Most of the service businesses focus only on revenue and profit. Unfortunately, nobody has a magic wand to make those go up — that’s why it’s important to focus on other KPIs first.
The hardest thing to achieve in any service-based business is predictability. Trust me, as a person who leads the business side of a technology and design agency, I know the pain of it. Predictability allows us to plan better and smarter, and it allows us to focus and more easily steer the business in the direction we want. However, focusing only on revenue and profit is wrong. By using some software and tools you can predict what you are going to do in the following period, but that’s just not enough. It is also easier to start with some other areas and KPIs that will eventually influence revenue and profit.
What metrics should you focus on then?
Doing some research online I came to the conclusion that more than 90% of service-based businesses track only revenue and profit. However, the rest 10% that track other KPIs have proven to have much more successful businesses with higher revenue growth and double-digit profit. Basically, the list of the most important KPIs for any service-based business is:
Revenue and Profitability per Client
Revenue and Profitability per Employee
Productivity and Utilisation
Leads and Prospects Conversion
Client Retention and Repeated Purchases
Things to think about and some actionables
Client Retention and Repeated Purchases, Leads and Prospect Conversions
Let’s start from the bottom up. If you track and analyse Client Retention and Repeated Purchases, as well as Leads and Prospect Conversion you can easily see and predict your future revenue. There are many ways to do that. It can be as basic as an Excel sheet or you can use some software. In Degordian, we use Pipedrive. Here it’s important to think about your sales cycle and define different stages in which your leads and prospects can be. Just define the probability of closing the deal for each stage and you can get the weighted value of your future revenue. Analysing in which stage you close or lose deals and analysing the reasons why will give you insight into how you can improve. In this case, by influencing the sales process you influence your revenue in the long-term.
Productivity and Utilisation
Next thing you can track and analyse is Productivity and Utilisation. Again, the easiest way to do that is to have a time-tracking software. There is multiple software on the market – however, we have developed one for ourselves. It is very important to promote the culture amongst employees to track time honestly without any fear of repercussions. Keep in mind that your employees can hardly be 100% productive – when you count in vacations, breaks and sick-leaves you come to around 91% being the maximum utilisation of any employee. Also, if you want to have 20% profitability, it’s important to keep utilisation over 60%. If you track and analyse this area, over time you can pinpoint your biggest productivity killers and you can work on them. With that you immensely influence profitability, but also your final revenue – if your employees are more productive, they can work more and your sales team can bring in more new deals in the same period of time.
Client and Employee Satisfaction
Satisfaction of both employees and clients is quite important and you can quite easily work on that. In my experience, happy and satisfied employees work better which makes for happier and more satisfied clients. And that eventually brings higher client retention rates, more repeated purchases and more referrals from your current clients. It is important to have open channels of communication with your employees and to give them safe ground where they can basically complain about anything. This gives you insight on how to make them happier. Also, having employee satisfaction surveys periodically and then creating action plans on how to improve that satisfaction brings amazing results in the long run. Don’t forget to have feedback sessions and meetings with your clients and take their feedback seriously. This will give you insight on your weak spots — and if you improve them, clients will know how to appreciate it.
Revenue and Profitability per Client and per Employee
In the end, you should also track how much revenue are you earning per employee and per client. Revenue per Employee gives you a much clearer picture of how profitable you are – under the condition that you at least know what your average cost per employee is. Revenue per Client is even more important. When you calculate this you can see if some clients are just bad for you. For example, you might have a client which brings in a good revenue to your company, but you can also see that you are spending a lot of time on that client and that you are losing profitability there. In these cases, you should analyse why and decide – either you reorganise the work for that client or you just fire that client. Sometimes it is better in the long run to end the relationship with some clients, no matter the revenue they bring in. You can always find a new client which will be healthier for your business.
Revenue, Cost and Profit
Finally, total Revenue, Profit and Cost are just numbers that you track, but you influence them by tracking and analysing aforementioned metrics and KPIs. And with those KPIs, you can achieve that predictability that everyone wants and talks about.
How can a technology and design agency help here?
We can talk to you, see where your pain points are and design and develop different solutions that will eventually lower your costs, reduce your risks and increase revenue. Nowadays, people are used to having apps for everything and together we can think of one that will help. Contact us here and let’s start the process. :)