KPIs includes a time category and an expense category, such as:
- Time utilization
- Billing rates based metrics
- Project efficiency
- Gross margin rate
Data is a crucial resource for developing modern intelligent solutions. Availability of large and diverse data sets through the innovative technology of our platform enables the users to receive customized information and proposals for managing a business. By tracking data on time as a crucial resource in the professional service business, you can uncover valuable indicators to help you make decisions. Time tracking usually allows you to allocate employee expenses per specific tasks and projects. Thus, only through time tracking you can have an insight into the performance of an individual employee, client, or project.
Time tracking tools don’t only help you calculate a specific KPI, but also to track development through time, receive metrics per the employee, department, etc.
