A professional services company with multiple divisions was experiencing growth in revenue but was not seeing the same growth in net profit. Additionally, managers were indicating to the CEO the need to hire additional headcount to continue to meet demand, further increasing costs. The CEO was concerned about adding additional cost but was feeling internal pressure to act and lacked any information to support a decision otherwise.
Fintrepid Solutions created a new financial reporting methodology where each division’s revenue, labor and direct costs could be viewed independently. This reporting illuminated that the two divisions differed in gross margin much greater than the CEO anticipated. It also allowed the ability to evaluate the revenue generated per dollar of payroll in each division both historically and going forward.
The company had never fully examined utilization of its professionals on a monthly basis. Using data available in existing systems, Fintrepid Solutions created utilization reporting for each team member and assisted in created benchmarks to measure against. Through analysis of this data, numerous issues were identified, including inefficient project management, front end scope and pricing errors and, in some instances, subpar team performance.
Fintrepid Solutions developed an operating model for the business centered on utilization, target gross margin and the number of clients served. This provided a framework to guide decisions, including how much revenue capacity the business had based on amount of personnel and what margins the business should expect to generate if pricing standards were followed consistently.
The collective analysis showed that the company was not understaffed, but in fact overstaffed by nearly 10%. No new hires were made and with attrition, the company reached optimal staffing levels for the clients being serviced. A new pricing review process was also instituted. The company almost immediately achieved an improvement in gross margin of 3% and run rate net profit improved over 10%. And as revenue growth continues, the company has a staffing plan in place based on utilization to ensure future hiring is financially beneficial to the business.
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