Profit as Professional Services KPI Definition, Calculation, Example

Why is profit an important metric? How is profit calculated and measured?

Profit is a difference between the amount earned and the amount spent. In consulting business, earnings are usually revenue from projects while spendings are the cost of delivering these projects: salaries of consultants and overhead (non-project-related expenditures).
   
Without profits, consulting companies could not invest money in marketing, sales, training, services engineering, and knowledge management. Consulting businesses without profits are more like self-employment or nonprofit organizations. A typical profit margin for a consulting firm is in the range of 15%-25%.
   
The following is the formula to calculate profit in a consulting business
   
The company sold and delivered a project. The client paid $150,000 for the service. It cost the company $80,000 to deliver the project.
The profit of the company is $70,000.
 
Measurement should be performed over time by project, department, and employee. This will enable you to answer the following questions:
  • Who are my most profitable customers?
  • What type of projects are my most profitable?
  • On which parts of a long-term project do I make the most money?
Here is how Metric.ai calculates profit by client and by project. Switch image to see the inside project profit change over time.