Why KPI-Based Management Is Essential for Digital Services Companies
The IT services market is becoming increasingly competitive.
According to a Numem study, the digital sector has been growing steadily since 2009.
Despite a slowdown in growth in 2024, digital services companies continue to be driven by new growth drivers such as artificial intelligence, cybersecurity, big data, cloud computing, and responsible digital technology.
To maintain their market position, digital services companies must have precise management tools to drive growth, improve profitability, and build customer loyalty. Key performance indicators (KPIs) give executives a clear picture of their company’s health and enable them to make the right decisions at the right time.
This involves :
- Track Your Goals
- Evaluate Your Performance
- Take stock of the situation in figures
- Supporting important decisions
At Veryswing, we are committed to providing practical solutions for digital services companies, including performance metric management. Here’s everything you need to know about this specialized topic.
What is a performance metric in an IT services company?
A performance indicator, or KPI (Key Performance Indicator), is a quantitative measure used to assess the effectiveness and profitability of an IT services company’s operations. These indicators help guide the company, forecast results, and optimize strategic decisions.
To help you gain perspective on your IT services company’s results and facilitate decision-making, discover 8 performance indicators for effective management of your IT services company .
The 9 Key Performance Indicators to Track in the Digital Services Industry
1. Sales figures
Sales are a measure of a company’s ability to generate value.
When analyzing this performance indicator, we need to distinguish between several elements:
- Invoiced sales, corresponding to all invoices;
- Revenue from services rendered;
- The invoice to be issued corresponds to services performed but not yet invoiced;
- Deferred revenues, corresponding to services not performed but invoiced.
What to watch for: A growing gap between revenue recognized and revenue billed (high FAE) signals a delay in billing that negatively impacts cash flow. Rising PCA figures may indicate risky advance overbilling. Analyze these four components together, not in isolation.
2. Average Daily Cost (ADC)
The ADC provides a vision of the company’s profitability. It corresponds to what the employee costs the company every day.
CJM employee = ([gross annual salary + payroll taxes + total value of various benefits over one year] / number of potential workdays per year) × overhead coefficient.
For an external employee, his daily purchase price is his CJM.
What to watch for: The average project cost (CJM) must always remain below the average daily rate (TJM). If the CJM exceeds the TJM, the project is operating at a loss. In healthy IT services companies, the CJM typically represents 60 to 80% of the TJM. The difference between the two is your gross margin per unit. This is the most direct driver of your profitability.
3. Average daily rate (ADR)
The ADR corresponds to the average amount billed to IT services companies’customers for one day.
ADR = invoiced sales over the selected period / number of days produced over the period
The rate must always cover the average daily rate (ADR) to avoid losses. In France, average daily rates at digital services companies range from €450 to €800 per day, depending on the specialization (development, cybersecurity, data, cloud). Highly specialized roles (AI, offensive security) can exceed €1,000 per day.
What to watch for: A stagnant average daily rate (ADR) while the average monthly rate (AMR) rises (due to wage increases and labor costs) squeezes margins. Analyze the trend in the ADR/AMR ratio over 12 months, not just the ADR in absolute terms.
4. Excluded Leave Activity Rate (ELAR)
Also known as Staffing Rate, ELAR gives an overview of an IT services company’s operational performance. Excluding absences, this rate is relatively homogeneous for each month of the year.
ELAR = (Number of days produced) / (Number of potential days – (CP + RTT))
What to watch for: A TACE between 75% and 85% is generally considered healthy for digital services companies. Below 70%, profitability is at risk. Above 90%, be mindful of staff burnout and the risk of underinvestment in skills development.
5. Leave-inclusive activity rate (LIAR)
The LIAR keeps track of absences and gives an activity rate that can fluctuate much more than the ELAR for months with many absences (summer vacations, for example).
LIAR = Number of days produced / Number of potential days
What to watch for: The TACI naturally fluctuates from month to month (with lows in August and December). Always compare it to the same period the previous year, not to the previous month. It’s a useful indicator for anticipating recruitment or outsourcing needs during peak periods.
6. The inter-contract rate
The gap-between-assignments rate measures the proportion of non-billed time between two assignments, excluding vacation time. It complements the TACE: a TACE of 82% corresponds to a gap-between-assignments rate of 18%.
Inter-contract rate = (Days between contracts / Business days excluding holidays) × 100
What to watch for: The best-managed digital services firms maintain a gap-between-contract rate below 5%. Between 5% and 10%, the net margin comes under pressure. Above 15%, the company’s long-term viability may be at risk. A consultant who is between contracts for 20 days with an average daily rate of €600 represents €12,000 in uninvoiced revenue for that month alone.
The gap between contracts isn’t just a financial issue: a consultant who isn’t properly supported during this period is a consultant who may leave. To learn more, read our article: Gaps Between Contracts in IT Services Firms: How to Plan for Them and Turn Them into a Tool for Retention.
7. The Margin
The margin is used to analyze the money earned by the company through its services.
Gross margin = ADR – ADC
Margin rate = (Average Daily Volume – Average Trading Volume) × 100 / Average Trading Volume
What to watch for: In digital services companies, a gross margin between 25% and 40% is generally considered satisfactory. Below 20%, the business is vulnerable to unforeseen circumstances (gaps between contracts, unpaid invoices). Above 50%, make sure you’re not underpaying your consultants relative to market rates, which creates a risk of high turnover.
8. Accounts Receivable
Accounts receivable—or DSO (Days Sales Outstanding)—measure the average time it takes for your customers to pay, in days. It is one of the indicators most directly linked to the financial health of the IT services company.
DSO = (Accounts receivable / Revenue billed during the period) × number of days in the period
What to watch for: In the digital services sector, a DSO of less than 45 days is a healthy target. Between 45 and 60 days, cash flow begins to tighten. Beyond 60 days, the risk of cash flow strain is high, especially for growing companies that need to finance new hires.
A high DSO is often a sign of flawed billing processes (late approval of CRA forms, late issuance of invoices) rather than delinquent payers. It is an operational issue before it is a business problem.
9. Headcount
To evaluate workforce-related performance, several metrics can be used: the turnover rate, average tenure, and the percentage of productive employees.
What to watch for: According to Numeum,employee turnover in the IT services sector typically hovers around 18%. A rate exceeding 25% over a 12-month period is a red flag that requires an analysis of the underlying causes. The consequences of high turnover go far beyond the simple loss of an employee: they include an increased workload for the remaining teams, recruitment costs, and the loss of client knowledge.
How can you effectively track these performance metrics in your digital services company?
- Centralize your data: use an ERP system like VSActivity to access real-time dashboards.
- Automate reporting: save time and avoid manual errors.
- Analyze regularly: monthly or quarterly, depending on the size of your organization.
How should we interpret these KPIs together?
Taken on its own, each indicator tells only part of the story. It is their combination that reveals the true health of your digital services company.
Example 1 — High TACE + low margin: Your consulting teams are adequately staffed, but your average daily rates are too low or your average hourly rates are too high. The solution lies in sales (renegotiating contracts) or HR (optimizing payroll).
Example 2 — High DSO + tight cash flow: Your business is profitable on paper, but your customers are paying late. The solution is operational: automate invoicing, send reminders sooner, and review payment terms.
Example 3 — Rising gap-between-assignments rate + rising turnover: a strong warning sign . Consultants on extended assignments are looking for other opportunities. Take action on both staffing and HR support simultaneously.
What mistakes should be avoided when managing an IT services company using KPIs?
- Avoid tracking too many irrelevant indicators.
- Don’t focus solely on financial metrics. Consider, for example, metrics related to customer satisfaction or consultant utilization rates.
- Don’t overlook the role of your teams in the analysis. They can provide valuable insights into how to interpret the data.
Manage your digital services company using an ERP system, an essential tool for performance management
Making decisions based on reliable data is very important for your IT services company.
If you use spreadsheet programs like Excel, or multiple management tools that are independent of one another, you may run into several issues:
- Your data is scattered.
- Analyzing this data is too complex.
- Your IT services company’s performance analysis is biased
There’s a solution to these problems: ERP software.
Specially designed for consulting firms and IT services companies, the VSActivity software is perfectly tailored to your business.
Implementing the VSActivity ERP system in your digital services company also allows you to:
- Centralize all your data in 1 single software package
- Manage all types of data (CRM, HRIS, accounting, etc.)
- Reliable, automatically updated data
- Access dashboards, reports and performance indicators
Discover the power of our SaaS ERP VSActivity and all its features during a demo!
