# 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](https://newsroom.accenture.com/content/4q-full-fy24-earnings/accenture-reports-fourth-quarter-and-full-year-fiscal-2024-results.pdf?utm_source=chatgpt.com) 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](https://taxprof.typepad.com/taxprof_blog/2024/10/2025-hourly-billing-rates-for-elite-law-firms-3000-for-senior-partners-1000-for-first-year-associate.html), while first-year associates flirt with $1,000.

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

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#### 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.