How to unlock value with Ignition: Part 3. Monitoring key performance indicators image

How to unlock value with Ignition: Part 3. Monitoring key performance indicators

Welcome to Part 3 in this three-part series on how to use Ignition to offer game-changing strategic advice to your clients in professional services

Posted byIgnition
onMonday, 19 February 2024

Welcome to Part 3 in this three-part series on how to use Ignition to offer game-changing strategic advice to your clients in professional services

Part 1 showed how to provide cash flow forecasting advice using Ignition. Then Part 2, looked at how to use the platform to help your clients price and sell their services. 

Now, in Part 3, find out:

  • The essence and importance of SMART KPIs.

  • How to optimize employee recoverability. Harness Ignition to monitor revenue per employee, ensuring labor costs are covered effectively.

  • How to set and track growth targets. Use Ignition to set aggressive or modest growth aspirations, and monitor progress dynamically.

  • How to prioritize recurring revenue. You’ll know why recurring revenue is vital in professional services and how to track and optimize it with Ignition.

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What are KPIs?

KPI or Key Performance Indicator monitoring is the process of assessing and tracking business metrics to measure performance and progress in key areas. To be effective, KPIs need to be SMART, which stands for: 

  • Specific.

  • Measureable.

  • Attainable.

  • Relevant.

  • Time bound.

Using Ignition, you can help your clients set and monitor KPIs as an additional service offering. The main KPIs that Ignition can help you with are:

  • Employee recoverability: Monitoring average revenue per team member.

  • Growth targets: By tracking not only growth in overall revenue, but also growth in average client revenue and revenue from new clients.

  • Recurring revenue versus projects: Tracking the splits between recurring revenue streams and project work.

Employee recoverability

Employee recoverability is one of the most important KPIs to track in a service business. As the key cost incurred in producing services in these types of businesses is labor, it’s vital for a business owner to know what fees their employees are generating. This can then be used to determine if the cost of labor is being recovered at a suitable level. 

This can be hard to track if your client doesn’t use a timesheet system or time bill, but Ignition can still help you and your client track this, right from the dashboard. 

Determining what the goal should be

To understand what your client should be aiming for in employee recoverability you need understand:

  • What are their employment costs?

  • What are their overhead and other costs?

  • What profit would your client like to achieve?

Once you know this information you can then determine, given the current employment levels, what the revenue target should be for the business, and then split that to a per employee level. 

The per employee level can be an average per employee, or specific targets for different team members. Remember, this KPI needs to be SMART, so you need to check with your client that the revenue target is actually achievable given their employees’ skills, qualifications and time available. 

Tracking recoverability using Ignition

Now that you know what your client target employee recoverability is, you can track the actuals via Ignition. You have two main options to do this:

Average per employee target

If your client is tracking an average per employee on a flat line basis (revenue divided by the number of employees), this is easy to track on the Ignition dashboard. Following the instructions here, you can input the amount of team members your client has. 

The projected average team revenue for the year is then clearly shown on the Revenue tab and is updated each time a contract is accepted in Ignition.

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Actual per client manager

By utilizing tagging in Ignition you can tag a responsible person to a client. These tags can then be used to filter and sort data by employee.

By using the service export feature, found on the bottom of the dashboard (and covered in How to unlock value with Ignition: Part 1. Cash flow forecasting), you can export your clients revenue and then sort this information by Partner or Manager, provided that this information was in the client record at the point in time when the proposal was created. 

As before with the Service Revenue Export (by Client) you can do this for a period that has passed or for a forward looking projection. See how it works in the video here.

Give the advice

Whether you have your actual data using either an average per employee, or at the employee level, you can start to compare this to your client’s employee recoverability KPIs and report this to them regularly. 

However, don't just send them the data, use this information to help your clients dig in deeper by asking the right questions: 

  • Are the employees consistently exceeding their targets? This might mean the target has been set to low and needs to be adjusted. 

  • Are they unable to ever reach their target? This could indicate that the target is either unattainable and unrealistic, or there’s a problem with the team output. Is there a non-performer in the team? Does the business need improvements in their systems and processes? Or, is something else causing issues? 

By asking these questions and providing this information to your client you can help them make data-driven decisions about their team. 

Growth targets

Whether a business just wants to cover usual increases in their operational costs, or they have an aggressive growth target, most businesses will have an aim to increase revenue. Tracking your client’s growth targets versus their actual growth is fairly straightforward with Ignition. 

Set the target

If your client just wants to cover their increased operational costs, setting their growth targets will mostly involve reviewing historical data. 

Using this information, you can update it for known increases and make assumptions on other costs based on the consumer price index and inflation increases or other relevant indexes.  

If your client has more aggressive targets, when workshopping this with them you should ‘stress test’ the business’s ability to not just generate the revenue, but deliver the service. You should ask questions such as: 

  • Do you have the team to hit this target? If not, where will you find them?

  • Is your pipeline strong enough to generate this revenue organically, or will you need to increase your marketing spend?

  • Is there a sufficient market demand for your services that make this revenue aspiration possible?

  • What other things need to change in your business and how much will it cost?

  • Over what timeframe do you expect the revenue to increase (understanding that lead conversion can often take a long time in professional services)?

Track their progress

Once you have this information you can enter your client’s monthly growth targets straight into Ignition following the instructions here.

You will then be able to monitor your client’s progress towards this goal straight from the dashboard by comparing actual to the target in the Revenue table. Also check their pipeline to review what's in the works to get them over the line. 

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Give the advice

Using information from Ignition, you can help your client keep abreast of their progress towards their growth targets. 

You can keep a record of and track their trends on a monthly or quarterly basis. This data will help you and your client when setting the following year’s targets. 

Targets not being met

You will be able to proactively work with your client if their targets aren't being met. This is critically important if your client has hired new team members or incurred costs in anticipation of growth. As an advisor, you can monitor their likelihood of success by tracking:

  • Their actual won contracts versus budget versus target. 

  • New client revenue and average client revenue.

  • Conversion time and success.

This information will allow your client to make the changes they need as early as possible. In particular, reviewing your client's conversion success rate and length of time via the Ignition dashboard, on the Pipeline table, will allow them to understand better how many leads they need at their average client revenue to hit their targets. 

Add to this the ‘length of time’ insights and you can help your client make early and informed decisions. 

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Targets being exceeded

On the flip side of this, foresight is also important when things are going well. Knowing in advance when your client will hit their targets, and will exceed them will allow you to work with them on their capacity planning and ability to deliver, leaving enough time to plan for any changes that will be needed to their resources or processes. 

Recurring revenue versus projects

In any business recurring revenue is key to stability and confidence that your costs are covered. With regular outgoings usual in professional services, recurring revenue can help them have more predictable cash flow, reduce their risk, deepen their client relationships and, more importantly, increase their valuation and exit opportunities. 

Businesses with recurring revenue models are generally more attractive to potential buyers or investors. Predictable cash flow and client relationships will make it a more attractive acquisition or investment target. 

Set the target

For these reasons many professional services businesses will have an aim to increase their recurring revenue versus project and one-off income. 

When working with your client to determine their recurring revenue goals, it again is important to start with the costs. What are their recurring costs and when do these have to be met? What regular buffer do they need above these costs? Using this data you can set a goal for your clients to increase their own recurring revenue with their clients. 

To increase recurring revenue, your clients can aim to either offer their clients more regular services (monthly or quarterly). If the services are more annual-based, it may help them to charge their clients a set monthly amount to cover a year of services, smoothing out cash flow for both sides. 

Track their progress

Once their goals are set, it’s easy for you as their advisor to track their progress using the revenue tab on Ignition dashboard. When hovering over a month in the revenue graph, you will be presented with a total amount and a split between recurring and project work. 

You can then use this data to advise your clients how far away they are from their goal on a monthly basis and what the gap is they need to close. 

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Give the advice

Through monitoring, if you can see your clients are struggling to hit their targets you can dig in further via Ignition as to where their ‘low hanging fruit’ and opportunities may be. 

The Services table on the Ignition dashboard will provide a high level look at the most popular services your client offers. You can also export this data to get a full view of how much revenue is being generated monthly per service. 

Using this information, you can provide your client with a better understanding of the services that are the most popular and the easiest to win recurring work from, versus the least popular. 

They can either then focus on those more attractive recurring revenue streams, or have another look at the delivery of their less popular services to find areas of improvement to make them more appealing to their client base. 

To assess this data in detail with your clients, you can export total historical revenue by service or by client. This export will allow you to see what is working and what is not, helping them focus their attention using real data, not guesses. See how this works in the video here.

Unlocking client growth beyond cost-cutting to value enhancement

As advisors, our role goes beyond just cost-cutting. It's about enhancing value for our clients. 

Here's how we do it:

  • Analyze and advise on growth levers: Our objective is to boost your client's revenue.

  • Monitor conversion rates: Both in terms of numbers and service pricing.

  • Evaluate the pricing of services: Ensuring they align with the market and client expectations.

  • Track client numbers: A growing client base is indicative of a thriving business.

By focusing on these areas you help increase the revenue and also boost the overall value of your client's business. Remember, revenue growth has a more significant impact on a business's value multiplier than just profit growth.

Are you an accounting and tax professional but not an Ignition customer? Find out how the platform can improve efficiency, optimize revenue and deliver seamless client experiences in your accounting business. Don't wait – watch an on-the-spot demo and experience the Ignition difference for yourself.

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