One common trait across companies within the Professional Services industry is that, on average, firms miss their billable utilization target. Recent industry data shows that the average billable utilization rate for professional services firms is just under 69%, while the target rate for those firms averages 75%. Professional services organizations are missing their utilization target by a glaring 6%, with some firms missing by a significantly wider margin. Those misses correlate to revenue plan shortfalls and weak profitability.

When a company misses its billable utilization goal, there are two general reasons:

1. The goal was set too high
2. The company did not execute well enough to hit the goal

That's it. The miss can be due to one or both of these reasons. While these are simple on the surface, within each category there are a number of contributing factors that should be mitigated. Let's take a deeper dive into the factors that impact a professional services firm's ability to achieve its billable utilization goal.

Proper Planning is the Foundation

It's tough to hit any type of target that isn't realistic from the outset. When a firm misses a billable utilization goal, the first question should be whether or not the goal was reasonably feasible. When a billable utilization goal is concocted out of thin air, the odds of hitting that goal are low.

On average, firms are missing their billable utilization target by a glaring 6%.

Each team member in a professional services firm should have an individualized utilization goal for the year, typically broken down by week or month. That goal should consider the characteristics of each delivery team member, their daily job requirements, and how those will change over the year. The following should be considered when determining the tailored utilization goal for each person:

• Experience: A junior colleague who is just out of college will likely not be highly-billable for several months (if not quarters). Junior-level personnel need to gain experience to become fully-productive on a project team. Often this experience comes through training, bootcamps, and shadowing more seasoned personnel while in a non-billable capacity. Junior personnel likely won't be optimally billable for a year or more after they are hired.
• Role: Some project roles lend themselves to long stretches of work in which a consultant is essentially dedicated to a single client and project for months on end. Those consultants are highly-billable and achieve robust utilization. Other roles on the team may deliver shorter-duration tasks across multiple clients. Those tasks are often less predictable and result in pockets of downtime in between tasks. When team members aren't assigned to large and contiguous workstreams, their billable utilization takes a hit. Thus, each consultant's individualized utilization plan must be based on the reality of their typical workload.
• Managerial Responsibilities: Just as junior-level personnel are often not highly-billable, senior-level personnel who are managers will usually need a lower target. Managers have responsibilities related to their direct reports including one-on-one coaching, check-ins, goal setting, and annual reviews. Those activities are effectively a tax on billable productivity and should factor into the planned billable utilization.
• Sales Responsibilities: In addition to managerial tasks, the most experienced consultants often play a key role in winning new business. Those senior team members will be involved in various sales-related activities including phone and video calls, emails, project estimation, proposal drafting and review, and client presentations. Any consultant carrying that array of duties will need a lower billable utilization goal.
• Recruiting Responsibilities: Experienced personnel are often leveraged to help recruit and qualify candidates. Those activities could involve on-campus career fairs, networking events, and interview sessions. Each of these activities requires time that could otherwise be billable and thus should reduce each individual's utilization target.

The key point is that no two team members are the same. The characteristics of each person and their role should be factored into their personalized billable utilization goal for each month of the year. Once each billable team member has a rational monthly goal across the year, only then can a sound goal for the company be finalized.

The Macro Matters

The performance of professional services firms is heavily influenced by the macroeconomic environment. When the economy is on a tear, firms often can't hire quickly enough to meet the demand from new and existing clients. But, when the economy and labor market stall out, demand plummets as clients pause or cancel consulting contracts. When the economy falters in a meaningful way, very few professional services firms survive unscathed. In the Great Financial Crisis period of 2007-2009, Accenture and several other leading firms laid off thousands of employees as client demand rapidly evaporated.

"Hope is not a strategy." ~Vince Lombardi

When the economy stumbles, it is important for professional services firms to update their pipeline, backlog, and forecast on a weekly, if not daily, basis. This is "war time". Deals in the pipeline can go from 90% probable to closed/lost within a single week. When that happens, the resource plan and resulting forecast must be immediately updated. In that chaotic environment, management must have accurate and timely data to predict billable hours, utilization, and revenue.

Vince Lombardi, the iconic football coach in the U.S. who the Super Bowl trophy is named after, once said, "Hope is not a strategy." When macroeconomic conditions falter, professional services leaders need to remember this quote. Too often, firms hang on to an excessive bench of non-billable personnel during a downturn in hopes that one or more low-probability deals will magically close. Magic rarely happens during a recession. This wishful thinking usually results in dismal billable utilization, revenue, and profit. In nearly all instances, firms are better off rightsizing the delivery organization sooner than later. While parting with team members is always painful, it is often an unfortunate reality during downturns. Not taking action usually brings existential risk.

Hiring Based on Demand Forecasting

As described above, professional services firms must manage supply and demand with precise accuracy. While it is acutely vital during a downturn, firms should always have a reliable forecast of demand. If the firm is understaffed relative to client demand, revenue growth will be restricted and clients will look for a different firm that can engage sooner. If the firm has too many personnel relative to demand, bench time increases while billable utilization and profitability decrease. The best firms carefully balance supply and demand such that bench is minimal and billable utilization is optimal.

Professional services organizations should maintain a detailed skills inventory for each delivery team member. Similarly, every sales opportunity in the pipeline should capture the types of skills that will be needed to deliver the engagement. By understanding the supply and demand skills, the firm can appropriately align its recruiting efforts. Too often firms find themselves overstaffed in one skillset while being understaffed in another. Proper forecasting can inform the recruiting team and ensure that the right types of candidates are being pursued.

Process Development and Adoption

Professional services firms need process rigor to consistently hit performance goals. By nature, professional services organizations are "people heavy" given that their revenue is directly tied to the output of their delivery team members. To generate more revenue, firms need to hire more consultants. Therein lies the problem. Without detailed processes that are consistently adopted, productivity and efficiency lag as headcount scales.

When the headcount of the professional services organization increases, processes help ensure that productivity and deliverable quality are not negatively impacted. Without adherence to well-conceived processes, the consistency, predictability, and quality of the service delivery erodes. Individual project teams often start delivering engagements with bespoke methods and deliverables. This results in inconsistency, rework, and client satisfaction issues. Rework drags down productivity, billable utilization, and revenue generation. Firms need the right processes as they scale to consistently hit their billable utilization goals.

Managing Expectations and Non-Billable Time

When a professional services firm misses its billable utilization target, the cause is sometimes an excessive amount of non-billable project time (as opposed to bench time). Non-billable project time can be caused by quality issues that result in free rework. Or, possibly the original estimate of a Time & Materials engagement was wildly off and the client refuses to pay for the additional time. Situations such as these can leave a firm "eating" non-billable hours which diminishes billable utilization.

To minimize non-billable work, the professional services firm must:

• Ensure that the right project team is assigned. If the project doesn't have the appropriate expertise, it will likely run off the rails at some point.
• Invest the time of senior personnel to create a detailed and accurate estimate.
• Assign a disciplined Project Manager to oversee and lead the engagement.
• Continually set and reset expectations with the client such that there are no surprises.
• Defend against scope creep or other situations where the client asks for additional services at no cost.

Adoption of Operational Systems

While a firm with 20 consultants can be reasonably run via an Excel sheet or whiteboard, it is difficult to scale a firm further without proper tooling. Firms need to leverage software that can assist with each of the following:

• Skills Inventory: Firms must know the unique skills of each team member.
• Sales Pipeline: An understanding of the opportunities and the skills needed to deliver the resulting projects.
• Resource Allocation: Planning work for team members for months into the future.
• Time and Expense Tracking: Simple and effective time and expense tracking to capture all revenue.
• Project Management: Organizing and maintaining the project tasks, allocations, members, roles, and budget.
• Invoicing: Ensuring that every worked hour generates revenue.
• Client Communication and Collaboration: Consistently communicating with client sponsors to set appropriate expectations.
• Reporting and Analytics: Measuring the Key Performance Indicators across the portfolio of projects and team members.
• Accounting: Capturing all financial information and related artifacts.

In Summary

Professional services firms miss their utilization goals too frequently. Broadly, this is due to 1) the company's goal being set too high; and/or 2) poor execution. By adopting the right processes and tools, professional services firms can mitigate utilization risks and drive consistently better business performance.

‍

‍