Why is EBITDA important to monitor, and how can workforce planning and analysis help?

What is EBITDA?

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a financial metric used to evaluate an organization’s operating performance. EBITDA aims to represent the cash profit generated by a company’s core operations, excluding the impact of interest, taxes, and non-cash expenses (depreciation and amortization).

Monitoring EBITDA provides a clearer view of a company’s profitability by focusing solely on operational performance. Professional Service firms look to EBITDA to understand their profitability and resource allocation. Yet, this metric can take a lot of manual work to generate and requires consolidated data for accuracy.

If your EBITDA is low, a firm may choose to reevaluate how they are utilizing their resources and employees to boost this metric.

What is a good EBITDA margin?

The recent 2024 benchmarking report from industry analyst Service Performance Insight (SPI) stated that the 5-year average for EBITDA was running at 15.4% in 2023 vs 16.1% in 2022. 

SPI also finds that the most visionary and collaborative service firms achieve an EBITDA of 32% vs those with ad-hoc processes who achieve an EBITDA of -5%. SPI add that:

To improve margins, Professional Service executives must continually focus on increasing employee billable utilization, as well as increasing the percentage of billable employees. The primary gain from increased utilization is a significant increase in net profit.

SPI makes clear that, to boost net profit or EBITDA, focusing on billable resource utilization is paramount. In a professional services firm, the key to doing this lies in using the right technology to monitor and manage your most valuable resource better – your people.

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How can I boost my EBITDA margin? 

As SPI makes clear, focusing on how you allocate your people, as well as how you empower them to be productive with their time, can be key to boosting EBITDA.

Data and automation is key

How you monitor Key Performance Indicators (KPIs) like EBITDA is the first step to boosting profitability. With legacy systems and the manual tasks they create, simply monitoring EBITDA, or any KPI, can be a struggle that will burn out certain personnel.

For example, many firms may still rely on legacy systems like Excel to manage all the data for employees and finances, this not only requires time to collate the data, but the effort required to update this, report on it, and suggest actions, can itself eat into EBITDA.

By automating these tasks on a Cloud-secure ERP platform, employees' time can be liberated for value-adding tasks, such as analyzing data and suggesting actions and strategies. 

Professional Services need robust reporting and analytics capabilities to monitor their EBITDA and understand the actions to impact it. When financial data is consolidated within a digital ERP system that provides visibility across your HR, finance, and project data, it’s easier to understand how these integral parts of a firm affect your bottom line.

Yet, having a system that can streamline the monitoring of EBITDA and other KPIs, will free these employees to report on changes and form strategies, rather than having to do the manual work themselves.

When EBITDA can be measured, monitored, and reported on accurately with a single source of data truth, a firm can identify and address issues before they impact projects.

Optimize your resource planning processes 

Having visibility across your firm’s resources affects not just service delivery but, subsequently, EBITDA as well, as SPI points out.

The single source of truth that ERP can provide, across HR, Finance, and Projects, allows a firm to understand how they can best utilize specific employees in specific areas. A planning solution that can provide insight into the people planning process, as well as the financial aspects of your projects. 

A system that allows you to track the financial health of your projects and ensure that your people and resources are being fully utilized in a profitable way will help deliver against your EBITDA targets, as well as alerting you early on when those targets are in danger of being missed.

SPI’s Benchmark Report   notes that “Service execution involves several factors including resource management, delivering projects in a predictable and acceptable time frame, reducing cost while improving project quality, and harvesting knowledge.” 

With a resource planning process in place, firms can more clearly measure the actions taken that led to a successful project, from the resources allocated to a certain project, to creating benchmarks for project completion time, to help form effective strategies for the future.

A recent Dresner report identified compensation, headcount and core demographics, retention, and year-end projections and forecasting as key capabilities. This allows firms to drill deeper into employee data, looking at anything from location, availability, seniority, certification, skills, and more to match an employee with a project. 

Talent Management

SPI notes that “With changing workforce demographics, talent management has increased in importance” due to “increased pressure on customer-facing staff to develop client relationships and more carefully define client requirements.”
What SPI highlights here is the importance of not just allocating talent as a resource but also managing talent themselves, and ensuring their satisfaction is high. As talent themselves are the defining factor in client satisfaction and service delivery.

Firms need accurate and repeatable processes for gathering employee data and to create a data-driven culture that instills confidence that surveys and other feedback-gathering processes see action from managers, rather than simply being a box-ticking exercise.

How can Unit4 help you monitor and impact your EBITDA?

Unit4’s integrated ERP suite offers robust reporting and analytics capabilities in the Cloud that allows firms to track revenue growth, margins, and profitability accurately. When a firm can monitor and report on EBITDA they can more easily form strategies to boost this key performance indicator.

Unit4 FP&A offers time-saving automation capabilities that can help your teams spend less time creating reports and manually consolidating data, and more time confidently using this data to form strategies to increase profitability.
Unit4 is considered the #1 vendor for Workforce Planning and Analysis by Dresner in their annual market study. By integrating finance and HR data, we create synergy between functions, delivering huge returns on investment through optimized use of current resources.

Additionally, Unit4’s Talent Management module helps create repeatable processes to gather and act on employee data and feedback, to boost productivity as well as employee engagement.

To learn more about Unit4’s ERP suite that combines ERP, FP&A, and HCM to provide visibility across your entire operations. Talk to sales today to learn how we can help you!