Utilization
“Utilization” means, depending on who reports it:
- Against 2,080 hours or available hours: billable hours divided by a standard 2,080-hour year, or by the hours each person was actually available after holidays and time off;
- Billable or chargeable: only the hours billed to clients, or every client hour, including written-off and fixed-fee time; or
- Who is in the base: partners, part-time staff and people on leave counted or left out.
What it decidesHiring, staffing and how much capacity the firm really has.
Illustrative example. A consultant records 1,600 billable hours in a year with 1,800 hours available after holidays and time off: utilization is 77% against 2,080 hours and 89% against available hours.
What the firm has to agreeAgainst which hours, counting which time, and for whom?
Sources: time entry, the people system, resourcing, finance.
Realization
“Realization” means, depending on who reports it:
- Billing realization: what was billed, against the value of the time worked;
- Collection realization: what was collected, against what was billed; or
- Standard or agreed rates: time valued at the firm’s standard rates, or at the rates each client agreed, which hides negotiated discounts.
What it decidesPricing, collections, and how partners are judged.
Illustrative example. Time worth 100 at standard rates is billed at 88, and 83 is collected: billing realization is 88%, collection realization 94%, and overall realization 83%.
What the firm has to agreeBilled or collected, and against standard or agreed rates?
Sources: time and billing, receivables, the general ledger.
Lockup
“Lockup” means, depending on who reports it:
- Unbilled time and receivables: days of unbilled time plus days of unpaid invoices, or only one of the two;
- Gross or net: before or after the amounts already expected to be written off; or
- Which daily revenue: divided by the last three months’ daily average, or the year’s.
What it decidesCash, borrowing, and when to chase a client for payment.
Illustrative example. Unbilled time worth 45 days of revenue and unpaid invoices worth 60 days: lockup is 105 days, or 60 if only receivables are counted.
What the firm has to agreeUnbilled time and receivables together, gross or net, against which period’s revenue?
Sources: time and billing, receivables, finance.
Engagement margin
“Engagement margin” means, depending on who reports it:
- Direct or fully loaded: after the cost of the people on it, or after a share of overhead as well;
- Partner time: partner hours costed at a salary equivalent, or left out because partners share the profit; or
- Whose write-offs: charged to the engagement that caused them, or absorbed by the practice.
What it decidesWhether a fixed fee is repriced, restaffed or declined next time.
Illustrative example. Fees of 100; the team’s time costs 55 and its share of overhead is 25: the margin is 45% on direct cost and 20% fully loaded.
What the firm has to agreeWhich costs, which partner time, and whose write-offs?
Sources: time and billing, payroll, the general ledger, practice management.
Profit per partner
“Profit per partner” means, depending on who reports it:
- Equity or all partners: divided by equity partners only, or by every partner;
- Before or after partner pay: profit before any partner is paid, or after salaried partners are paid; or
- Heads or full-time equivalents: partners counted as heads, or by the time each one works.
What it decidesPartner pay, admission to the partnership, and the firm’s standing against peers.
Illustrative example. Profit of 60 million in a firm with 20 equity and 10 salaried partners: 3.0 million per equity partner, or 2.0 million across all 30.
What the firm has to agreeWhich partners, and profit before or after whose pay?
Sources: the general ledger, partner accounts, the people system.
Win rate
“Win rate” means, depending on who reports it:
- By count or by value: proposals won as a share of proposals sent, or the value won as a share of the value proposed;
- Which pursuits count: formal proposals only, or every qualified opportunity, renewals included; or
- When a pursuit is lost: at the client’s decision, or after a set time without one.
What it decidesWhich pursuits get partner time.
Illustrative example. Forty proposals worth 200 in total; ten won, worth 70: a win rate of 25% by count and 35% by value.
What the firm has to agreeBy count or value, counting which pursuits, and lost when?
Sources: the CRM, proposal records, finance.
Net multiplier
“Net multiplier” means, depending on who reports it:
- Net or gross revenue: fees after consultants and reimbursable expenses are passed through, or before;
- Direct labor at what cost: salaries only, or with benefits added; or
- Project or firm: per project, or for the firm as a whole, which hides the projects that lose money.
What it decidesFees on the next proposal, and which projects the firm takes on.
Illustrative example. Net revenue of 3.0 million on direct labor of 1.0 million is a net multiplier of 3.0; count 0.6 million of consultant fees passed through and it reads 3.6.
What the firm has to agreeNet of pass-throughs, against which labor cost, by project or firm-wide?
Sources: project accounting, payroll, the general ledger.