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Unknown employee utilization and client profitability

THE CHALLENGE

Unknown employee utilization causing unknown or inaccurate client profitability. A growing internet marketing company was not tracking its employee utilization and could not calculate and analyze the profitability for each of their clients. This challenge is not an uncommon one that many services and consulting based companies face. 

Signature Analytics’ Solution:

We calculated the total cost of each employee. We started by implementing a structured time tracking system. Using that data, we were able to create monthly utilization reports calculating every employee’s total cost. The cost incorporated the employee’s wages and additional expenses such as payroll taxes and benefit costs.

utilization and cost per employee summary report
utilization costs per employee and billable rates

We 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 each employee’s profitability for the company. Having this information available allowed the company to identify underutilized employees and areas that were not profitable more easily. 

We analyzed profitability by client. We achieved this 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.

employee utilization goals

ROI: Increased EBITDA from 10% to 15% and company value by 50%

After evaluating the employee utilization and client profitability reports, the company reorganized its personnel to maximize each employee’s utilization. They also set employee utilization goals, tied those goals to compensation plans, and adjusted pricing for low margin clients.

Those decisions collectively led the firm to increase its EBITDA from 10% to 15% and its company’s value by 50%.

Best Practices for Employee Utilization and Profitability by Client

  • Maximize employee utilization AND client profitability to increase margin
  • Develop a process to accurately track utilization to better understand your costs per employee
    • Structure employee compensation plans that incentivize efficiency and maximize profitability
    • When increasing costs to the client, be sure your team is still delivering very high value
    • Identify workflow inefficiencies
    • Use technology to automate and standardize lower level, non-value-add tasks
  • Analyze the profitability of each client
    • Identify and purge loss leaders
    • Adjust pricing
    • Understand the lifetime value (LTV) of a client