At least twice a month I get into a discussion related to billable vs. non-billable headcount. PS organizations are always concerned that the number of non-billable staff is too high. This is a valid concern–too much overhead and profitability suffers. But how much is too much? What percentage of your PS headcount can you afford to be non-billable?
Two years ago I spoke at an AFSMI conference on the topic of PS business models. After the session, an audience member approached me on this topic of billable vs. non-billable headcount. The gentleman said “90% of our PS headcount has to be billable–otherwise I just don’t think we can make money in this business.” Is that true? Should PS organizations drive to a 90/10 model where 90% of all headcount is in a billable role?
If PS organizations create business organizations where almost everyone must be billable, there are critical activities that suffer. For example, if everyone is out delivering engagements, who is responsible for the following activities:
Services Marketing: Developing service positioning and executing demand generation campaigns
Services Engineering: Capturing lessons learned and improving delivery methodologies
Service Operations: Process development and process improvement to optimize resources productivity
The argument can be made that all of the above activities are the responsibility of every consultant and practice manager in the professional service organization. But without specific resources dedicated to the above non-billable activities, they quickly become low priority to the business of delivering customer engagements. To counter this, PS organizations do indeed create non-billable positions focused on the health and improvement of the organization. But back to the original question: What ratio makes sense for billable to non-billable resources? That leads us to the image for this entry.
In November of 2007, TPSA hosted its fall summit. The theme was Human Capital Management. In the opening keynote session, we discussed this topic of billable and non-billable resources. We polled the audience of over 150 PS leaders with the following question:
What percentage of your total PS headcount is billable?
The results of the pole are below.
This simple data point demonstrates that 90/10 is not a rule in the industry. A majority of PS organizations that reach a critical mass do not have 90% of their headcount dedicated to billable resources. In fact, 42% of the audience responded that 30% of their headcount was non-billable. The data point also demonstrates there is quite the spectrum out there. What ratio does make sense for your PS organization? The size of the PS business, the nature of service offerings, and the charter of PS organization will all influence this answer. But that is the point—there is no one pat answer to this question of billable vs. non-billable headcount.