KPI of the Day – Business Consulting (BC): % Realization rate
Definition
Measures the percentage of revenue actually earned relative to the potential revenue represented by list prices.
Purpose
To indicate the company’s ability to bill at its list prices, as clients usually tend to negotiate for price reductions.
Recommendations
Most businesses require a good benchmark for their financial performance. Especially popular with legal companies, % Realization rates are an expression of a company’s ability to bill at its standard billing rates. The difference between % Realization rate and $ Profitability is that the latter encompasses the first, while also dealing with other additional variables such as leverage, margin, and resource utilization.
A business in need of efficient management will look at its % Realization rate to understand what it is actually earning. This data further enables the company to both calculate appropriate billing and prepare its annual budget. Increasing % Realization rates helps companies maximize their profits, and several ways to do that are recommended here on:
- Managing discounts and other price reductions to improve billing realization;
- Optimizing collections so as to ensure bottom-line profitability;
- Streamlining billing and cash collection processes.
The % Realization rate is an important indicator for evaluating performance. Not only it helps assess customer billing processes, but it also reflects on profitability levels for sustainable business continuity. By measuring the difference between what companies record as time and what percentage of that time is billable to the client, companies can also evaluate the efficiency of their staff.
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