Consulting ROI: How to Quantify the Impact of CEO Consulting Services
A CEO’s effectiveness is critical to the success of the organization they lead. According to a McKinsey study, the contribution of a CEO to company success can be as high as 45%.
As such, a CEO’s leadership can be a game changer for an organization, and CEO consulting services often make or break a company. However, procuring such services comes with the challenge of picking the best option from a range of business and CEO consulting firms.
And even after engaging a consultant, it’s important to be able to tangibly measure their performance, which can help decide whether they are worth the cost. This is where consulting ROI (return on investment) comes in.
This article gives an overview of a holistic approach to measuring CEO consulting ROI.
Journey makes the CEO consulting services previously only available to Fortune 500 companies, affordable and accessible to businesses of all sizes. Learn more today!
Measuring CEO Consulting ROI By Assessing Financial Performance
Financial performance is a useful metric in assessing overall organizational performance, and the impact of CEO consulting services can therefor be measured by looking at positive changes in financial performance.
To do this, first, establish a baseline. How did the company perform across key metrics before it engaged the CEO consulting service? Measuring the same metrics down the line and comparing them to the baseline can help quantify consulting ROI.
As shown below, the best approach is to customize the metrics that will be used to evaluate consulting ROI according to the priorities of the company.
Daily Sales Revenue
Daily Sales Revenue (DSR) can be a practical and immediate metric for assessing the impact of an external consultant, especially when their advice relates to sales, operations, and marketing.
For example, if the consultant advises on specific strategic initiatives like launching a new product, a DSR spike following the launch would suggest a positive impact.
In addition to measuring short-term impact, DSR can help determine the long-term impact of interventions. A consistent upward trend in DSR could indicate that the consultant’s strategic recommendations have successfully strengthened the company’s market position or operational efficiency.
Consulting ROI can be quantified by comparing the cost of hiring the consultant with the incremental revenue gains reflected in DSR.
Still, it’s important to consider that DSR has its limitations as it can be influenced by factors outside the consultant’s control, like economic shifts. Also, it can take some time for the impact of certain recommendations to be reflected in the DSR.
Operating Margin
Operating margin (the ratio of operating income to revenue) can come in handy when assessing the impact of strategic advice related to operational efficiency, cost management, and profitability.
The operating margin is especially helpful when assessing the impact of the following interventions:
- Cost-reduction strategies like renegotiating supplier contracts, improving supply chain efficiency, and reducing waste
- Process improvements aimed at saving costs and raising productivity
- Measures aimed at raising revenue without a significant increase in costs
- Measures aimed at productivity gains, including changes to production processes, technology adoption, and workforce management
- Operational restructuring measures like consolidating departments and optimizing workflow
Comparing the consultant’s fees against the improvement in operating margin can help quantify consulting ROI.
Annual Customer Acquisition Rate
Annual Customer Acquisition Rate (ACAR) is an important metric that measures the number of new customers a company acquires over a year.
This metric is particularly useful for evaluating the impact of an external consultant hired to work with the CEO on business strategy, especially as it pertains to marketing strategies, sales processes, or customer engagement practices.
ACAR can help evaluate the impact of interventions in:
- Marketing campaigns
- Sales process optimization. It can show the impact of improved lead generation, enhanced customer outreach, or improved sales pitches.
- New markets. If the consultant recommends targeting new customer segments or entering new markets, ACAR can measure the success of these efforts.
- Product-market fit. A higher ACAR after product adjustments or new product launches suggests that the consultant’s recommendations have improved the product-market fit.
- Customer lifetime value. ACAR, in conjunction with customer lifetime value (CLV), can provide insights into whether newly acquired customers are valuable and likely to contribute to long-term profitability.
Work with a professional Journey Partner as your dedicated strategic consultant today and get access to tier 1 consulting services that help you stay on track when executing your company’s strategic plan.
Assessing CEO Performance Can Help Evaluate Consulting ROI
Since CEOs are largely responsible for the performance of a business, it’s important to consider the impact CEO consulting services have on the ability of the CEO.
For example, if the CEO becomes better at strategic planning and execution, or if their ability to work with the board and capitalize on the experience of board members is enhanced, ignoring that when assessing the impact of external consulting would provide a flawed picture.
However, before we can decide whether a CEO brings more strategic impact to the organization as a result of working with a consultant, we must know how to assess the CEO’s strategic performance.
The following framework, which accounts for the key aspects of a CEO’s performance, can be helpful:
- Setting the direction of the company. This involves developing a vision, outlining a winning strategy, and allocating resources effectively.
- Engaging with the board. A CEO’s ability to facilitate the effectiveness of the board strongly correlates with better company performance and a higher valuation.
- Aligning the organization. This involves implementing a strong organizational structure and culture and effectively managing talent.
- Team dynamics. A CEO’s ability to optimize team composition and operating rhythm is critical to company success.
- Stakeholder engagement. A company’s relationships with external stakeholders can significantly influence corporate earnings and the best CEOs know how to create strong bonds with stakeholders.
- Personal effectiveness. This involves managing the CEO’s time and energy and optimizing their leadership style.
Considering Sustainability and Ethics Can Help Holistically Assess Consulting ROI
External management consultants have sometimes been accused of advising the implementation of measures that result in financial gains but negatively affect other aspects of the company’s performance.
When assessing the impact of CEO consulting services, it’s important to consider Environmental, Social, and Governance (ESG) metrics.
You want to avoid a situation where the consultant has helped the company make financial gains at the cost of undermining efforts that ensure the company’s long-term success.
Factors such as the company’s carbon footprint, how employees are treated, and the company’s relationship with suppliers and other stakeholders should not be left out of the equation.
Assessing Environmental Impact
ESG metrics related to environmental compliance can help assess whether the consultant’s advice has improved the company’s adherence to environmental regulations and standards.
A reduction in carbon emissions, waste, or resource consumption would indicate that the consultant’s recommendations are positively impacting the company’s environmental performance.
Evaluating Social Responsibility
Improvements in employee satisfaction, diversity ratios, or community impact scores would suggest that the consultant’s recommendations are fostering a more inclusive and socially responsible company culture.
Social metrics can also assess the consultant’s impact in ensuring fair labor practices or sourcing materials responsibly.
Strengthening Corporate Governance
An increase in board diversity or enhanced governance practices following the consultant’s recommendations would indicate a positive impact on the company’s governance structure.
Additionally, governance metrics such as reporting quality, ethical practices, and executive accountability can be used to measure the impact of the consultant’s advice on transparency.
Mitigating Risk
ESG metrics can measure how well the company is positioned to withstand environmental, social, or governance-related challenges, such as climate change impacts, social unrest, or governance scandals.
Quantifying the ROI of ESG Improvements
While ESG metrics are non-financial, improvements in these areas can lead to financial benefits, such as reduced operational costs (for example, energy savings), enhanced brand loyalty, and access to new markets or investment opportunities.
The ROI of CEO consulting services can be partially quantified by correlating ESG improvements with financial performance metrics.
Looking for expert support in building a high-performing leadership team Journey helps you double down on the strategic business areas that will ensure you can build the most effective, self-sustaining business. Learn more.
Conclusion
Quantifying the impact of CEO consulting services is crucial for determining their true value and effectiveness. As highlighted, assessing consulting ROI involves a multifaceted approach that includes evaluating financial performance metrics such as Daily Sales Revenue, Operating Margin, and Annual Customer Acquisition Rate. By establishing baselines and comparing pre- and post-engagement performance, organizations can gain insight into how well a consultant's recommendations have contributed to tangible business outcomes.
Additionally, assessing CEO performance and considering the broader impact of consulting services on sustainability and ethics provide a more holistic view of ROI. Key performance indicators related to strategic leadership, stakeholder engagement, and organizational alignment are integral to understanding how CEO consulting services enhance overall effectiveness. Moreover, incorporating ESG metrics into the evaluation process ensures that improvements align with long-term corporate goals and ethical standards.
Ultimately, the goal is to balance financial gains with sustainable practices, ensuring that CEO consulting services contribute to both immediate business success and enduring organizational health. By leveraging these diverse evaluation methods, companies can make informed decisions about their consulting investments and drive meaningful, long-term growth. For those seeking a comprehensive approach to consulting ROI, Journey’s CEO KPIs dashboard and affordable CEO Consulting Services offer valuable resources to support strategic planning and continued business development.
Apply today to gain access to The Journey Platform’s CEO Consulting Services and discover how tailored consulting can propel your organization forward.
