Challenge: Unknown Employee Utilization & Client Profitability
A growing internet marketing company was not tracking their employee utilization and was unable to calculate and analyze the profitability of each of their clients.
Calculated the total cost of each employee. We started by implementing a time tracking system. Using that data, we were able to create monthly utilization reports calculating the total cost of every employee. The cost incorporated the employee’s wages, as well as additional expenses such as payroll taxes and benefit costs.
Determined employee utilization rates. Comparing the total cost of each employee to the hours worked that were actually billable to the company’s clients (i.e., revenue generated), allowed us to determine the profitability of each employee. Using this information, the company was able to easily identify employees that were under-utilized, or not profitable.
Analyzed profitability by client. This was achieved by comparing the employee’s total costs incurred per project to the revenue generated for each of those projects. Through this analysis, the company was able to identify which of their clients were, and were not, profitable and why.
ROI: Increased EBITDA from 10% to 15%
After evaluating the employee utilization and client profitability reports, the company reorganized their personnel to maximize the utilization of each employee. They also set employee utilization goals, tied those goals to compensation plans, and adjusted pricing for low margin clients. All of those decisions collectively led to the firm increasing their EBITDA from 10% to 15% and the value of their company by 50%.
Best Practices for Employee Utilization and Profitability by Client
- Maximize employee utilization AND client profitability to increase margins
- Develop a process to accurately track utilization in order to understand your total costs per employee
- Structure employee compensation plans that incentivize efficiency
- Identify workflow inefficiencies
- Analyze the profitability of every client and project
- Identify and purge loss leaders
- Adjust pricing
- Understand the lifetime value of a client
Want to learn more?
If you want to increase the value of your professional services organization by maximizing employee utilization rates and client profitability, contact us today to schedule a free consultation with one of our CFOs.