In a professional services firm or any project-driven company for that matter, everyone knows that the difference between profit and loss can hinge on the slightest changes in some very key metrics.
Accurate tracking of billable expenses, efficient capture of hours delivered, timely billing and hourly rates are just a few of the revenue and profitability challenges that our customers deal with daily. Inefficient systems and processes often handicap these metrics and result in unrealized billable revenue.
Unfortunately, most companies are never able to recover unbilled revenue. Even if a project or services contract allows for hours to be billed down the road, or expenses to be filed later, it is unlikely a customer will be happy about it. Providing a positive customer experience is just as critical as ensuring that all potential revenue is invoiced.
When revenue opportunities are missed in these ways, we refer to it as revenue leakage – money earned but never collected.
How to approach revenue leakage in project-driven companies
According to Ernst & Young, revenue leakage can account for 1 to 5 percent of anticipated EBITDA being lost. When was the last time someone said “Ya know, if we increased utilization by 2 points it would impact earnings by 3-4 times that”? How about this one: “Our DSO is completely unacceptable. We’re averaging 75 days from the delivery of a service to payment. Our customers are paying on time, but we’re taking 45-60 days to produce a services invoice. They aren’t unreliable, we are.”
Changing these metrics is usually easier said than done and requires a measured, cooperative approach between senior management, operational leadership, and delivery teams. The right technology can provide a platform for improvement, but training and guidance provided on a regular cycle is equally as important.
Identify and understand the leaks.
Take this on as an internal project, but don’t get immediately hung up on fixing the most obvious “leaks”. Be sure to conduct a comprehensive discovery of related processes and systems that might be hampering the collection of billable revenue. Estimate the total impact and create realistic goals for getting the correct systems and processes in place.
Plug the leaks.
As your project kicks off, remember that often multiple issues are interconnected and can be fixed as part of the same sprint. If the leaks are a result of outdated or inefficient software, you may find that proven systems like AXIO Professional Services or Progressus come with built-in process guidance to help get things on track.
Don’t get too comfortable.
The job isn’t finished when you’re comfortable with the changes you’ve made. Inefficient processes tend to develop over time with employee churn or changes elsewhere in the business. Sometimes contracts or project plans are created that lack governance and become the norm. You will want to build regular reviews of leading indicators and key metrics that help to alert you when things begin to move in a negative direction.
Be sure you can count on your ERP, PSA and CRM solutions.
Most companies, large and small, depend on a symphony of solutions to run their business. Managing revenue streams often depends on multiple solutions being utilized by a variety of individuals that need to work together seamlessly to optimize results. Consultants and field services people, accounting, billing, and sales people all need to communicate and have visibility into client data.
Join us in an upcoming webinar or visit our on-demand video library to find out how SBS Group has developed the processes, systems, and means of automation to tailor Microsoft Dynamics 365 for project and services companies. If you don’t find what you’re looking for, please feel free to reach out to me directly with any questions about reducing revenue leakage.
Chief Solution Strategist, SBS Group
Robbie Morrison has spent nearly 20 years helping customers build and deploy elegant technology and business solutions. From start-ups to enterprise-class organizations worldwide, his knowledge of the Microsoft Dynamics ecosystem and products helps SBS Group customers maximize ROI on technology investments.
Today, Robbie serves SBS Group customers in his role as Chief Solution Strategist where he provides thought leadership and manages the development of B2B solutions. Robbie received his MBA from the University of Georgia, Terry College of Business.