In business coaching, we often encounter mid-market professional services companies struggling to generate predictable revenue for their business. However, to successfully exit your business, you must have a desirable company value. Achieving a valuation that will allow you to reach your goals requires focusing on increasing revenue, building the business profitability, and generating EBITDA multipliers.
The Challenges Professional Services Firms Face Today
Unfortunately, professional services firms often have weak strategies for finding and creating the right EBITDA multipliers. This can create problems for those who want to exit their firms profitably.
Those who want to turn their businesses around do have strategies at their fingertips. We will explore common problems companies face when trying to increase their valuation and techniques you can use to thrive.
What Happens to Companies Trying to Build Their Value
Many existing professional services business models place an excessive amount of focus on selling bespoke, short-term engagements. This model leaves them in a feast or famine mode quarter after quarter. Repeatedly, we see clients facing a year that follows this pattern:
Q1: The company will put all its eggs in the basket of finding new customers and projects
Q2: The team struggles to deliver the work sold in Q1
Q3: The team finds themselves back at square one, with consultants sitting around waiting for projects to sell. The company’s primary focus is once again on trying to find work, and the pattern repeats
This work model, however, creates a stressful environment. Not having enough of a backlog will burn out the business development team. Then, overselling yourself to make up for lost time means that consultants encounter tremendous amounts of burnout, fatigue, and lower employee retention.
The numbers tell all
This has led to some very telling statistics. In 2021, professional services companies saw a 30% higher voluntary attrition rate than in 2020. Attrition rates reached as high as 9.8%. Only 18% of this rate came from employees finding more money elsewhere. Instead, 82% of those who left did so because of stress, job dissatisfaction, and finding better opportunities elsewhere. Employee retention creates a disruptive business environment and hinders company growth.
For businesses facing retention struggles because of compensation packages, we have some advice we covered in a previous article. You can read about it here.
However, if your team feels stressed and disheartened because of a poor business model, we will discuss some essential strategies to implement below.
How Professional Services Firms Can Build Their Profitability
The most profitable professional services firms see incredible results, thanks to a reconfigured business model. Businesses who make these adjustments see numbers such as:
Year-over-year revenue growth of over 14.5%
A 227% deal pipeline/quarterly bookings forecast
○ A monetary value of a pipeline that is relative to the amount of revenue booked for the quarter
60.3% of the overall revenue coming from services sold to current clients
Businesses that want to transition to this business model can learn something from their counterparts in the tech and SaaS sectors.
This new model should focus on a few components.
Building new pricing and engagement models that create long-term value for customers and lead to more recurring revenue
Improving your monthly recurring revenue, which is one of the most effective means of increasing profitability and adding additional multipliers to your valuation
Building your monthly recurring revenue through retainer-based work, engagements that tackle more significant customer problems from end to end, and providing advisory or managed services that offer consistent value and position your business as a strategic partner.
When you employ these types of strategies, you will find that your business can calculate more reliable revenue forecasting. Your typical account will also generate more revenue, and you will spend less to acquire new customers.
On the employee side, your consultants will become more engaged with their interesting and sustainable work.
Altogether, you will add multipliers to your valuation, creating a more appealing business for potential investors.
Business Coaching with ALTA Consulting: Increasing your MRR
ALTA Consulting delivers to professional services firms business coaching benefits that allow you to capitalize on this improved business model. We work to help you build your monthly recurring revenue and find the paths forward for your organization. Altogether, this empowers your business to grow and step away from the rapid rise and falls of the feast-or-famine business model and find your opportunities to excel. Learn more about what we offer Professional Services firms and get started with business coaching to increase your monthly recurring revenue.
