What’s Impacting Your Profit Margin and How to Manage It Effectively

To say that 2022 was a challenging year for businesses worldwide is stating the obvious. Enterprises globally braced for what seemed to be a long and harsh economic headwind as major global economies, such as the USA, Europe and China, registered tepid growth. The year 2023 continues to be a harbinger of a global financial recession. The World Bank’s latest report, ‘Global Economic Prospects,’ attests to the growing corporate concern. The report suggests that high inflation, reduced investments, and supply-chain disruptions caused by a massive resurgence in COVID-19 cases in China have stalled global growth engines.

One can understand the severity of the impending crisis by the fact that the world may witness two recessions in the same decade – which is unprecedented and rekindles the unsavory memories of the Great Depression of the 1930s. Anticipating a complex and tumultuous business landscape, most enterprises have streamlined operations and workforces, and continue to make adjustments to ensure profitability. 

Business Margins Are Getting Impacted And How?

The global economic situation directly affects an organization’s ability to manage healthy profit margins. Simply put, profit margins depend on the production cost of the goods, earnings accrued from sales, and the net profits – all of which are likely to be impacted due to multiple reasons, aside from the economic challenges, that need urgent and proactive management, as mentioned below. 

1. Clients Are Demanding More Bang Per Buck 

Increasingly sophisticated clients are seeking more from their spending than ever before as they, too, are streamlining their expenses. Of course, this does not necessarily mean that they are spending less than before. Neither empirical evidence exists to suggest so. However, they now increasingly prefer flexible contracts and payment terms over longer-term and high-value contracts. 

Moreover, they also expect more value from their association with Professional Services Automation Organizations (PSOs). This growing assertion from the clients means that organizations need to manage their expectations more proactively, while being hamstrung by the lack of in-person meetings and consultations. Moreover, new matrices such as customer success and annual recurring revenue (ARR) are now becoming the yardstick to measure organizational success.

2. The Labor Market Is In Shambles 

One of the most significant after-effects of the COVID-19 pandemic has been the churn in the labor markets across the globe. Employee-driven changes to the workplace paradigm have caused much uncertainty among employers who are playing catch up to trends like the Great Resignation, The Big Quit, the Great Reshuffle and Quiet Quitting. High attrition rates are impacting business profitability, as market research suggests.

However, enterprises have taken several measures to arrest high turnover. Still, massive turnover is a major reason for lower profit margins, as the cost of acquiring a new worker far exceeds the cost of retaining an existing worker. Several factors, like the costs incurred in recruiting and onboarding processes, training new workers, and the time and resources spent on helping new workers acquire organizational knowledge, are significantly impacting the organizational ability to manage healthy profit margins. Plus, intangibles like loss of employee morale and burnout are adding to the challenges of organizations worldwide. 

3. Making Sense of Data Has Becoming Challenging

As mentioned above, COVID-19 led to wholesome changes to the workplace ecosystem. However, one of the key changes has been a growing impetus for automation and digitization initiatives. Such initiatives have helped business leaders collect vast tracts of data. But a side-effect of this approach has been a never-before proliferation of apps, which means data related to people, projects, skills, and time have been spread across multiple enterprise resource planning (ERP) tools, human resource systems, payroll systems and purpose-built project and resource management systems.

These separate systems create and consume different versions of the same data, leading to a proliferation of data silos across the organization. Such a setup impedes the decision-making process and, consequently, an organization’s ability to boost profit margins. 

Moreover, managers cannot accurately recollect, capture and account for their team members’ time to complete various projects and tasks. All these challenges cumulatively impact an organization in many ways. 

How Technology Can Help Manage Profit Margins 

Undoubtedly, organizations have incorporated technology to improve visibility and client servicing capabilities, integrate processes, and enable remote and hybrid working for their employees. However, they lack a single source of truth for project, revenue, resource and client management. As a result, siloed data translates into poor outcomes for client-specific business processes.

It also hinders the organizational ability to make timely, data-informed decisions to manage clients effectively. 

Organizations should rope in Professional Services Automation (PSA) tools, such as Polaris PSA, which can be an excellent enabler to improve their client servicing capabilities and ensure a high client retention rate.

AI-powered Polaris PSA, the world’s first self-driving PSA, manages all client-related project metrics as a single entity, breaking data silos with: 

• Actionable insights with a consolidated view of all projects and engagements
• Access to real-time project metrics for enhanced profitability
• Streamlined client costing and billing processes
• Enhanced transparency with visibility into deliverables through configurable reports

It offers features like: 

1. SmartBeats: that provides live updates on projects, resources and business
2. SmartBudget: that generates profitable bidding scenarios
3. SmartMatch: that finds the best-fit resource
4. Mission Control: that enables real-time project insights

Such features enable organizations to manage projects with high client satisfaction and grow profitably. 

Similarly, managing resources effectively ensures optimal utilization and healthier business margins. A professional services automation (PSA) solution enables organizations to manage all projects and resources under one platform. A PSA solution that leverages artificial intelligence and machine learning can deliver smart recommendations for maximizing utilization levels and profitability across projects and integrated applications.

Polaris PSA offers:

• Real-time visibility into your global resource pool
• AI-powered resource recommendations and allocation
• The ability to track skills, certificates and expertise levels for each resource

Such capabilities are critical for any organization that aspires to remain competitive in a highly uncertain marketplace.

For the unversed, Polaris PSA uses AI and ML to offer real-time visibility into important metrics, streamlining resourcing, financials, and project information, and giving an up-to-date, live view of the business. Teams can leverage historical and real-time data using this intelligent PSA to quickly adapt to changes and make instantaneous decisions.