Originally posted on Deltek.com. Link here: 5 Characteristics of Highly Profitable Consulting Firms
A new year brings new opportunities for consulting firms to achieve new heights in their business. As the market continues to evolve and shift, 2022 is still projected to be a year of substantial growth for many firms. While keeping the clear goal of growth in mind, firms need to remember that growth alone is never an assurance of greater profitability. Profit is essential to sustain a consulting firm’s growth, and you can’t propel your firm to the next level without it.
Our How Consulting Firms Win Playbook notes five key characteristics that are common within a highly profitable firm. This reference guide can be used as a tool to help evaluate your firm’s profitability and identify the gaps of opportunity for growth.
1. Strong Financial Management
Strong financial management stems from visibility. The most profitable consultancies are the ones with a high level of visibility into project and company performance. The 2021 SPI Professional Services Benchmark Report showed that firms with high visibility were more than 10% more profitable than others. True financial leadership ensures timely reporting and makes information available to project teams and management – quickly, and in an actionable form.
2. Highly Differentiated Market Position
Differentiation can also be critical to earning better margins. Develop a deep subject matter expertise and then build a track record of successful project implementation. Differentiation can come on many different fronts – by excelling in service to an industry sub-sector, time to completion, breadth of solution, or something else. Then allocate resources to support your differentiation. Finally, don’t be shy about promoting what makes you different.
3. Focus on Utilization
The most profitable consulting businesses set and consistently exceed aggressive targets for utilization. It is important to have strong processes to track how and where people are deployed and make sure hours consumed align with the project plan. Replacing employees is not cheap and Consultancies are not immune to the Great Resignation. The number of people quitting their jobs hit an all-time high this past November. Firms must aggressively monitor utilization rates to decrease burnout rates.
How Consulting Firms Win
The Definitive Playbook for Exceptional Talent, Project Delivery, Growth and Profitability
4. Equipped for Project Success
Forward-thinking firms know it’s easier to hire, train, and upgrade technology in advance of the next big project, rather than when it’s already underway.
The pandemic provided a perfect example of this. Firms that were already prepared for a hybrid and remote workplace performed much better than the ones who were playing catch up after the fact. Preparing and equipping your firm with the right tools to anticipate any obstacle will allow projects to not only run smoother but run more efficiently and create better margins in the long run.
5. High Visibility and Strong Reputation Make Closing Deals Easier
Reputation matters. Firms with high visibility in the marketplace, those who have invested in outbound and brand awareness are more profitable. Forbes found that clients will spend 17% more from a company with a reputation for great service.
A strong reputation helps reduce concerns about rates and total project costs. Clients are often willing to pay more if they are sure of a positive outcome. A strong reputation eliminates the back-and-forth in the pursuit stage, which leads to time and cost savings in acquiring new clients.
Want to learn more on Profitability?
This is only a highlight of these five characteristics of a highly profitable firm. You can do a deeper dive by checking out our How Consulting Firms Win Playbook and downloading our checklist on How to Improve Profitability.