Tracking Internal Metrics for Greater Firm Prosperity

For my firm, MKThink, I recently researched a variety of enterprise resource planning (ERP) and professional services automation (PSA) software programs that could support our needs without breaking the bank. As a growing firm, MKThink is looking to expand from 38 to more than 50 employees by the end of 2015. While we are faced with a lot of opportunities, there is also a need to centralize our in-house reporting mechanisms regarding time allocation, expenses, and project management. The most important advice I can offer firms looking to either institute a new system or change an existing internal system is to start by asking which metrics, beyond typical key performance indicators, are meaningful to your firm’s success.

Resource planning
Many software programs have the ability to track utilization rate and net revenue per employee. While important, these data points are merely one portion of what I would consider necessary resource planning. As a multidisciplinary firm, it is challenging for MKThink to ensure that it has the right individuals on the right projects at the right time, given the variation of skills and experience both inside and outside of the design profession. Successful resource planning improves project delivery, tracks all available staff skills, and helps employees to be sure they receive necessary professional development and leadership training to continue to grow as individuals. Understanding all of the skills that each staff member has, or would like to have and further develop, enables the firm to build a strategy that can address possible resource shortages on projects or in potential growth markets. And that knowledge can play a key role in hiring, leadership development, and talent retention.

Client acquisition costs
Deciphering accurate client acquisition costs can help firms build a better business development strategy. What is the conversion rate of a contact you meet at a networking event, a conference, or following a presentation you have given? How many hours do you spend talking to a potential client, on the phone or in person? How many hours does your firm spend writing potential proposals for a client or going through their procurement process by responding to an RFQ or RFP? Time is money, and a firm needs to consider the value of its time spent acquiring clients.

If there is a particular kind of client that requires less time to pursue, perhaps it is worth chasing this type of client on a more regular basis. On the other hand, it may become clear that quests in a growth market are not working out, and it may be time for the firm to consider a new strategy or market altogether. For MKThink, tracking these metrics as part of our operations planning required ERP software that also incorporated a customer relationship management (CRM) system.

Lifetime value of a client
Understanding the profit margin of any firm is important, but it may not be as important as knowing the lifetime value of a client. Many firms often have a stable of clients that they can count on for work on a reoccurring basis. This client knowledge can help a firm understand how much time it should allocate to client acquisition and, more importantly, the costs it should project for client retention. The information can help firms determine the investment acquisition cost, or the initial cost a firm is willing to expend on a customer knowing that there is a greater opportunity to provide services for that client over time, even if there is an initial loss. Knowing the lifetime value of a client, tracking the extra hours spent retaining a client versus the overall services provided, and easily recognizing the scope and types of projects delivered for a given client will help the practice better understand its project pipeline and staff allocation needs.

Collecting these three extra data points may be easy or tedious depending on the software and current operational processes within a firm, so it is important to only track data points that you intend to use to inform strategic decisions. That said, tracking meaningful metrics could make a big difference if a firm smartly plans based upon its own data. 

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This article was originally published in Contract Magazine.