Selling Service

Definition (short). You sell expert human time (and any pass-through materials) on an as-consumed basis—hours, days, or sprints. Revenue equals billable hours multiplied by realized rates; profitability depends on utilization, pricing discipline, and delivery efficiency.

Recent example. Accenture reported $64.9 billion in FY 2024 revenue with a GAAP operating margin of 14.8%.

Historical example. McKinsey (1926) and the Big Four accounting firms institutionalized the billable hour; law firms have tracked “billable vs. non-billable” time since the mid-20th century. Rate reality check. Elite U.S. law firms now bill up to $3,000 per hour for senior partners, while first-year associates flirt with $1,000.

Utilization benchmark. SPI Research’s benchmarks put average billable utilization at ~67–68%.

KPI Definitions

1. Profit per Productive Hour (PPH). This is the operating profit you generate for every billable hour delivered. Pseudo: PPH = (Revenue − Direct_Labor − Materials − Alloc_Opex) / Billable_Hours Why it matters: It compresses the two levers you actually control—pricing and delivery efficiency—into one easy-to-compare dollar figure. Rising PPH means you are either charging more, staffing smarter, or avoiding scope creep. Benchmark: Mid-market consulting/IT firms often target $40–$80 profit per hour, whereas elite strategy and law firms can clear $150+.

2. Billable Hours (BH). This is the total number of hours billed to clients in the period. Pseudo: Σ billable_hours Why it matters: Hours are your “units sold.” Idle people are a pure cost. Benchmark: A typical consultant bills 1,400–1,800 hours/year, corresponding to ~70–85% utilization.

3. Average Billing Rate $/hr (ABR). This is the realized dollar amount per billable hour after discounts. Pseudo: Services_Revenue / Billable_Hours Why it matters: It reflects pricing power and role mix. If ABR drifts down, you are discounting or over-indexing on junior staff. Benchmark: Management consulting commonly $200–$400/hr; IT services $100–$250/hr; top law partners now up to $3,000/hr.

4. Project Gross Margin % (GMPR). This measures how much margin you make after direct labor and pass-through materials on a project. Pseudo: (Revenue − Direct_Labor − Materials) / Revenue * 100 Why it matters: It is the clearest indicator of delivery efficiency and scoping accuracy. Benchmark: Healthy professional services firms run 30–50% project gross margin; top boutiques can exceed 50%.

5. Utilization % (UTIL). This is the percentage of available working hours that are billable. Pseudo: Billable_Hours / Available_Hours * 100 Why it matters: Utilization is the core productivity lever. Too low means you are carrying bench cost; too high risks burnout and quality issues. Benchmark: Industry averages hover around 67–68%, while many firms target 75–80%.

6. Billable Headcount (HC). This is the number of employees whose time is sold to clients. Pseudo: COUNT(billable_staff) Why it matters: It defines capacity. Over-hiring without demand crushes utilization and PPH. Benchmark: Many firms keep 70–80% of total headcount billable (with the rest in support roles).

7. Role / Rate Mix Index (MIX). This is a weighted index showing the blend of partner/manager/analyst hours that drives ABR. Pseudo: Σ(role_hours × role_rate) / Σ hours Why it matters: A healthy pyramid keeps costs low and rates high; skewing too senior or too junior harms margin or quality. Benchmark: A common consulting pyramid is roughly 10–15% partners, 25–35% managers, remainder juniors.

8. Discount / Scope Creep % (DISC). This is the percentage of list billable value that you fail to collect because of discounts or out-of-scope work you did not bill. Pseudo: (List_Value − Actual_Revenue) / List_Value * 100 Why it matters: It is a silent margin killer; many firms underestimate how much money leaks here. Benchmark: Elite firms keep leakage below 5%, while many agencies leak 10–15%.

9. Direct Labor Cost % of Rev (DLC). This is the proportion of project revenue consumed by salaries and benefits of billable staff. Pseudo: Direct_Labor / Project_Revenue * 100 Why it matters: Labor is your biggest cost. Keeping DLC in line is essential to maintain GMPR. Benchmark: Targets are typically ≤40–50%; beyond 55% margins compress quickly.

10. Materials / Pass-through % (MTR). This is the share of revenue that is simply passed through (media spend, subcontractors, hardware) and carries little margin. Pseudo: Pass_through / Revenue * 100 Why it matters: Pass-through inflates revenue but not profit; you need to separate it to read margins correctly. Benchmark: Media agencies can see >60% pass-through; classic consulting often <5%.

11. Revenue per Employee (RPE). This is total revenue divided by total headcount (billable + support). Pseudo: Revenue / Total_Headcount Why it matters: It is a macro productivity indicator; falling RPE often signals organizational bloat. Benchmark: Many PS firms target $200k–$300k per billable FTE, while top AmLaw 100 firms exceed $1 million per lawyer.