As a professional services provider, you should only charge for hours you’ve actually worked.
The professional services organization (PSO) landscape is changing — employees are harder to recruit and retain, a globalized marketplace increases competition for clients, clients want more for less, and management is often too focused on short-term firefighting instead of long-term strategy. As Thomas J. DeLong (Senior Fellow at Harvard Business School) puts it, “In the past, the work of [PSOs] was a gentleman’s game — and now it’s a blood sport.”
This is the third article in a three-part series that isolates three major pain points for PSOs today, and offers actionable steps you can take to address them.
Problem 3: Billable Hours
Utilization rates are the best barometer for productivity and revenue — improving them has an immediate impact on the corporate bottom line. Typically, a professional services organization should strive for an overall utilization rate of 75 percent or more. Yet precious billable hours get wasted on administrative tasks and other non-billable work, get lost in faulty timekeeping, and get written off in the event of project overruns. And, while PSOs will always have to sacrifice some billable hours for non-billable work, fixing the following issues is an easy way to decrease that amount:
Too much time is spent on administrative tasks
Populating and submitting timesheets is almost always a tedious, time-consuming task for PSO employees, especially if they have to do so manually. It’s not uncommon for employees to hold off completing their timesheets until the last minute, which can actually incur quite a few hidden costs for your business. The time your employees spend trawling through multiple documents and sources to try to determine how long they spent on specific projects and tasks is time spent on non-billable work.
Billable work is getting written off
Without an efficient, easy-to-use system in place, imprecise timekeeping is bound to happen. This means that timesheets likely won’t reflect the actual amount of time spent on a project, thus diminishing billable hours. If employees don’t have a simple way to record the hours in real-time, or if they typically record them after the fact, then they risk making errors or forgetting to record all of the time they spent on specific projects. When this occurs consistently, what should be a quick administrative task becomes a huge liability to your business’s profitability.
Employees don’t meet their full billable potential
As much as 90 percent of professional services costs are people-related, according to SPI research. That is to say, your employees can make or break you in the professional services space. It’s not enough to just have good people, you need to have highly-skilled employees that can offset their costs with a proven ability to generate revenue. If employees only have a vague idea of how exactly they spend their time, and how much of that time is billable, then it can be difficult for them to maximize their productivity potential and their utilization rates.
Implement automated management software
If you want to optimize your employees’ utilization rates, the first thing to go should be any clunky, inefficient timekeeping processes. You want to make it as easy and quick as possible for employees to access their timesheets on the go, and input information on specific tasks and exact amount of time spent in real-time.
Empower employees with their exact UR
Studies have shown that overall utilization rates (UR) directly coincide with a PSO’s profitability. Although average URs vary within different professional services verticals (IT services is 81 percent, while strategy consulting and legal services are closer to 75 percent), it has been demonstrated across the board that industry leaders with higher URs than their peers are typically more profitable and cost-efficient.
Because of this, knowledge of your company’s overall UR, as well as your employees’ individual URs is essential information — information that some believe should be privy to everyone, as opposed to just leadership and managers. In fact, companies can increase billable hours per consultant by 10% just by having them fill in their own timesheets and empowering them with the knowledge of their own utilization rate.