How Professional Services Firms Can Maximize Profit Margins & Drive Long-Term Growth

Discover how technology is helping professional services firms gain more visibility into margins and ensure every project turns a profit.

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    Professional services firms should always be watching their profit margins.

    This metric answers important questions about the health of your firm such as, whether projects are priced correctly, whether your business is growing at a sustainable rate, or whether you’re making money on each project.

    In this article, we’ll look at some of the ways that technology is helping firms gain control of their margins and ensure every project turns a profit.

    Margin Visibility into Past and Future Projects Helps Boost the Bottom Line From Multiple Fronts

    You’ll need a clear picture of margin per project and total portfolio margin to make informed decisions about how to improve your numbers.

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    Like any data-driven initiative, improving project profitability starts with a single source of truth across all business units, projects, clients, and processes – aka your ERP. It’s important to make sure that your core system covers the following – in granular detail:

    • Project data. You’ll want to ensure that you can view project data in summary form, as well as drill down into very specific details about project tasks, clients, invoicing, transactions, resource efficiency, earnings, billable hours, expenses, inventory, and more. In other words, anything project-related needs to be here.
    • Finance & project accounting. Make sure that your system brings high-level, org-wide financials and project data together in one place. That way, project teams, decision-makers, and other stakeholders can review portfolio-, project-, resource- and task-level data in familiar formats like profit and loss (P&L). Or – track project spending against the original budget and make adjustments, if needed.
    • Forecasting. A global view of all project and financial data improves forecasting capabilities. For example, you might run an income analysis to build forecasts for projected cash flow, expenses, budgets, turnover, and pipeline performance. You can do this at the individual level – or across multiple projects to get a sense of how current trends are shaping future conditions – then use that information to inform long-term plans. Ideally, you’ll draw on historical data from past projects. That way, you can refine the game plan, using lessons learned – while also adapting them based on emerging trends detected in other data sources.

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    Improving margins starts with identifying and removing waste. Think – excessive staffing, non-billable expenses, inventory, etc. Sort of the “low-hanging fruit” of cost-savings. Then, from there, you can implement solutions to prevent this type of waste moving forward.

    Examples include: integrated time-tracking and expense management solutions, pre-configurations that reinforce regulatory, finance, and project accounting requirements, and dashboards that monitor project performance, resource utilization, and other key metrics.

    Once you’ve improved things on the finance and ops side, you’ll then want to focus on activities that bring in new business, boost retention, and lead to repeat renewals, upgrades, and purchases. Activities that proactively create value and drive sustainable growth.

    This includes things like the sales process, the client experience, and the content you use to educate and inform your audience. Basically, anything you’d handle with a CRM solution.

    As an example, SalesSense adopted D365 Sales to enable better reporting across the entire sales process, greater visibility into resource availability, and more effective project planning.

    The customer engagement platform allowed the firm to formalize processes like account and opportunity management — and provide guidance to users at every stage in the sales funnel. More transparency led to further improvements and more informed decisions about how to best serve clients.

    Other solutions like Dynamics 365 Customer Insights use AI and machine learning to help organizations to better understand their customers and their behaviors. That way, firms can get ahead of churn and proactively deliver valuable solutions that nurture lasting relationships with clients.

    Finally, you’ll want to make sure that prices and contract terms offer some protection against unexpected expenses, out of scope requests, or other situations where you’re forced to eat extra costs.

    Be sure to outline your process for approving and billing changes or last-minute requests — both for the client and for the project team. You’ll want to ensure everyone knows exactly how to track extra or out-of-scope work so it doesn’t impact project profitability.

    Final Thoughts

    Professional services firms can increase margins by focusing on two key goals: cutting costs and bringing in more revenue.

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    Generally, you’ll start by making improvements to internal processes like resource management and project accounting practices before moving on to high-value activities that actively generate value.

    The challenge is, you’ll need more information about where things stand, where you’re falling short, and what you hope to achieve before making any major changes or investments.

    Velosio has helped professional services firms maximize profit margins and performance for over 30 years, offering specialized expertise and industry-specific solutions. Contact us today to learn more about how we can help.

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