Five hacks for boosting EBITDA margin

As a CFO of a project-based organization, you always need to know precisely how your company’s overall performance is trending. And because people are your highest cost on every project, you need to track and trace all expenses related and income generated by them through billable hours to boost net profit. So, we are taking a look at the five best ways to precisely do that.

What is a good EBITDA margin?

“To improve margins, PS executives must continually focus on increasing employee billable utilization, as well as increasing the percentage of billable employees. The primary gain from increased utilization is a significant increase in net profit.”

This is according to industry analyst Service Performance Insight (SPI) in its 2020 benchmarking research. And what it means is that to boost net profit, or EBITDA (earnings before interest, tax, depreciation, and amortization), focusing on billable resource utilization is paramount.

In a professional services organization (PSO), the key to doing that lies in using the right technology to manage your most valuable resource better. People.

1. Better match work with skills

Better matching work with your people’s skills improves your chances of getting a higher rate for the work done that each fee-earner does, which leads to higher margins. But how?

To do this, you need to have the right people planning & analytics solution. A solution that delivers enterprise-wide data visibility and features a modern, people-centric, customizable interface. Having this enables you to drill-down deeper into your billable staff data, looking at anything from their location, availability, seniority, certification, skills, or languages to any other perspectives you choose.

This solution needs to be supported by other automated, people-centric, time-saving features, such as mobile timesheets, to make sure you always have an accurate record of your billable hours. When you have the right person with the right skills assigned to the right task at the right time, your average billing rate can be increased, which means higher revenues and improved net profit.

Click to read Future-proofing your talent strategy with HCM 2023 (gated)

2. Reduce bench time 

Another way you can increase your revenue and margins is by distributing work more efficiently and minimizing your use of subcontractors. Doing this lets you maximize the time that your people have to generate income through billed hours. But to achieve this, you need instant, live visibility over all your fee-earner activity—both billable assignments and non-billable time. You also need the ability to quickly evaluate the proportion of work delivered by contractors at any point in time.

By analyzing this consolidated information, you can react in the short term and predict, plan, and execute for the medium and long-term. To do this, having all your data in a single ERP solution gives you the ability to reschedule on the fly, manage change immediately, and identify people that need reskilling, so you are better prepared to meet future demands and keep your people off the bench.

The end result of all this is higher utilization rates, increased revenue, better gross margins, and higher net profits.

3. Spot project under-performance early

This is one area where a ‘single version of the truth’ is critical. This is because real-time visibility of actual performance compared to budget, identifying trends and hot spots through easy-to-understand data across projects and programs gives you the insight you need to act quickly. Speed is critical here.

With these capabilities at your disposal, project under-performance is instantly visible at the earliest possible stage, by merely comparing the budget for the work with the expected time at completion (EAC). If your EAC is increasing, there is a problem that needs to be addressed. Fast. And you now have the tools to do that.

Spotting problems before they arise or early enough so that they don’t impact projects helps you manage margins and find opportunities to increase them.

4. Automate tedious administration with AI

By automating repetitive, manual admin processes that add no value to your organization, you can quickly and easily reduce people costs, increase revenue, raise employee productivity, maximize billable utilization, and improve data accuracy.

Let’s take the example of fee-earners recording time and expenses. By using natural language digital assistants, your people fill in timesheets using mobiles with a conversational interface. Using pattern recognition, predictive analytics and sentiment analysis, Wanda quickly learns and adapts to preferences and context, even the way users talk. It can also suggest actions or provide contextually relevant insights at the right time.

The drastic reduction in time your people spend on non-billable administration helps you minimize the leakage of billable time, effectively creating additional hours that you can now bill to the client.

5. Your people come first

So, automating administrative processes is part of the puzzle because it improves your People Experience. It also frees consulting your people to focus on more meaningful work that adds real value to your organization and its bottom line.

However, technology alone is not the answer. Technology is only a tool to help people work smarter and give them everything they need to make a more significant impact. Yes, people are your highest cost, and yes, the key to improving net profit also lies in tracing all your people-related costs and incomes. But none of this works if you don’t also support your people and help them grow through learning, development, and career progression.

This is why it’s crucial to get your utilization balance right.