Professional Services Revenue.
Could Margins Have Been Higher?

It’s not a matter of could; it’s a matter of how much.

Experts advise professional services organizations do these two things to grow their business:  

1. Focus on higher margin deals
2. Reduce non-billable expenses

Let’s add one more:

3. Maintain true visibility of billable expenses

To focus on higher margin deals you must first determine the true profitability of your current projects – accomplished only with accurate spend data.  Many services organizations do not have a complete view of billable expenses leading to long and short term problems. First, it blocks accurate profit modeling and forecasting and second, those missed expenses affect the bottom line.

Likewise, visibility into non-billable project-related expenses – opposed to general operations costs –  is just as important. Understanding overhead costs for certain types of projects is the only way to analyze if they can be reduced. Maybe yes; maybe no. You need the data to make the call.

Getting to the right data is as straightforward as putting the right processes and tools into place at the correct points.

It’s important to address the entire workflow – not just expense reporting – not just expense billing.
If you’re using spreadsheets and manual processes for either of these, it’s time to reconsider.

Today’s online applications and services manage this entire workflow in the cloud, from spend to invoice. Automated processes replace manual steps, client and project associations happen dynamically during expense reporting, and all the data flows through to client project invoicing.

Let’s deconstruct the process and look at when, how, and what type of data should be
collected – then why.

When.

It starts with the spender’s expense report – the most practical point in the process to capture project expense data. These folks are the closest to the project and have incurred most, if not all the expenses.

How.

Today’s expense management software can automatically download credit card transactions and pre-fill the report, flag the correct expense type and wait for it, associate the expense to the Client and Project and assign as billable.  Couple this with airtight approval cycles and you have tracked 100 percent of project expense spend.

What.

Ideally, project expenses are tracked at multiple levels with Client at the top followed by Project then Phase and Task.  This hierarchy tracks spending at a minimum for each Client and Project combination and goes beyond that to deeper levels if required.

The next layer of reporting is at the expense transaction level and the more flexibility in expense allocations the better. For example, the capability to allocate the entire expense or a portion of it in the following ways:

• Associated to a client and project as billable
• Associated to a client and project as non-billable but still related to the project
• Split the expense between multiple clients and projects
• Tag as general overheard not related to a project or allocated as a personal expense not reimbursable to the employee

Why.

Access to project spend data at granular levels serves both tactical and strategic aspects. No more missed expenses mean 100 percent of reimbursable costs are recovered.  And, the accurate view of both billable and non-billable project costs provides the foundation needed to determine project profitability and margins.

Why not?