💰 Expenses as a Professional Services KPI
📖 Definition
An expense represents the cost of doing business in consulting or professional services. Common business expenses include:
- Wages, salaries, and bonuses
- Equipment and software
- Materials and travel
- Rent, advertising, and administrative costs
In most consulting firms, the largest portion of expenses comes from employee compensation — particularly the salaries of consultants.
📈 Why Expenses Are an Important Metric
Expenses directly influence your profit and external rates. The cost of resources determines how competitively your agency can price its services and how much profit remains after paying your team.
In the broader market, consultant salaries also shape labor costs and industry rates — making expense management a strategic factor, not just an accounting detail.
🧮 How to Calculate Expenses
In general, an agency’s total expenses consist of:
- Direct Costs (Compensation) – consultant wages, bonuses, and benefits
- Overhead Costs – costs not directly tied to billable work, such as rent, marketing, or administrative staff salaries
💡 Formula: Total Expenses = Consultant Compensation + Overhead Costs
💡 Example
A consulting firm employs:
- 6 consultants, each costing $170,000 per year
- 3 non-billable employees (marketing, sales, finance) with total overhead costs of $450,000
Then:
Total Expenses = (6 × $170,000) + $450,000 = $1,470,000
So, the annual expense of the firm is $1.47M.
📏 How to Measure and Analyze Expenses
Expenses should be:
- Planned for the future
- Measured against current and historical data
Segmentation helps answer key questions:
- Who are the highest and lowest paid employees?
- What is the labor cost per employee or project?
- How large are overhead costs relative to total expenses?
With Metric AI, you can access cost information across all levels of your organization — from employees and roles to projects and departments — and integrate expense data from multiple systems for unified analysis.