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Mastering year-round profitability at your consultancy firm
Fri, 23rd Feb 2024

One day, your staff are run off their feet; the next, they are twiddling their thumbs.

Balancing your incoming work is a struggle for consultancies worldwide. To stay profitable all year, it is important to understand why work is unpredictable and how to balance projects. This is especially crucial considering the seasonal differences your business may experience.

On top of the predictable profitability, you'll have happy, balanced staff. What's not to like?

Unpredictable work is holding your consultancy back
Let's look at two examples of constancy firms with different work patterns. Which one is more similar to yours?

Consulting Firm 1
Our first firm takes on work when they get it. They receive a client request, and if they have capacity in the moment, they will take on the client. When they get busy, they stop taking on new clients to focus on the work they are trying to complete.

This firm also isn't sure how long projects will take; the owner has a rough idea of how long projects in the past have taken, and this is what they put on the contract. They aren't aware of when people are taking leave and hope their managers will find a way to pick up or reallocate the work.

They also don't know who specifically has the capacity but know they have a few reliable hard workers they can turn to.

Here's the outcome they are hurtling towards:

  • Once their peak season has subsided, the work dramatically goes down, and their team then spends non-billable hours desperately looking for new clients.
  • The boss's estimates were based on what they remembered from a few years ago; a lot has changed since then, and with new regulations in place, they need support from their in-house lawyer.
  • Their lawyer is on holiday for three weeks. They have to pay two times the amount for a contractor.
  • The project is mainly staffed by senior employees, meaning they aren't making a healthy profit margin.
  • Managers are job-seeking because their environment is stressful, and staff are directing their frustration towards them.
  • Their reliable top performers are tired of taking on too much work and have been offered jobs by competitors. They are ready to jump from the sinking ship.

Consulting Firm 2
The second firm receives work and uses its PSA software to assess what resources it will take to complete the project. They can see they are currently busy but will have resources in a month; they tell the client and give them a long-term timeline based on accurate resources (with any staff leave accounted for).

Their staff are clear about what hours are expected from them during the full duration of the project.

Here's the outcome this firm can expect:

  • This consulting services firm is keeping steady work coming in, everyone is working at an appropriate level which creates a positive feel in the office.
  • Managers have an easy time communicating expectations with staff.
  • It's clear that the top performers are making a bigger margin for the business, and the boss decides to give them a raise to reward their efforts. They become more loyal to the business.
  • The team can see they will need legal support due to new regulations and decide there is enough work to warrant hiring a new person. This new person creates more profit for the business.

So, what's the difference between these two firms?

Future planning.

Moving forward with future planning
First things first, if you are running your consultancy firm off spreadsheets, your business deserves better. You put so much time and money into your business that operating from disparate spreadsheets is a major risk. Leading a team blind without a view of what's currently happening and what's coming up could leave you with unanticipated costs.

We don't mind which system you use (okay, we are a little biased towards Projectworks 😆), but you should look into finding a PSA that offers future forecasting and has great support to help get you and your team training up.

Okay, phew, now that we have that out of the way, we can explain why future planning is crucial for your business operations!

Through understanding the capacity of your resources, you'll be able to assign your employees to projects more efficiently. When you can see your staff's future commitments to other projects and booked leave, there will be no nasty surprises once the project comes up. With this visibility, you'll be able to resource projects into the future, allowing your firm to bring in cash flow year-round.

You will also be able to balance the cost and expertise of your staff across multiple projects with a full view of how your senior staff are resourced and make changes where possible to create greater profit from your projects. It's a waste of your hard-earned money to have a senior professional writing emails back and forth with your customer base. Swap them out with an employee with a more junior employee who would benefit from the experience and save some cost while you're at it.

Planning your resources also gives you a clear way to share progress with stakeholders. Clients will be delighted when you can give them a full view of a precise plan for who will be working on their project, what expertise they have, and when they are due to finish.

Tip: Connecting your PSA directly with your CRM will help you communicate with clients faster with all the data in front of you. It will also help you build reports and delight them with accurate updates on the status of their project - keeping them coming back to you for future projects.

Lastly, as a business owner, if you want to remain profitable year-round, you'll need the right staff to take on new projects. If you can see in advance that you'll need someone with a particular skill, you can look to hire someone new to provide more services to your clients. Using shadow resources you can even plan out your future project and assign a placeholder for a new hire and see exactly what margin you could make from a new employee.

After understanding your capacity, you'll need to understand your future costs and expenses
Now that you understand how carefully planning your resources can improve your year-round profitability we want to dive into managing your future costs.

You wouldn't sign up for a subscription that didn't tell you what the monthly cost would be, so why would you allow that level of ambiguity with your business?

Knowing your full costs lets you plan rates that actually bring in your desired margin. There are many costs consultant firms overlook, for example, staff training, software subscriptions, overtime, client visits, etc.

By gathering all your costs on one system with a future prediction of what they will be compared to your revenue, you'll be able to actively make changes to either your costs or the revenue in advance before running into trouble, keeping you profitable year-round.

Using PSA Software, you'll also be able to set planned expenses, that will be applied to your future costs, helping you understand the margin between your future costs and revenue.

Seeing your revenue forecast will change the way you run your business
Revenue forecasting is a new concept for many consultancies, but once you start using it you'll never look back. Your revenue forecast is a view of what you'll be bringing in, and depending on the way you bill, is gathered from different places:

Time & Materials - based on your resource plan you'll be able to see how much you'll be due to receive for billable hours from your client in advance.

Fixed-Fee - based on the fees you put into your PSA software, you'll be able to see your revenue compared to the actual cost to your business to complete the service offering.

Percentage - you can also set this in your fixed fees and see your revenue tick up as you hit your key milestones.

No matter which type of billing you are doing, being able to compare costs to revenue will give you an understanding of your projected margin. You can then use this information to ensure you are bringing in enough revenue year-round, and make changes in advance to ensure you remain profitable.

Beating the seasonality slump
A major barrier to remaining profitable year-round is seasonality. Your best chance of beating the seasonality slump is to be aware of it in advance.
Being profitable year-round doesn't mean you'll have your highest earning month every month, but what it does mean is that you won't be losing money in the slow seasons. For example, if you can see that December is going to be a slow month, you'll be able to schedule client projects in advance, knowing the exact amount of resources you'll have.
Some seasonality aspects you won't be able to avoid, but knowing when they are coming up and being able to book clients in advance will help you make a profit year-round.

Future planning is the key to sustainable success
Knowing what's coming up gives you the best chance of remaining profitable year-round. To do this, you need a system you can rely on for future predictions. Not only will you get confidence from knowing you'll be profitable in advance, but your staff will be happy with a clear understanding of expectations and balanced work year-round.

If you're interested in learning more about optimizing your services business, be sure to check this out: