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Maximising profitability in small consultancies

Bivek Sharma of KPMG Small Business shares some smart thinking on optimising your potential

Maximising profitability in small consultancies

The UK consultancy industry is estimated to be worth around £9 billion, with growth in the ‘small firm’ sector being particularly robust.1

And, with news that demand for consultancies is rising in the wake of the EU referendum, ambitious leaders are creating a host of new opportunities. 

Yet, whether it specialises in strategy, financial advice, HR, technology or marketing, all consultancies share one challenge: profitability.

To thrive as a consultancy in any industry, fees need to be set at a competitive level without pricing out target clients. But when a business’s deliverable is knowledge, developing a pricing strategy to ensure ambitious growth can be a complex process.

Increasing profitability requires a focus on both increased margins and attracting (and retaining) more valuable business - here are some valuable tips:


Say no, more

As a growing firm, it can be tempting to snap up any business that comes your way, however it’s crucial to be selective as the profitability of individual clients can vary wildly. In the worst-case scenario, the wrong kind of business can even cost a firm money as it over-serves on hours and resources trying to deliver the impossible.

Financial and customer data can help consultancy leaders identify their ideal client and answer questions such as, what kind of company is it? What’s its turnover and industry? What kind of challenges will we help it overcome and what services will we provide to do this? By building a picture of the ideal client, consultancies can find their sweet-spot and ensure they focus on the right kind of opportunities. This exercise also helps identify those potential problem clients that are more trouble than they’re worth.


Look beyond the pound signs

To truly locate your sweet-spot, you need to know which of your services are the most profitable. This involves benchmarking performance with KPIs such as time allocated versus time spent.

In addition to profitability, another factor to keep in mind when taking on new work is how closely aligned the company or the project is to your own business’s values and ethos. If it is not aligned, it may lead to short-term financial gains, but could also damage the team’s job satisfaction and lead to longer-term issues such as future lost business or a higher staff turnover.


Practice makes perfect

With all of this information in place, business leaders are able to more accurately forecast their finances.

There are a number of systems available to assist with forecasting; these allow consultancies to address cash-flow issues, which have the potential to undermine profit margins. By invoicing immediately and chasing payments when needed, consultancy leaders can ensure they have the resources to realise their ambitions and capitalise on the right opportunities.

The opinions expressed by third parties are their own are not necessarily shared by St. James’s Place Wealth Management. This article originally appeared on the KPMG Small Business Accounting website

1 ‘Annual Industry Report 2017’, Management Consultancies Association (MCA), Oct 2017