In the dynamic and competitive world of professional services, businesses are constantly seeking ways to improve efficiency, enhance profitability, and deliver exceptional client experiences. Professional services software (PSS) has emerged as a powerful tool that can help firms achieve these goals.
When it comes to selecting PSS, one area that we see clients and prospects struggling with is establishing the Return on Investment (ROI) of the software. This is a big issue because you cannot do a proper cost/benefit analysis of purchasing new software (indeed any project) unless you can establish what the benefits are. Just as importantly, if you are not a decision-maker in your business, you will not persuade the decision-makers to invest in your project unless you can establish what the benefits are, and the ROI is a key metric. However, it can be difficult to measure the return on investment (ROI) of these software solutions.
In this blog post, we will discuss how to measure the ROI of professional services software by looking at key performance metrics (KPIs) and business outcomes.
Identify the Benefits
Before we discuss how to measure ROI, it is important to understand the difference between measurable and unmeasurable benefits. Measurable benefits are those that can be quantified, such as increased revenue, decreased costs, or improved project efficiency. Unmeasurable benefits are those that cannot be quantified, such as improved customer satisfaction or increased employee morale.
Examples of Measurable Benefits of Professional Services Software include:
- Increased Revenue: This can be measured by tracking the increase in billable hours or the number of projects completed.
- Decreased Costs: This can be measured by tracking the decrease in administrative costs, the cost of project overruns, or the cost of rework.
- Improved Project Efficiency: This can be measured by tracking the decrease in project duration, the number of project delays, or the number of project defects.
- Profit Margin Gain: Compare the average profit margin before and after PSA implementation. The calculation includes annual revenue per billable employee, the number of billable employees, and the average yearly profit margin.
Examples of Unmeasurable (or difficult to measure) Benefits of Professional Services Software include:
- Improved customer satisfaction: This can be estimated through surveys or customer feedback but putting a value on this is close to impossible.
- Increased employee morale: This can be measured through employee surveys or employee turnover rates, however tying it back to the PSS is a stretch.
- Improved collaboration and communication: This could be measured through the number of emails or internal messages sent.
- Increased competitive advantage. Difficult to measure but things like improved profitability and efficiency will give the firm a competitive advantage.
- Boosted brand reputation. Believe it of not, we have been approached by firms desperate to implement a PSS because a client asked them what they were using. The client wanted assurances that the business had strong systems and processes in place.
Determine the ROI Metrics
The ROI of professional services software can be calculated by dividing the total benefits of the software by the total cost of the software. The total benefits of the software include both measurable and unmeasurable benefits. The total cost of the software includes the purchase price of the software, the cost of implementation, and the cost of ongoing maintenance.
Calculating ROI of Professional Services Software: A Step-by-Step Approach
To calculate the ROI of PSS, follow these steps:
- Identify Key Performance Indicators (KPIs): Select relevant KPIs that align with your organization’s strategic objectives (see below.) Common KPIs include billable utilization rates, project margins, project delivery times, client satisfaction scores, and administrative costs.
- Collect Baseline Data: Gather historical data for the chosen KPIs before PSS implementation. This will serve as a benchmark for comparison.
- Measure/Estimate Post-Implementation Performance: Track the KPIs after PSS implementation to assess the impact of the software.
- Calculate ROI: Use the following formula to calculate ROI:
ROI = (Change in Benefit – Cost of PSS) / Cost of PSS x 100%
For example, if a firm experiences a 10% increase in billable utilization rates and a 5% decrease in project delivery times after implementing PSS, the ROI would be calculated as follows:
ROI = (10% + 5%) / Cost of PSS x 100%
If the cost of PSS is $10,000, then the ROI would be 15%.
Key Performance Indicators (KPIs) to Track When Measuring ROI
There are a number of KPIs that can be used to track the ROI of professional services software. Some of the most important KPIs include:
- Billable utilization: This is the percentage of time that employees are working on billable projects.
- Project profitability: This is the profit margin for each project.
- Project duration: This is the length of time it takes to complete a project.
- Project defects: This is the number of errors or defects in a project.
- Customer satisfaction: This is the level of satisfaction that customers have with the firm’s services.
Tips for Successfully Implementing Professional Services Software:
There are a number of things that firms can do to successfully implement professional services software and achieve a high ROI. Some of the most important tips include:
- Define clear goals and objectives: What do you want to achieve with the software?
- Choose the right software: There are a number of different professional services software solutions on the market. It is important to choose a software solution that meets the specific needs of your firm.
- Get buy-in from all stakeholders: Make sure that everyone in the firm is on board with the implementation of the software.
- Provide adequate training: Train employees on how to use the software.
- Track your KPIs: Monitor your KPIs on a regular basis to track your progress.
Conclusion
Estimating the ROI of PSS is invaluable in establishing the benefit of investing in the software, but measuring the ROI of PSS is also a crucial step in evaluating the software’s effectiveness and justifying its continued use. By tracking key performance indicators and calculating ROI, businesses can gain valuable insights into the financial and operational benefits of PSS. The case studies presented above illustrate the potential of PSS to drive significant improvements in profitability, efficiency, and client satisfaction. As professional services firms strive to navigate an increasingly competitive landscape, PSS emerges as a powerful tool for achieving sustainable growth and success.
