There may not be a more fundamentally important topic for consulting firms than improving profits.
Shareholders ultimately want a return on their investment and buyers are looking for evidence of healthy growth, while strong profitability is required to sustain growth and equity realization.
The levers that need to be pulled to improve margin – revenue and cost – might be well understood, but the combination of activities required are often more nuanced.
We’ve identified the top strategies firms can use to start improving profits now:
- The leadership team must make profitability an ongoing focus
Profitability has to become embedded in the leadership team’s mindset for sustainable margin improvement to be successful.
Achieving this requires strong communication around accountabilities, clear success measures being established and tactical activities – such as margin exception reporting, resource management, and utilization forecasting – becoming integrated into regular business updates.
Once a shared understanding of what success looks like is established within this team, firms can create strategic work streams – such as market expansion or IP development – and make people accountable.
- Charge higher fees by focusing on selling higher value work
Every firm can talk about what they do. Far fewer can demonstrate the benefits, the outcomes, the results their clients will receive. That’s the precursor to being able to sell higher value work.
Research the hot topics, trends and pain points that are top of mind for your clients. Your value proposition should describe in a compelling way the outcomes and benefits that you deliver, not just how you solve your clients’ problem.
- Harvest revenue from within your current clients
The easiest way to generate more revenue is by selling what you already do to clients you already know. Key to this is having a well-run account management process, especially for your strategic clients.
Each strategic account (i.e. one that delivers at least 10% of your revenue) should have account management reviews at least quarterly, executing action plans containing prioritized opportunities, the steps needed to convert these, and timescales and accountabilities.
- Invest in the right clients
Few things restrict a firm’s growth as much as working outside their target market. Chasing the wrong prospects and dealing with bad customers can mean leaking profits.
Create a list of criteria for your target clients, and test them against your current clients that deliver the highest revenue and profits. Once you have a really good understanding of where you have the right to win, focus your business development efforts there.
- See your marketing investment through
It is the marketing team’s job to deliver warm leads, but turning these into a revenue pipeline requires focused follow-up. Research studies have shown it takes 6-12 touches to convert a lead to a prospect and ultimately into a client.
Focused follow-up is the least-used and most-effective tool at the disposal good of professional services firm, so plan your campaigns to include sufficient touches to convert, and don’t give up too soon!
- Make IP development a priority
Quality intellectual property (IP) enables any consultant in your company to deliver superior results to clients, compared to what they could deliver by working for a competitor.
A strong IP program is about having a professional process for codifying, organizing, storing, securing and centrally leveraging the assets that enable you to deliver your services to higher quality, more quickly and at a lower cost. This is why it is essential for maximizing margins.
- Review your service portfolio annually
Every year, a disrupter emerges and captures market share via new tools, offerings and perspectives. Your own services, which may once have been leading-edge, become commoditized and overtaken, so make it a point to review those offerings annually, compare them against the competition, kill off the loss-makers, and develop new, high value ones.
- Get smart about utilization
Just a small increase in utilization can have a tremendous impact on a firm’s bottom line. High utilization rates should lead to healthy profits capable of sustaining business growth.
Be crystal clear on who has responsibility for resource planning and ensure they have at least six-weeks visibility into the roll-off schedule.
All of these principles – from focusing the leadership team on profitability, to selling higher value work and developing IP – play important roles in creating a highly profitable business culture. When combined, they can have a transformative effect on business profitability.
This blog is a condensed version of a more in-depth article. Click here for more information on maximizing profitability.
You can also learn more about this topic by viewing a recording of our Margin Improvement webinar here.
If you are preparing to sell your consulting firm and would like to discuss your plans, please get in touch.