Best 14 Key Performance Indicators (KPI) for Service Company

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.

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. In order to have fully control over time utilization the companies use simple billable hours trackers.

Time utilization

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 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.

billable rate

3. Employee Billable Rate

Employee Billable 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.

Employee Billable rate

4. Project Billable Rate

Project Billable Rate is an hourly rate billed for a specific project.

project rate

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. This is the most direct indicator of profitability i.e. top level indicator in profit and loss account 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.

gross margin rate

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.

commercial margin

7. EBITDA Rate

EBITDA (Earnings before interest, tax, depreciation, and amortization) is one of the most comprehensive measures of company financial performance.  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.

Ebitda rate

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.

net profit margin

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 cost in total budget (revenues)

Salaries cost share is important KPIs for the professional service industry metrics  and indicate how much $ you need to spent to salaries in order to achieve one $ of sales.

11. Return of Investment (ROI)

Return of Investment indicate 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 of 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.

Project overun

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:

Monitoring of these KPIs is not possible without a time tracking solution. Discover what’s possible with Time Analytics.

 

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