Measuring Profitability of Professional Services

This article has some good ideas in this article if you can look past the sales pitch. To help you avoid it, here are the 5 myths:

  • Myth 1 = Profitability is just part of our hourly bill rates, so there is no point in measuring it – Recommendation is to measure profitability from bottom-up forecasting.
  • Myth 2 = This project is fixed price, so we don’t need to track time against it – Recommendation is to project profitability with comprehensive time tracking.
  • Myth 3 = We won’t really know the profitability of this project until it’s done –  Use project accounting software to track project profitability
  • Myth 4 = We are not billing the client for this, so we should put it on an internal admin project – Rethink the impact of billable utilization to account for non-billable time such as pre-sales effort and other activities (defective work, relationship management, and general goodwill).
  • Myth 5 = Labor cost is too sensitive or complex to track in our project delivery system – Create project staffing models that drive profitability.

Has your organization found itself deceived by any of these myths? If so, what did you do get out from under the spell. One of my favorites is to not only draw attention to project that are no longer profitable, but also highlight the ones that are. The ability to bring projects in under budget and before deadlines can be just as valuable as eliminating the problem projects.

November 11, 2022