How Finance Teams can Supercharge Firm Profitability

Professional services firms live and die by their profit margins. Low profitability is one of the most frustrating challenges for everyone working at the firm. Teams work relentlessly on promising projects, just to end up with a bottom line that leaders know is not sustainable. It becomes nearly impossible for a firm to grow and to retain talented resources. Worst of all, it is almost impossible to know the root cause without rich and accurate project accounting data to analyze – something low profitability firms often lack.

It is not enough to seek answers about margins at the firm level. Averages and grand totals obscure the truth hiding in the details. The firm’s finance leader must have an understanding of the profitability of each of the firm’s dimensions that determine profitability: department, billable employee, division, role, client, and project. If you can isolate the specific areas with margin deficiencies, you can put a plan in place to fix it.

Who is Responsible for Profitability?

Responsibility for profit and margin is a delicate question. On one hand, each individual billable employee makes hundreds of decisions that directly impact project billables and margins. They are the closest to the client and provide much of the value. While each billable employee is a piece in the puzzle, strategic direction and influence over profitability is often in the hands of finance.

No single associate will move the needle on firm profitability, or have the data to investigate profit margins. It is finance’s responsibility to develop best practices and generate department wide buy-in on supporting margins.

Just for fun, here are a few profitability pitfalls that individual project managers can make, that finance wants to avoid:

1. “I underquoted a client with a loose estimate. But it’s too challenging to properly assess every request that comes our way.”
2. “We started with a flat fee arrangement, but I never noticed how far we’ve exceeded the budget and now it’s too late to renegotiate.”
3. “I don’t require my team to track all of their time. It’s okay to eat time on quick meetings or not bill for small expenses.”
4. “I staff all of my projects without balancing for billing goals. It’s all about working with my favorite people and doing whatever the client asks, regardless of the high probability of overservicing.”
5. “I rely on discounting to win business, but don’t know how this affects our margins, so we don’t adjust staff levels or rates accordingly.”

Diagnosing Profit Underperformance

When projects underperform, but you have detailed time and expense tracking along the way, you can uncover hidden weaknesses. Ask yourself:

Did we improperly scope the project with an unrealistic budget?
If everything goes according to plan, but the plan is poor, success is merely accidental. Powerful budgeting tools, combined with historical data, help to correct this.

Did we ineffectively allocate resources?
Resource Management is key to sustained profit margins. If the staff are working on the wrong tasks, it will result in overworking and scope creep to meet client needs, eroding margins along the way. If the right people are too few and far between at your firm, the high performers are spread too thin, burdened by admin work and meetings on top of project deliverables.

Did our team follow the plan?
If expectations are not crystal clear to everyone on the team, all the planning efforts are meaningless. Powerful and granular permissions within ClickTime limit managers to only seeing projects they should, and limit individual contributors to only see their own work, while providing enough team visibility into how they contribute to the overall plan. The second that assignments change, everyone’s goals, tasks, and budgets are automatically updated. Nothing should be lost in translation.

Did our expenses catch up to us?
Expense reporting that is not fully integrated with project planning and financial analysis will result in costs that can’t be managed. ClickTime’s sleek employee expense platform pulls the project costs together, so it isn’t a mystery when you reach project milestones or month-end.

Finance teams shine when they can diagnose the issue and improve the firm’s profitability through margin improvements. At ClickTime, we’ve helped hundreds of organizations improve profitability, and offer our guidance to repeat success stories. Our project management, resource utilization, and cost control tools are expertly tailored to propel firms to new financial heights.

ClickTime’s Profitability Playbook

With ClickTime, finance doesn’t have to be solely responsible for margin analysis and profit monitoring. The technology empowers project managers with the right analytical tools to gain insights to meet client demands while hitting margin targets. Take these steps in ClickTime’s profitability playbook to see for yourself.

1. Equip Project Managers with Data

Analyze client margins at the portfolio level.
When analyzing revenue, costs, and profit margins over time, it is crucial to roll up to a portfolio view of client performance. Individual projects can have varying factors that make trends hard to identify. Understanding how your team is servicing a Client in aggregate is more reliable and indicative.

Turn the dials to perfect your project plan.
When project planning, you need tools that make it easy to see how your profit margins will change based on different staffing decisions, different billing goals, different utilization rates, or different project scopes. Using proper tooling, you can try out several “What If?” scenarios to max out your profit.

Maximize control over billing rates.
Clients are happy when costs and value delivered are in equilibrium. A specialized rate card can be a transparent way to increase revenue, for the tasks that make the biggest impact. Your billing rates should be flexible based on the experience level of the person, as well as the task at hand.

See how discounting time affects revenue.
On the flip side, if you are too frequently discounting for certain clients or projects, you may be artificially suppressing revenue. While a discount or promotion can help bring in new business, these deals shouldn’t be permanent, or profitability will suffer. Compare your actual billing to what you could have billed to see the impact that discounting makes.

2. Don’t Ignore Project Expenses that Eat into Revenue

Employee expenses should not go unaccounted.
Labor makes up the majority of project costs, but ignoring employee expenses and materials costs doesn’t make them go away! Client lunches, printing, and software fees that contribute to the success of an initiative should be reflected in total billables. These should not only be included in project accounting, but in project planning and scoping. The more integrated these expenses are into your planning process, the more accurate your budget and plan will be. No one likes surprises at the close of a project.

Time that isn’t billed is a direct cost.
If time that can be billed to a project, isn’t tracked and isn’t billed, this is a direct cost to the company. Every 10 minute check in that isn’t logged can add up to thousands of dollars lost.

Report on the split of hard costs to labor expenses.
Take a historical look at past projects that underperformed. How did expenses factor in the total cost? Was there any room for improvement? Expense reporting should be easy for employees and increase transparency for project managers. Having an integrated expense platform within your project planning and time tracking software will help you establish and enforce your expense policy.

3. Optimize Your Preparation with Powerful Resource Management

Balance the scales to maximize profit.
When many competing priorities require the same group of people’s time, it may feel like playing a game of tetris. Even if managers can balance billing goals, utilization, planned time off, and project requirements, how can they be confident that they have created the most profitable plan? The hours spent in planning can easily be automated and algorithms can ensure your plan is maximizing revenue and minimizing costs.

Pivot faster when you hit road bumps.
When projects run long, or grow in scope, project managers need to be able to act quickly to meet client demands. With the right software, they can easily see which people in the role they need have capacity, and who is already spread thin. Quick notifications to employees about what projects they are assigned to, and how much of their time is required, closes the loop as quickly as possible.

Plan capacity into the future.
The most important goal is profit, but predictable profit is even better. If you are currently planning your projects and resource allocation 2-3 months prior (at best), you may not have the foresight you need. How will you know that you are properly staffed to take on a potential project? If several projects conclude at once, can you withstand the upcoming dip in revenue? Working to a 6 month plan, that supports varying levels of certainty, helps predict growth.

Supercharge Profitability

At ClickTime, we deeply understand the day-to-day difficulties and critical challenges that firms face, and how they look to the finance team to deliver solutions. We bring decades of experience to our Resource Management and Expense Reporting tools that provide forecasting, planning, tracking, and reporting, so you can execute the ClickTime profitability playbook.

By adopting a proactive approach to resource management and embracing innovative technologies, your firm can supercharge profitability. Let us show you how!