As an entrepreneurial consultant, how do you measure success?
Is it cash in the bank, the number of new clients or projects secured, or your monthly net profit? Or something else?
Achieving success as a consultant means more than what the numbers on your financial reports state or the amount of money in the bank.
Now those can be an indication, but they shouldn't be the only thing you track, and in some cases, they're not the most significant.
In today's video, I will identify the metrics you should track, why, and how.
Tracking metrics as your firm grows is key to improving your firm's financial position.
You have to take the guessing game out of success and begin to track the numbers to move the needle forward.
You see, the numbers don't lie. If correct, they will identify the good, bad and ugly about your consulting firm.
Without metrics, you are operating your firm in the dark. Operating in this manner will leave you unsure of where to focus your time, attention, and money.
But what metrics do you track and how?
Well, let's deep dive into this. (and this is in no particular order of importance)
What Metrics To Track?
Revenue per Billable Consultant
Revenue per consultant indicates your consultants' productivity. It is one of the most important metrics you should track.
It is critical to understand how much revenue each consultant in your firm is generating. You must measure the revenue per billable consultant against the labor cost for your firm.
A success indicator is if your revenue per billable consultant is equal to one to two times the labor cost of each employed consultant.
Formula: (Total Revenue/Number of Billable Consultants)
Revenue Per Employee
Revenue per employee is a powerful indicator of the overall profitability and efficiency of the firm.
When you are clear on the average cost per employee, projecting your firm's profitability becomes easy.
By measuring how much revenue each employee brings in relative to how much they cost, you can accurately determine the financial health of your consulting firm.
Too much overhead impacting your revenue generated per employee can be a dangerous cash flow position for your firm.
Formula: (Total Revenue/ (Total Billable Employees + Total Non-Billable Employees))
A good indicator of success is if your revenue is two times the total burden cost per employee.
Sales Conversion Rate
Sales conversion rate identifies the number of successful sales you've had with your ideal client. It measures the effectiveness of your sales team at converting leads into new clients.
You can measure sales conversion in different ways. I measure sales conversion based on the number of potential ideal clients and the number we secured as new clients.
Your sales conversion rate aligns directly with your marketing efforts and sales skills. The process of generating ideal leads will determine how many potential clients you have. Securing new clients or projects is defined by your sales skills and your ability to identify why you are the best fit for the job.
Formula: (Total New Clients/Number of Discovery Sessions Booked)
Average Project Margin
Average project revenue identifies the average amount of revenue you secure per the total number of projects you have.
Average profitability is the amount of profit you generate on average per project.
Once you specialize in a service or project, determining the average cost, revenue, and profitability becomes simple.
And all three of them work hand-and-hand. This is the reason I'm discussing them all at one time.
For example, we specialize in virtual CFO services for 6-figure consultants. The virtual CFO service is called The Profitable Million-Dollar Roadmap.
With everything that's included in the Profitable Million-Dollar Roadmap, I know our average costs per client. Knowing this information positions me to easily determine the average revenue needed per client to generate a 40% or greater profit margin.
Formula: ((Project Revenue-Project Cost)/Project revenue = Profit Margin)
Billable Utilization Rate
Billable utilization measures how much of their total available time your team members spend on project-related activities.
This metric is fundamental to business profitability. Your billable team members should spend about four days per week with clients.
Utilization is necessary to determine your consulting firm's profitability accurately. And it is a pivotal signal in helping you identify when to expand or contract your team.
When you track the total hours worked, you are positioned to determine your team members' productivity. However, it would be best to use utilization in conjunction with overall revenue and profit per person along with leading indicators like backlog and size of the sales pipeline for it to be meaningful.
Formula: ((Total Hours Worked/2000)*100)
Why 2000. Well, according to SPI Research, the average team member will work 2000 hours per year.
How To Track Financial Metrics?
In last week's show, I discussed creating a financial dashboard for your firm. When you have identified the metrics for your firm, you will include them on your financial dashboard.
You will check and update this dashboard daily, weekly, and monthly.
In our Profitable Million-Dollar Roadmap™, we create a financial dashboard highlighting the exact metric our consulting clients should monitor based on their type of firm.
Your financial metrics can be an excel document or, like we have, a combination of a google sheet and a system that syncs directly with our client's accounting system and updates automatically.
Listen, you can't improve what you don't measure. period
Therefore as a consulting firm owner, you must measure your consulting impact and team efforts.
Start today by tracking the metrics in this video, and at the end of each month, identify what you did great and not so great.
Capitalize off of and consistently repeat what you did well and improve the weakest areas. And before you know it, you will become a profitable million-dollar consultant!
To help you build a profitable million-dollar consulting firm, download the SYTP Plan at sayyestoprofits.com/plan.
Until next time, Say Yes To Profits.