Professional Services Benchmark Reveals Goldilocks Year

By Jeanne Urich, Managing Director Service Performance Insight

How does your firm measure up?

According to Service Performance Insight, 2014 was a Goldilocks year for professional services organizations because incremental growth, productivity and profit enhancements combined to deliver results that were not too hot, not too cold, but just right. The 2015 Professional Services Maturity Benchmark reveals industry growth of more than 10 percent for the third consecutive year.

Highlights from this year’s benchmark
• Steady growth: Annual revenue growth (10 percent), headcount increases (8 percent) and larger project backlogs delivered steady, consistent and manageable growth.
• Productivity improvements: Nearly all professional services organizations experienced significant improvement in revenue per consultant ($197K versus $193K) and revenue per employee ($167K versus $155K) due to moderate increases in billable utilization (71 percent versus 70 percent) and the percentage of the workforce that was billable (75 percent versus 71 percent).
• Talent management remains the top challenge: Firms struggled to find and develop the talent they needed to sustain their growth. Attrition rose for the fifth year in a row to 8.9 percent versus last year’s 8.3 percent and will likely continue to rise as consulting demand outstrips supply.
• Sales effectiveness still difficult but improving: Although consistently a top challenge, sales metrics improved with larger sales pipelines and shorter sales cycles, adding up to more firms reaching their revenue targets.
• Profits up: Embedded service organizations — software, SaaS and hardware — delivered exceptionally strong performance with net contribution margin increasing to 19 percent from 15 percent in 2013. Profits grew in all vertical markets and all geographies. Europe, the Middle East and Africa (EMEA) posted the best geographic profit progression from 13 percent in 2013 to 16 percent in 2014.
2015 Benchmark Trends
In the professional services sector, 2014 marks the year that the great recession finally ended and business returned to normal. But the new normal in technology services is very different than the normal that led up to 2008. The cloud gold rush continues unabated and has spread to the enterprise — ushering in a new wave of well-capitalized global competitors that are squarely focused on solving big business problems in sales, marketing, talent management and finance. Cloud computing will grow from a $41 billion business in 2011 to a $241 billion business in 2020, forever disrupting the status quo.

Talent is the Top Challenge
In 2015, the sobering new reality of a global skilled talent shortage is taking center stage. The global workforce is simultaneously getting younger and older as millennials begin to make up a higher and higher percentage of workers while baby boomers refuse to retire, due in equal parts to economic and job satisfaction reasons.

The knowledge workers of today, who comprise the professional services sector, are more multigenerational, more multicultural, more global and more technology savvy than ever before. Leading and inspiring this workforce means top-performing PS organizations must focus as intently on developing unique cultures as they do on cultivating exceptional domain knowledge and competencies. Continuous learning is no longer a nice to have, it has become a survival prerequisite.

Developing business
Almost on par with the challenge of finding, hiring and engaging top talent is the challenge of business development. Today’s business development success relies on senior relationships and consulting acumen. Billable experts who provide valuable insights are the most effective solution sellers, but finding them and keeping them engaged is a daunting task. Winning firms are those that find creative ways to generate and qualify new opportunities, ensuring time-constrained knowledge experts can focus on the best clients and opportunities without wasting time on poorly qualified deals.

The PS success formula going forward means leading-edge firms must continually reinvent themselves, always on the prowl for the next big thing, all while delivering exceptional projects today to maintain a rich stream of repeat and referral business. Firms cannot stand still or rest on their laurels — they must continually stay ahead of the markets they serve while intentionally harvesting and repurposing current consulting assets to be able to deliver future core projects better, faster and, if need be, cheaper.
2015 promises to be an exciting and challenging time for professional service providers.

About the benchmark
Using information that’s typically confidential such as detailed bill rates and compensation, the 190-page report analyzes 200 key performance metrics and includes 235 supporting charts and graphs. It includes income statements and expense ratios for eight professional service vertical markets.

The annual benchmark from Service Performance Insight draws on a database of 1,517 PS organizations to provide an in-depth analysis of PS metrics and performance.Cover2015PSMB
Purchase report here.