The trigger
Some firms have no reporting at all. That's the easy version of the problem. The common one is the opposite: Xero and every other finance system will happily generate pages of KPIs, and firms end up watching all of them and deciding on none.
What we did
In professional services, most costs are fixed, at least in the short term. That makes revenue the driver of profitability, so I tracked two numbers.
Utilisation: paid work as a share of total available consultant days.
Forward visibility: on contracted work only, with no proposals and no likely extensions, how many months of profit or break-even do we have?
That's it. Average rates were the tempting third, and they don't earn their place: they move around ±20% and mostly reflect the mix of clients and staff seniority.
What the numbers changed
Utilisation was never stable. In a small firm, one big project finishing can take it from 100% to almost nothing within a few weeks, and the next one can bring it straight back. That volatility is the argument for tracking it: it moves fast enough to overtake any decision you've made on last quarter's assumptions.
Two decisions came directly off these numbers. When forward visibility was strong, we hired, and hired more than once, with confidence rather than hope. When utilisation and visibility were both low, we were more flexible on price. That's also why average rate doesn't belong on the dashboard: it's a lever you pull in response to utilisation, not a measure of the firm's health.
Building a reporting pack the business actually used took three to four weeks.
Two things that don't show up in a KPI list
Know your seasonality. Most of corporate Australia goes quiet from mid-December to mid-February, between summer holidays and the Christmas break. Build it into the forecast and make sure you arrive at the quiet stretch with enough cash in the bank.
Cash is king, and it's a cliché because it's true. If the business is growing, the P&L will tell you a flattering story while working capital absorbs your cash and today's investments pay off much later. Run a cash flow forecast and make that the number you open first.
Going one step further
In many firms, project-by-project profitability is the number that matters most. It takes more plumbing, with timesheets and cost allocation, but it answers a question most owners can only guess at: which clients are making you money, and which ones are you serving at a loss?
What I'd tell a founder
- Ask which two or three numbers would change a decision you'd make in the next month. Track those and ignore the rest.
- For us that meant utilisation, not average rates. Your two will be different. The test is which number changes what you do next.
- Count contracted work only. Pipeline optimism belongs in a different conversation.
- Get the seasonality into the forecast before it gets into your bank balance.
- Getting to two good numbers took me three to four weeks. It isn't a quarter-long project.