The Biz Box: Financials

Why should you care about billability?

Written by Michiel Bos on . Posted in Financials

Billability, or billable utilization, measures the percentage of worked project hours which are billed to the customer (and conversely the percentage that could not be billed). But why is it important?

Well, put simply, it shows clearly how successful you are in converting capacity into revenue. As such, it’s a powerful indication of your company’s profitability. And that’s something every business needs to be interested in.

Missing out

That said, a lot of professional services organizations (PSOs) don’t have insight into their billability. Inadequately supported by the right tools and reporting systems, these businesses are unable to really steer on their performance. And if they don’t know where they’re under performing it’s very difficult for them to improve performance.

Insight through IT

A lot of companies look at IT tools and automation as investments they would rather not do. Their business is running in the way they think is right, their gut feeling telling them that they are following the right path. Why should they care about the precise details of their consultants billable project contributions? Well, in line with better understanding the mechanics of their businesses, here are two very good reasons why they should want to get their hands on that data…

Hours are the lifeblood of the business!

With high operational costs, many PSO’s need employees to be billable for a high percentage of their time to remain profitable. Unfortunately, in practice a variety of reasons lead to many hours not making it through to final invoices.

Having detailed insight into why this happens is essential if they’re to get to the root of the problems. Some of the causes may be relatively simple to address, leading to quick wins and significant impact on monthly turnover. Without that insight, even simple problems may remain outside their understanding.

Hours are not stock items!

Hours cannot be kept on stock. Once they are gone, they are lost forever. Hours a consultant spends ‘on the bench’ awaiting the right project can never be sold or billed in the future. Continual insight into available capacity is essential for companies to create efficient plans for their workforce.

Real time overviews of who is doing what, where, ensure that consultants are utilized in the most effective way possible. When employees are optimally assigned, projects are completed more quickly and more billable hours can be extracted from the work week.

Giving profits the chance to grow

Gaining insight into your billable utilization is a key aspect of improving your operating margin. Although losing hours to non-billable activities may be seen as an unavoidable within the professional services industry, failing to analyse the reasons behind it leads to missed opportunities to create greater profit. With genuine insight comes the chance to improve – the key to continuing success in an evermore competitive landscape.