How to Structure Your Professional Services Firm for Better Profitability in 2023

Learn how to structure your professional services for a healthy profitability with modern cloud technology.

Rich Fowler

Partner Liaison at Progressus Software

Follow Me:

Table of Content

    Note: this is a recap of a webinar presented by Rich Fowler, Partner Liaison, Progressus and Jeff Smith, Solutions Architect, Velosio.

    What if you could consistently control your operating expenses on projects? What if you could use historical data and lists of detailed tasks to more accurately budget for a project? And accurately estimate required resources, materials, and expenses? What if you could track project profitability and take timely, corrective action?

    Attendees to a webinar presented Velosio professional services pros Rich Fowler and Jeff Smith enjoyed a fast-paced webinar that began with an overview of Velosio’s expertise:

    • 4,000+ clients
    • 450 employees
    • 150 affiliates
    • 33 years in business
    • 96% client retention
    • 50+ awards
    • 12,000+ successful projects

    Additionally, Velosio is itself a professional services firm, so offers a very well-informed perspective on how to operate within the space. The webinar covered several key aspects of positioning, detailed below.

    The opportunity available to professional services firms

    Although Velosio is a global firm, the speakers focused on the opportunity in North America for this webinar. In summary: it’s huge. In 2020, professional services accounted for about $65 billion in opportunity, but in 2023 it’s predicted to be around $80 billion. That’s around a 10% year-over-year growth.

    One of the most important aspects of realizing the available opportunity is in your vertical. Choosing to focus on a vertical where you have specific, tribal knowledge allows you to focus and target your marketing narrowly. It also means that you don’t have to learn your customers’ business because you already know about it. With specific knowledge your energy and effort can be narrowly focused.

    Design, research, promotional and counseling services, legal services, accounting services and professional scientific and technical services are all examples of verticals. You don’t have to limit your work to a single vertical, but a narrower focus is more efficient. Velosio works in numerous verticals, but sees the most profit from four of them — consulting, engineers and architects, software management, and manufacturing.

    In choosing the appropriate vertical(s) it’s important to consider where your firm excels. Fowler suggests thinking about the issue in terms of car repair. If you own a BMW, you likely wouldn’t take it to a Chevrolet deal for service. You want to go to someone with expertise in BMWs, specifically. You want someone with certifications in repairing BMWs, who has likely done the repairs you may need, who knows what to look for, and who has probably done it before. Chances are good you’d even be willing to pay more for someone with those qualifications to service your car.

    Being a generalist, or “shade tree mechanic,” has advantages, as well, but choosing your vertical(s) helps clarify the opportunity available to your professional service firm.

    Where new firms should start

    At ground zero, start with your attorney. Talk about incorporation, state of filing, taxes, payroll, to name just a few of the crucial topics attorneys are best suited to address.

    Another area that some professional services firms neglect is talking to their attorneys about agreements. Your agreements can be a selling tool, and that’s not always obvious. Your MSA, CSA, NDA, NCA and so on shouldn’t be left to the end of a project. Instead, bring them up right at the beginning and explain to clients that you want to set the ground rules so that legal issues won’t be a problem later.

    Your agreements can be as simple or as complex as you want them to be but they represent protections for employees, clients, and proprietary information. You can absolutely use these points to make a connection with your customers and set yourself apart by bringing all of these things up in the beginning.

    People, process and platform

    We can assist in structuring your professional services firm for better profitability by helping you focus on three crucial elements: people, process, and platform. We work with both Microsoft and non-Microsoft platforms, though most small and medium business clients are Microsoft clients.

    People

    Your people are your sales inventory, because what you sell clients are the skills and services of your people. Through this lens, unused hours are unsold units, which cost money. You’re still paying your consultant even when they aren’t billing.

    Your hours are your inventory, and without question, hours should be tracked—daily. Make your people do time tracking daily, even if they don’t like it. We’ve done some studies that show how, through the course of a normal business day, you switch from task to task. Answering an email takes 6-15 minutes of an hour, but by Friday, when you track time, you may easily forget about the 15 minutes it took to reply to an email.

    In the course of a week, most people forget about enough small tasks to add up to 15% of your total billing!

    If you’re asking your people to do daily time entry, you need to provide convenient tools for it, such as mobile time entry. And that should include project selection, cost code selection and other elements because those things make a difference in rates. Tracking them also allows you to analyze what work is being done and that’s important for you to be more effective.

    Process

    Different types of projects call for different types of billing. Time and material projects are usually hourly projects, but subscription billing may be a better process in some circumstances. A subscription involves billing a flat amount, which provides predictable income for you and a predictable bill for your client, based on delivering goods or services.

    You can set up an hour bank, which creates a limit of hours that can be billed in a time period, regardless of the hours you actually put in. Your customer may buy 20 hours worth of service, and have 10 left over. That gives you the opportunity to become further embedded in your client’s business, and often, it ends up with the client actually going beyond the hours they originally bought.

    Fixed price and milestone billing is another option. To return to the car industry, think of getting an oil change. You pay the same amount for an oil change, no matter how long it takes the technician to do the work. The organization has the tools, the knowledge, and so on, which is why they can charge a set price without consideration of how long the work takes.

    If the oil change only takes 15 minutes, it represents a considerable profit. One hour of real time is actually four hours of book time.

    Rates can vary by project and may depend on the people involved. For example, a partner or a director may have a higher hourly rate than a mid-level or junior consultant. The types of tasks, too, can require rate adjustments. Project managers, trainers, and software developers may all have different rates.

    Platform

    Velosio offers a platform that can help you structure your professional services firm for profitability. Our deep expertise in how professional services firms operate, the flexibility they require, and our experience in various sectors informs how we advise clients and implement solutions. If you’d like to learn more about what we offer, contact us today.

    Rich Fowler

    Partner Liaison at Progressus Software

    Follow Me: