[box]Here is the latest in our “How industry focused is your firm” series, in which we address questions 8 & 9.[/box]
Does your firm report and manage performance by industry? How important is performance by industry, relative to service line and geography?
The art of managing a professional services firm is in striking the right balance of service line, industry, and geography as they relate to managing, measuring, and analyzing performance and profitability.
Historically, industry has been a lower priority dimension for managing and measuring performance than service offerings and geography, if it’s measured at all.
There’s no one-size-fits-all answer to just how much focus should be placed on industry when relative to service line and geography, but clearly, the more industry-focused your firm is, the more attention should be given to industry as a performance yardstick.
Even if you’re not convinced that it’s important to be industry-focused, looking at your numbers by industry can still reveal new insights about your business particularly when analyzed by service line and geography.
For instance, if you’re a firm with a broad U.S. presence, you might discover that you have greater profitability with manufacturing clients on the mid-west than in the south, or that your tax practice has much higher client satisfaction and retention in the retail industry than it does with financial services clients. This of course raises questions as to why performance varies and what opportunities exist to capitalize on strengths and fix, or even exit, areas of weakness.
So, with that in mind, here are some metrics to use when analyzing your industry-specific performance:
- Fees (gross and net)
- Fee Growth
- Billable Hours/Utilization
- Marketing Activity & Engagement Levels
- Lead Generation
- Sales Opportunity Conversion Rates
- Client Satisfaction & Retention
- Level of Cross-Selling
- Average Client Size
Regarding industry as one piece of the puzzle will deliver a more nuanced understanding of your business and trigger new ideas for driving firm growth. It can reveal new ways of making your current business model more profitable, better means of winning more clients, and suggest the necessary internal and external adjustments needed to make those changes.
The more information you have about your industry performance, the more confidently you can act upon it, which leads to the next question on our industry-focused list:
Does your firm provide industry-specific budgets for marketing and business development, service development, training, and knowledge management?
When you measure performance by industry, it brings a new dimension to how your firm will approach investment in practice growth.
Where do you need to be spending time and money on marketing? Where do you need to focus on service development? What additional training does your team need to better serve your clients?
Questions like these will be informed by determining the priority of the three dimensions for measuring success – service, geography, and industry. How much weight is given to each will vary, but if you break each filter down by the numbers, it becomes a practical and quantifiable challenge.
For example, you may traditionally have allocated the same amount towards marketing and training to each region or office. When industry comes into play, different goals and performance measures might lead to very different budget allocations.
A San Francisco office might decide to focus investment on building a presence at high-tech industry conferences and events focused on IP or stock compensation strategies with the goal of winning new clients. By contrast, a Houston office might decide it needs to invest in training to improve its delivery of international tax or enterprise risk management services to existing oil and gas clients. In cases like those, it only makes sense to approach the budget with all three dimensions in mind.
Ultimately, a side-by-side look at geography, service line, and industry helps you know your firm’s strengths and clients better. The better you know them, the more you can focus on successfully meeting clients’ needs and the more you’ll be rewarded with their loyalty, repeat business, and a robust bottom line.