Revenue Intelligence for consultancy

Revenue Intelligence for consultancy is the continuous connection of your pipeline, your resource planning, your timesheets and your invoicing, so you can see per engagement, per client and per consultant where hours worked are not invoiced, where rates sit below what you agreed, where fixed-price engagements run over budget and how much revenue will realistically come in over the coming months. In a firm that sells hours, the gap between worked and invoiced is the most important variable to manage. Revenue Intelligence makes that gap visible while you can still do something about it.

That sounds like something your time registration or your PSA software already does. Partly true: the data is usually in there. But most firms only see it after the fact, in a monthly report or at year end, and system by system. The leaks sit in the connection between the systems and in the time between work and invoice.

How does a consultancy firm earn its revenue?

A consultancy firm sells people's time and expertise. That sounds simple, but the ways in which that time is sold vary widely, and each model has its own leakage risk.

Most firms have a mix. And it is exactly that mix that makes things difficult: an hour logged on a fixed-price engagement earns nothing extra, while the same hour on a time and materials engagement is revenue straight away. Where hours are booked is therefore a financial decision, and it is often made by the consultant on a Friday afternoon.

The chain from pipeline to payment

Revenue Intelligence follows the whole chain. In consultancy it looks like this:

1. Pipeline. An opportunity in the CRM, with an expected value, an expected start and a probability.
2. Proposal and engagement. A proposal with scope, approach, team, rates and budget. After acceptance, an engagement letter.
3. Resourcing. Consultants are scheduled onto the engagement, for a number of hours per week.
4. Delivery and recording. Consultants work and log hours, with a description.
5. Review. The engagement manager or partner reviews the hours and decides what gets invoiced.
6. Invoicing. The invoice goes to the client.
7. Payment. The client pays, or disputes lines.

At every handover, information can be lost. The engagement in the CRM has a different amount from the signed proposal. The plan assumes three consultants, four are working on it. Hours are logged to the wrong project. The partner writes some of them off. The invoice is postponed by a month. The client disputes a line and it is credited.

If you follow the chain as a whole, you can compare per engagement: what was sold, what was planned, what was worked, what was invoiced, what was paid. Every difference has a cause, and those causes repeat.

Which five leaks matter in consultancy?

Consultancy firms leak in a limited number of ways. They are described in detail in revenue leakage in consultancy firms. Here is the overview, with what Revenue Intelligence makes visible for each leak.

1. Hours that are not logged

Consultants do not log everything they do. A phone call, an email in the evening, preparation on the train. Senior consultants and partners in particular, who do the most work in between other things, structurally log less than they work.

What Revenue Intelligence sees: the gap between logged hours and available hours per person, and deviations from someone's own pattern. A consultant who normally logs 32 hours a week and logs 24 for a whole month has either worked less or logged less. Both are worth a conversation.

2. Hours that are written off

The partner looks at the hours before the invoice goes out and decides that part of them cannot be invoiced. Sometimes rightly. Often out of caution, or because a budget has been exceeded and the conversation with the client is awkward.

What Revenue Intelligence sees: realisation, meaning invoiced value divided by recorded value, per engagement, per client and per partner. A partner who writes off 15 percent as a rule while colleagues sit at 5 percent has a pattern. A client where there is always a write-off may have the wrong rate.

3. Scope that grows without a change

On fixed-price engagements, scope grows. The client asks for an extra analysis, an extra workshop, an extra version of the report. The team does it, because it wants to help the client. No change request is raised.

What Revenue Intelligence sees: budget consumption per engagement against progress. An engagement that has used 90 percent of its budget at 60 percent of the plan is an engagement where something has happened. Whether it is an estimating error or scope growth, you establish in the conversation with the engagement manager.

4. Rates that fall behind

Rates are set once a year. For new clients they apply immediately. For existing clients they are often not applied, or applied with a discount that never goes away. After a few years, a firm is working for its oldest clients at rates far below the current rate card.

What Revenue Intelligence sees: the realised rate per client and per consultant, compared with the rate card. The spread is often larger than the leadership thinks. How to trace this type of leak is covered in how do you find missed price increases.

5. Work in progress that sits

Work that has been done and recorded but not yet invoiced. On time and materials engagements it should be a month old at most. In practice there is work in progress of three, six or twelve months. The older it is, the greater the chance it is never invoiced.

What Revenue Intelligence sees: the age of work in progress per engagement, and the engagements where it is building up. This is also the most important predictor of write-offs: work that sits for a long time gets written off more often.

Professional services more broadly

What applies to consultancy applies broadly to all professional services that run on hours and expertise: accountancy, legal services, engineering firms, architects, IT service providers with an advisory arm. The emphasis differs. Law firms deal more with recharged costs and disbursements, engineering firms with fixed-price engagements and variations, accountants with fixed annual fees for work that grows every year. This wider group is covered in revenue leakage in professional services.

Which data do you put side by side?

The first five are the foundation. The sixth is sensitive and not always necessary, but it is the most direct way to see whether hours are being logged: a client meeting in the calendar with no hours on that client is a signal. Whether you use that source is a choice to make deliberately, with attention to privacy and together with the staff involved. What happens to data in an integration is something to be clear about beforehand.

Worked example

Worked example: suppose an advisory firm with 50 consultants and EUR 8 million in revenue. The average rate on the rate card is EUR 140 an hour. The average consultant has 1,400 billable hours available a year.

• Unlogged hours. Consultants leave an average of one hour a week of client work unlogged. With 50 consultants, 44 weeks and EUR 140, that is EUR 308,000 of recorded value that does not exist. On time and materials engagements, say 60 percent of the work, that is around EUR 185,000 in missed revenue.
• Write-offs. Realisation is 91 percent. If half of the write-offs are a reflex rather than a justified correction, 4.5 percent of recorded value can be recovered. On roughly EUR 5 million of time and materials work, that is around EUR 225,000.
• Rates. For a quarter of clients, the realised rate is on average 8 percent below the rate card, with no agreement to that effect. On EUR 2 million of revenue at those clients, that is EUR 160,000 a year.

Together that is EUR 570,000, over 7 percent of revenue. That is above the commonly cited range of 1 to 5 percent, and that is a reason to look critically at the assumptions. Not every write-off can be avoided, not every client accepts a rate increase, and not every unlogged hour is billable. For a realistic picture, count on a third to half of this amount.

But even a third is EUR 190,000, and for a firm with a net margin of, say, 10 percent, or EUR 800,000, that is almost a quarter of profit. Because this is revenue for work that has already been done, almost all of it drops straight to the bottom line.

Forecasting as a by-product

If you connect the chain from pipeline to invoice, you get something extra: a more reliable forecast. A consultancy firm knows more about its future revenue than it thinks. The scheduled hours for the coming weeks, multiplied by the rate and corrected for historical realisation, give a fairly reliable picture of short-term revenue. Work in progress and the average time to invoice give you cash flow. The pipeline, weighted by historical conversion and start delays, gives the medium term.

That forecast is only as good as the data beneath it. A resource plan that is not kept up to date, or realisation that swings sharply month to month, makes it unreliable. How to approach this for project businesses in general is covered in revenue forecasting for project businesses.

What Revenue Intelligence is not

It is not a PSA package. It does not schedule people or record hours. It reads the data from the systems that do.

It is not a BI dashboard. A dashboard shows realisation when you ask for it. Revenue Intelligence actively looks for deviations and puts them on a list with an amount and an owner.

It is not a way of policing consultants. The aim is not to see who works too little, but to see where work disappears between delivery and invoice. Most leaks do not come from individual mistakes but from processes that do not close.

What Revenue Intelligence is in general and how it works is covered in what is Revenue Intelligence.

Who owns it?

In most firms the partner or engagement manager owns the engagement and the back office owns the invoice. The gap between worked and invoiced has no owner. The partner sees write-offs as part of client management, the back office sees them as a given. Nobody manages it.

Revenue Intelligence only works if that changes. Every finding has to reach someone who can decide: the partner who can adjust a rate, the engagement manager who can raise a change request, the back office that can invoice work in progress. A list of findings without an owner is a report, and reports change little.

How do you get started, in five steps?

Step 1: calculate your realisation

Pull the recorded and invoiced value for the past year, per engagement, from your time registration and your invoicing. Calculate realisation. Sort by lowest realisation and look at the ten worst engagements. What do they have in common?

Step 2: make the rate spread visible

Calculate the average realised rate per client, per seniority level. Put it next to the rate card. Which clients sit furthest below it, and why?

Step 3: review work in progress

List all work in progress with the date of the oldest uninvoiced hour. Anything older than sixty days is discussed per engagement: invoice it, write it off with a reason, or make an arrangement with the client.

Step 4: measure budget consumption on fixed-price engagements

For each live fixed-price engagement: budget used against progress. Engagements where consumption runs more than ten percentage points ahead of progress get a conversation about scope.

Step 5: make it continuous

The first four steps are a baseline. To stop everything slipping back after six months, these comparisons have to happen continuously, not once a year. You can do that with monthly exports and a fixed check, or with a platform that connects the systems and flags the deviations itself. RiOS is such a platform. It is in beta, reads the systems you already use, monitors revenue leakage continuously, and is priced per company, not per user. What it shows per module is on the system page.

A checklist for the partners

1. What was our realisation over the past year, and how does it differ per partner?
2. How much work in progress is outstanding that is older than sixty days?
3. At which clients is our realised rate more than five percent below the rate card?
4. When was the rate card last applied to existing clients?
5. Which fixed-price engagements are going over budget, and has a change been raised for them?
6. How many hours a week does a consultant log on average, and how does that compare with available hours?
7. Are rechargeable costs such as travel and external purchases invoiced in full?
8. How much is credited after invoicing, and why?

Frequently asked questions

What is realisation in consultancy?

Realisation is invoiced value divided by the recorded value of hours at the standard rate. A realisation of 90 percent means that 10 percent of the hours worked were not invoiced or were invoiced at a lower rate. It is the most direct measure of leakage in a firm that sells hours.

Our PSA package already shows realisation. What does Revenue Intelligence add?

A PSA package shows what is in it. Revenue Intelligence sets it against the CRM, invoicing and sometimes the calendar, and looks for differences that are not visible in any of those systems on its own: hours that were not logged, engagement values that differ from the proposal, rates that differ from what was agreed.

Is it desirable to connect calendars?

It is a trade-off. It gives the most direct picture of unlogged hours, but it touches on privacy and trust. Many firms start without it, with only hours and invoicing, and decide later whether the calendar adds anything. If you do it, do it openly and with the consent of the people involved.

What size of firm is this worthwhile for?

The analysis is useful for any firm. Continuous monitoring becomes worthwhile from the point where the partners can no longer oversee every engagement themselves. For many firms that is somewhere between twenty and fifty consultants.

Does it help if we mainly work on fixed prices?

Yes, but differently. On fixed prices the leak is not in write-offs but in scope that grows. Budget consumption against progress is then the most important signal, together with how many changes are raised per engagement.