Consulting firms often associate growth with revenue increase and workforce expansion. However, given the predicted industry growth slowdown in major markets and rising costs due to recruitment drives and salary increases, these indicators alone do not guarantee higher profitability. According to Deltek, a global system provider to consultancies, better profit margins in 2023 could be achieved by improving execution efficiency.
The forthcoming SPI Professional Services Maturity Benchmark Report identifies profit maximization as a primary 2023 goal for professional services leaders, including management and IT consulting firms. To boost profitability, they highlight improving internal operations and visibility, distinguishing 'leaders' from 'laggards' in this realm.
To enhance internal efficiency and profitability, Deltek experts suggest several best practices in their guide, "How Consulting Firms Can Win". Three key areas of focus include:
- Consultant Utilization: Profitable consulting firms establish and consistently exceed aggressive utilization targets, ensuring efficient deployment of staff across ranks. By managing project staffing effectively and maintaining accurate utilization data, these firms can predict and price projects more accurately, increasing future profitability.
- Project Management Tools: Consulting firms with advanced ERP systems can integrate project management with finance, providing more insights. Deltek's research indicates that when firms have proper project management tools, gross profit margins above 60% are achievable. This integrated approach enhances project quality, and client satisfaction, and supports strategic revenue goals.
- Robust Financial Management: The SPI Report shows that consultancies with a high level of visibility into project and company performance are the most profitable. With efficient financial management systems, firms can centralize budgets and streamline operational processes, aiding informed decision-making. A reliable financial position provides leaders with the confidence to make investment and growth decisions.
This focus on skills development not only improves project delivery but also aids in talent retention, reducing costs associated with high turnover. Furthermore, a workforce adept at utilizing the latest technologies can streamline operations, driving efficiency, and consequently, profitability. Hence, building a learning and innovation-centric environment forms a crucial pillar in the drive for higher profitability in consulting firms.