A consultant himself, Saleh helps technology companies develop metrics for analyzing pricing models, marketing investments, service profitability, and other financial decisions. He points out that developers and publishers usually have systems in place to track product-related financial performance, but these systems rarely capture essential information about the service side of the business. As a result, Saleh says, "most hybrid product and service companies struggle painfully to manage their service and support financials."

We asked Saleh what numbers are most helpful for tracking the performance of a professional services group:

• Available hours: Service executives often overestimate how many hours are actually available to sell, Saleh notes. Vacations, meetings, paperwork, training, and marketing typically burn up 25%-30% of a service group's total hours. "If your available hours fall much below 50% of a normal work week, it's hard to be profitable unless you make people work longer hours and weekends."



• Billable hours: "Obviously, you want to keep track of how much real revenue-producing time your consultants are generating," says Saleh. Well-managed professional services groups typically bill 50%-80% of their available hours (or 40%-50% of total hours). "If you focus only on generating billable hours, however, client satisfaction is almost certainly going to suffer."



• Average billing rate: Watch this number closely, says Saleh, and don't be afraid to keep nudging up the billing rate for star performers. "The biggest change you can make to your profitability is a slight, almost unnoticed increase in service prices." Be very cautious about discounting, he adds. "Customers may nickel-and-dime you on product prices, but there's almost no sensitivity about service prices."



• Profit margin: Services are usually a high-margin business, but profits evaporate if fixed costs get out of control. "Payroll and benefits can cost you 60% of revenues, and other overhead will add another 10% or so," Saleh says. "However, the goal is to keep improving your margins--usually by investing in more efficient methodologies, better processes, reusable code and documents, and even better client relationships. If you're just selling the same old services, it's like mice running around in a cage."



• Average engagement length: Consultants usually feel that long, open-ended projects are the most lucrative, but Saleh warns that long engagements are also the most likely to leave clients unhappy at a lack of well-defined results. "With shorter projects, you start with a crisp statement of work, and at the end of each engagement you can always move on to a new phase." Ideally, a service organization's projects (or project phases) should average no more than two to four months, he says.



• New-to-old client ratio: Repeat engagements are an important measure of client satisfaction, Saleh notes. "If you're not developing ongoing relationships, you'll spend too much time and money on finding new clients. But you also don't want to get locked up by a few clients that monopolize all your resources." For most professional services groups, he says, a healthy ratio is an average of one new client engagement for every repeat project for an old client.

Sid Saleh, principal, iNextep Marketing, 2710 Carnegie Dr., Boulder, Col. 80303; 303/816-4866. E-mail: sid@inextep.com.