The saying, “we manage what we measure” is a phrase we have heard many times, but how often do we reflect on the way we manage those measurements?
We use measurements and metrics daily in our personal and professional lives to achieve results. We use them to track progress and success, but what we may not realize is how much these measures influence our behaviors. As much as metrics can foster positive actions, they can also create bad ones, or even bad habits.
There are three metrics I see on many teams’ or firms’ goals each year:
- Realization = net fees billed/ gross fees
- Billable hours
- Profitability or profit margin = gross profit/ revenue
Though these are long standing metrics used in the profession, and have their virtues, there are negative effects from over-emphasizing them.
When we place too much focus on realization, other activities can suffer.
- Staff might not get as many training opportunities because managers or partners are too concerned with reducing nonbillable time on the project. Therefore, they don’t consider bringing a less experienced team member onto the project. This results in a widening skills gap between the most experienced and less experienced team members over time.
- Lack of opportunities can cause dissatisfaction with some team members, so they may look for growth opportunities outside your team or firm.
- More experienced staff may burnout from the additional workload and performing work that they are the only ones qualified to deliver.
Asking the team to increase billable hours can foster bad habits.
- Team members may stretch out projects to take longer (inefficiency).
- Staff, including mangers and partners, will hoard work when it should be pushed down and delegated to fill their billable hours.
- The ultimate bad behavior, padding time sheets. My colleague, Jennifer Wilson calls this, “looking good, but not DOING good.” When this happens, the team and the long-term success of the firm suffers.
- Burnout can also occur working more hours to meet a somewhat artificial goal. Burnout causes disengagement, reduces productivity, and can ultimately reduce billable hours.
A focus on short-term profitability can lead to long-term deficits.
- When the emphasis is on increasing profitability, the necessary long-term investments may not take place. Talent development, technology implementation, innovation may not happen at the rate they need to for future readiness.
- Staff may not know how they impact this metric. Given the factors that go into the profitability of a project, a team member’s view of all the factors may be too limited to make the best decisions. I.e., one technology is more expensive than another, so they choose the cheaper option but as a result create inefficiencies due to minimal integrations with current systems and processes and therefore cost the firm more in staff time.
Ideally, we want metrics to be leading indicators, measurements that if reached will mean we are likely to achieve our overall goal. These KPIs should be specific enough to clearly guide talent on how to behave. Here are three leading indicators to move toward:
In place of the billable hour, consider setting a metric on productivity. Increased levels of productivity enable us to get more work done in fewer hours. With the profession-wide migration to fixed fee, value, and subscription pricing, automation technology, and better training, improved efficiency creates the capacity for vacations, reduces burnout, and makes time for proactive, forward looking initiatives.
Lean into Leverage
While we are improving processes lets consider leverage in place of realization. Realization emphasizes individual contribution as opposed to thinking and operating as an optimized team.
Leverage = All other bill hours/ Partner bill hours
All other bill hours/ Leader bill hours
The goal is to maximize the work done by those with the lowest rates per hour and to encourage all talent in the firm to perform at their highest and best use.
When people perform at their highest and best use, it:
- Improves profitability
- Increases job satisfaction
- Develops team members and creates a bench of talent ready to be pulled into more complex work
- Provides capacity for additional client opportunities, resulting in increased revenue and happier clients.
We need to continually focus on working at our highest and best use by pushing work down and building skills in our teams to make this happen.
Improving Referral Conversion Rates
Another metric that indicates future growth is measuring referral conversion rates. Not all referrals are equal, however, or even wanted. Some people can think they are helping by sending a referral our way, but when it doesn’t fit our target client or align with the services we offer it eats up firm time to disqualify the lead. In addition, it possibly creates ill will with the referring colleague. It’s our job to define and share our ideal target clients with all our referral sources (including internally to our partners and managers!). Then we can measure referral conversion rate of the right referrals.
Referral Conversion Rate = Referrals Closed/ Total number of referrals received
This method reveals data on the caliber of the referrals and referral sources. Analysis of the source of referrals points to where adjustments need to be made in the referral network or process. If the conversion rate is low, explore if it is the quality of the referrals, if the sales process needs to be improved, or if the offering is lacking what the prospects needs. By monitoring the conversion rate, we can ensure time is being well spent on the right referral sources and increase the probability of getting the right fit clients that align with the future vision of the practice.
Metrics are meant to be tools to guide and influence behaviors and results. We can generate other metrics to effect behaviors we want to see from our team members, but it takes thinking differently about them. Consider and observe how the metrics you use influence behaviors; then shifts you can make to measure the things that are most important.
To your success,