Key Performance Indicators (KPIs) are helpful financial tools for engineering firms. They are essential metrics that can help you track and compare your performance with other companies in your industry, identify areas for growth, evaluate your project performance, and indicate where your firm is headed in the future.
These KPIs can significantly impact your business and help you make more strategic business decisions. Before setting the KPIs for your engineering firm, it is essential that you have clearly defined goals for your organization. When these metrics are analyzed, you will easily be able to tell how close you are to reaching your primary business objectives and which areas require more work. Here are 10 financial KPIs for your engineering firm.
1. Cost Performance Indicator (CPI)
This KPI takes a detailed look at how efficient a project is running from a financial perspective. It shows how much work has been completed for every dollar spent.
If the CPI percentage is higher than 1, this represents that the project is working well within its budget. If the percentage is less than 1, it is not operating efficiently.
To improve the CPI, look at ways to improve your efficiency or create more realistic budgets for your projects.
2. Days Sales Outstanding (DSO)
This KPI is also referred to as Average Days in Accounts Receivable. It looks at how effective the accounts receivable department is at collecting payment after work has been completed.
The higher the day's sales outstanding figure is, the less effective your firm is collecting payment which can significantly affect your cash flow.
3. Utilization Rate
This KPI can provide valuable information on how well your engineering business utilizes its resources.
A low utilization rate may indicate that better measures need to be implemented to ensure efficiency. In contrast, a high utilization rate could mean that your firm successfully meets deadlines or may have reached its optimum capacity level.
To improve your utilization rate, you could hire more employees, provide job training to enhance efficiency on the worksite, and purchase newer technology.
4. Operating Cash Flow
This KPI measures the amount of money that your engineering firm generates from its day-to-day operations.
By comparing this number to your total capital employed, you will get a sense as to whether your business is earning enough cash to sustain the investments you are making back into your business.
5. Number of Clients & Number of New Clients
By determining the number of overall clients you have and the number of new clients you have obtained within a certain period of time, you can better see how well your company is growing. These KPIs can show you if you are successfully meeting your clients' needs and if you are growing your business as expected.
These KPIs can show you if you are successfully meeting your clients' needs and if you are growing your business as expected.
6. Percentage of Revenue from Existing Clients
By calculating this KPI, you will be able to determine how much money is being earned from your existing clients and, therefore, how satisfied they are with the work that is being performed for them.
This KPI shows how frequently existing clients return to your business and how much of your revenue is generated on new clients.
7. Project Margin
One of the main benefits of tracking project margin is its ability to help you understand whether a specific project has been financially successful for your engineering firm or not.
This KPI can help you determine the project margin before you begin a project, showing you whether the project will give you the expected financial results.
8. Net Profit Margin
Also referred to as the "bottom line," this KPI measures the total net profit as it relates to revenue.
Measuring this KPI is vital to ensure that your business is turning a profit and that the projects you are working on are earning you money. Ideally, you want your net profit margins to be above 10%
9. Break-Even Point (BEP)
The break-even point measures the number of projects you need to complete to cover your business's costs. Once the break-even point has been met, you will start showing a profit.
This KPI is valuable because it shows exactly what it will take for your engineering business to be profitable.
10. Return on Assets (ROA)
As an engineering firm, tracking your ROA is important because it gives you valuable insight into how efficiently your company uses its capital.
If you specialize in manufacturing, you may have many assets, and if you are primarily a consulting-based firm, you may have very few. Nonetheless, it can show you where you stand in terms of profitability among other similar firms within your industry.
By taking an in-depth look into some of the most important KPIs for engineering firms, you can obtain a better idea of how your business is performing, how closely you are following your goals, and identify any issues limiting your success.
At Enkel, we understand that these KPIs are important, and we can help you manage your books so that you always have access to the most up-to-date financial information. Our team of experts understands that the health of your business depends on accurate and timely information, and we are here to provide it to you. Contact us today to find out how we can help.