Starting in September 2007, Service Performance Insight surveyed 52 technology professional service organizations. The respondents ranged from small to very large professional service organizations - within either technology companies (primarily software) or independent system integrators.

The compilation of survey findings revealed several eye-opening findings about today's service organizations - especially in the area of discounting. Lessons learned from the benchmark results include:

• Level of discounting is a leading indicator for the overall quality, uniqueness and operational excellence of the organization. High levels of discounting negatively affect almost all aspects of performance. Organizations with the highest level of discounting produced the lowest average bill rates and high levels of employee attrition. A significantly high percentage of heavily discounted projects (50%) were not delivered on time. However, the most telling statistic is that high levels of discounting did not result in improved bid/win ratios.
  
  The bottom-line: according to the benchmark results, high levels of discounting provided no apparent benefit and definitely contributed to poor levels of performance across most major financial measurements.
  
  
• One of the primary reasons organizations discount is because they believe that discounting will increase their probability of winning the business. In this study, Service Performance Insight found that organizations that discount less than 5% won approximately 4.5 bids per ten delivered. Yet companies with the highest level of discounting (over 30%) had only a slightly better bid/win ratio of 5.84.
  
  The findings demonstrate that discounting really does not work. The firms that discounted over 30% won only one more bid out of ten, yet they gave up over 25 points of margin!
  
  
• Premium firms with the lowest rate of discounting also reported the highest levels of on-time project delivery and employee investment. The corollary: firms with the highest level of discounting (over 30%) reported low bill rates of $147/hour. These firms operate a commodity business with low contribution margins of 14.7%, low revenue per person of $187K/ year and only 50% of projects delivered on time.
  
  Buyers should be aware that large discounts in professional services are a clear indication of poor quality and lack of specialized skills. Firms that offer steep discounts are operating a commodity business - buyers may like the discount but not the results.

Bill Rates Are a Good Indicator of Quality - Clients Get What They Pay For
An increase in bill rate is one of the factors producing the greatest bottom-line profit impact along with the additional benefit of dramatically improving the employee work environment. This study shows best-in-class professional service organizations tightly control pricing by carefully managing their utilization and limiting discount authority and level of discounting. Best-in-class organizations ensure they have the right size, skilled workforce to drive premium bill rates, which in turn allows them to invest in their employees. Highly skilled, well-trained, happy employees in turn produce the best client results.

The most dramatic effect of low bill rates was on project quality. Companies with the lowest bill rates experienced twice the project cancellation rate (3.2%) compared to companies with the highest bill rates (1.6%). The results for on-time project completion were equally dramatic with only 67% of low bill rate projects delivered on time as compared to 85% for companies with the highest bill rates.

These results are a clear indication that companies who command higher bill rates also produced better client results.

Every firm would love to bill at the highest rates possible to maximize revenue. But our research suggests that there's more to having highly billable individuals on staff than just the obvious revenue implications. Firms that billed less than $150 per hour averaged less than 15% revenue growth per year. Organizations with bill rates over $200 per hour showed annual revenue growth over 30%. This benchmark implies that for highly specialized and differentiated organizations with the right people there is ample opportunity to grow, even in today's market.

You are invited to participate in the next phase of the "PS Maturity Model" benchmark survey. Your responses and your company's information will be kept in the strictest confidence. To thank you for completing the survey, Service Performance Insight will provide a complimentary 15-page report comparing your organization's results to the benchmark average. To participate, please follow this link to download a copy of the survey. Email completed surveys to david.hofferberth@spiresearch.com.


Service Performance Insight Managing Director, Jeanne Urich is a management consultant specializing in service organization improvement and transformation for small to large technology companies. Her focus areas include Vision and Strategy, Finance and Operations, Human Capital Alignment, Service Operations and Service Sales and Marketing. She has been a corporate officer and leader of the Worldwide Services Organizations of Vignette, Blue Martini and Clarify. She serves on the Advisory Board of www.psvillage.com , a preeminent on-line community for Services executives. She is also a co-author of the ground-breaking new 2008 benchmark, "The New Professional Service Maturity Model." Contact Jeanne at jeanne.urich@spiresearch.com