THOMSON REUTERS ELITE

SUMMER 2015 EDITION

Forefront
 

Top 3 Reasons Why You Should Measure Employee Profitability and Profitability by Case

In today’s rapidly changing market, the greatest asset of successful firms is the strength of its talented workforce. Employees must be motivated, trained, retained, and effectively managed to ensure they help your firm increase its profitability. Many times, firms only measure the profitably per partner as a key performance indicator of profitability. However, there is a growing trend in the market to measure employee profitability. The more profitable your employees are, the more profitable their office will be, and in return, the more profitable the partners will be.

Another key metric is measuring the profitability by client. Not all clients are the same, and many of them have different requirements which requires different resources to be allocated to them. Measuring profitability by client ensures that your firm has a quantitative measure of profit by client, especially ones which are considered strategic. The insight gained from this measurement will allow the decision makers to properly prioritize and allocate resources.

So why not measure more than just profitability per partner? The answer is that many firms have the data but not the software tools or the expertise to calculate the profitability by client or employee profitability. The key to calculating profitability accurately is to consolidate all of your cost and revenue streams that reside in various data sources. The ability to properly allocate these costs becomes a critical success factor in understanding the true profitability breakdown of the firm. It allows organizations to identify underperforming silos and focus attention on more profitable activities. Most firms would do this manually using spreadsheets which can be error prone. Fortunately, there are tools which can help calculate the profitably by employee which take into account both direct costs (salaries, bonuses, etc.) and indirect costs (operations, marketing, etc.) which can be allocated to each employee.

Here are three reasons why measuring employee profitability and profitability by client can be a valuable instrument in measuring the performance of your firm:

  • Hiring: By measuring employee profitability, your HR team can gain insight on the types of employees that are more profitable, for example whether they are from a particular law school or class year. This insight can help your HR team look for the right candidates based on their profitability.
  • Accountability: By ranking employees based on their profitability, your employees can have visibility on their performance and where they rank with their peers. This information will help motivate some employees and also provide management insight on the underperforming employees.
  • Resource Allocation: By measuring profit by client, your firm can re-allocate resources on low profitability clients if they have the same skill set but improve the profitability of the client.

Obero Solutions

Founded by former Clarity Systems executives, Obero Solutions specializes in the design and development of Clarity Elite Budgeting, Forecasting, and Financial Reporting, and Profitability solutions. Obero's knowledge and experience in Clarity implementations, including Clarity 7 upgrade projects is unparalleled. Utilizing our proven implementation methodology, we partner with our clients to ensure that projects are delivered successfully on time and within budget. Click here for more information.

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