In this episode of the RevOps Champions Podcast, host Brendon Dennewill sits down with Kristen Kelly, Managing Director and Agency CFO at Parakeeto, to unpack why so many growing service businesses can't translate revenue growth into healthy margins. Kristen introduces the "cycle of insolvency," the pattern where hiring to handle new work quietly erodes profitability and pulls leadership's attention away from sales, and explains why a standard P&L often hides the real cause.
Kristen walks through Parakeeto's Three Immutable Laws of Profitability - delivery margin, average billable rate, and utilization - using real project examples to show how agency owners routinely misjudge which of their own offerings is actually most profitable. She and Brendon also dig into where AI creates genuine leverage in service delivery, and why structured playbooks, not the tools themselves, are the real long-term asset. RevOps leaders, agency owners, franchise operators, and finance-minded executives will come away with a concrete framework for diagnosing margin problems before they show up on next month's P&L.
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Kristen Kelly | Managing Director and Agency CFO | Parakeeto
Kristen Kelly is Managing Director and Agency CFO at Parakeeto, The Agency CFO Firm. She helps service-based businesses become healthier and more profitable by making better operational and financial decisions. Over more than 20 years, she has worked in agencies of all sizes across account management, project management, operations, and finance. From that experience she developed the Three Immutable Laws of Profitability, a practical framework that ties together pricing, staffing, delivery, and financial data. She helps leadership teams move past backward-looking P&Ls toward forecasting models that catch profit problems early, often by tracing them to decisions made in sales and account management. She is a recognized voice on profitability, utilization, and pricing strategy for agencies and service businesses. |
Brendon Dennewill: Hello and welcome back. Today I'm joined by Kristen Kelly, Managing Director and Agency CFO at Parakeeto, where she helps service-based businesses build healthier, more profitable organizations through stronger operational and financial decision making. With more than two decades of experience across account management, project management, operations, and finance, Kristen has developed a practical approach to helping business leaders understand that profitability isn't driven by financial reporting alone, it's shaped by the operational decisions made every day. She works with leadership teams to connect pricing, staffing, delivery, and financial data, giving them the visibility to make better decisions, improve margins, and scale more sustainably. Kristen, welcome to the RevOps Champions Podcast.
Kristen Kelly: Thank you so much for having me. It's great to be here.
Brendon Dennewill: Yeah, it's good to have you. Kristen, a lot of service-based businesses are growing, but many still struggle to translate that growth into healthy margins. Why do you think profitability remains such a challenge even for companies that appear successful?
The Cycle of Insolvency
Kristen Kelly: Yeah, I think it oftentimes ties back to something we call the cycle of insolvency. This is just a common experience of service-based businesses: all of a sudden they're bringing in new clients, getting sales wins, the top line is climbing. Then the team starts to get slammed with all that new work. So leadership steps in, helps to push through the crunch. And then at some point they realize they're working in the business instead of on it, and so they're hiring more people to take the load off and free themselves back up to work on the business.
But the moment they do, two things start to happen. Profitability drops as they take on all that new payroll and spend time ramping people up. And they take their eye off the ball on sales. So they lift their head up, they start selling again, and all of a sudden they find themselves back in this same cycle.
So what founders tell us, basically, is: we thought we were going to outgrow these cash flow or profitability problems. But no matter how big they get, they basically have the same problems. They keep cropping up, just at a larger scale, and they're always feeling kind of behind the eight ball, and the team always feels overworked. So this is what we call the cycle of insolvency. And it's usually, for most service businesses, something we call suffering from indigestion instead of starvation. Those two things feel exactly the same and look the same on the P&L, but they're different diagnoses and different solutions. So it's the ability to diagnose that issue because of what's happening in the cycle of insolvency.
Brendon Dennewill: Yeah, that reminds me of an analogy I heard before. There are two ways for a business to die: one is to starve, and the other is to drown.
Kristen Kelly: Thank you.
Brendon Dennewill: So it sounds very similar to what you were saying, Kristen. So when people think about profitability, they often jump straight to pricing or cutting costs. But you've argued that only a handful of operational metrics really determine financial performance. What are those metrics, and why do they matter so much?
The Three Immutable Laws of Profitability
Kristen Kelly: Yeah. So we have a framework at Parakeeto that we call the three immutable laws of profitability. And it starts with understanding a metric called delivery margin, which is just how much of every dollar is being retained after covering the cost to do the work itself. And that, we say, is the number one metric to determine the health of your business. Basically, can you earn enough money on the work itself to fund the rest of the business?
The issue is it's really obscured on most P&Ls. An owner will see the top line and the bottom and just have no idea what's happening in the middle. And oftentimes the easiest thing to attribute things to is opex: people will start looking at seats for software, looking at pulling back on other agency-related expenses or business-related expenses, when in reality they're actually not delivering as efficiently as they think they are on the work itself. So they're not making enough money to actually fund the business in and of itself.
So to diagnose delivery margin, we basically have to illuminate a couple of things on our P&L. The first one is AGI, which stands for agency gross income. This concept, basically, is that your top-line revenue is not necessarily all going to be your revenue. If you've got costs that are like media spend, for example, or things that go straight out the door that are tied to the delivery of the work itself, that money is not yours, it's pass-through. So AGI is basically top-line revenue minus pass-through. And that's going to be the money that actually belongs to you, to fund and operate the business.
So once we illuminate that on the P&L, we have one half of the formula for delivery margin. The other metric we need is delivery costs. And delivery costs are going to be twofold. So it's the portion of payroll, or all-in comp, that is going directly to the service, the employees who are delivering the work itself. We want to separate that out. Oftentimes we'll see that as just one big line in a chart of accounts, pure payroll, and we don't really know how much of that is allocated for delivery versus overhead, we don't have that segmented. And the second piece of delivery costs is shared delivery costs, like software: anything that's essential to the ability to deliver the work itself.
Once we get some clarity on where all those sit on the P&L, and what those numbers are, we can figure out delivery margin. And the formula here is just AGI minus delivery cost, divided by AGI. And what we're looking for in a service-based business is usually a delivery margin of 50% or more. And what that allows for is for your overhead costs, in totality, so sales and marketing, admin, and facilities, to be around 30%, which gives you the optionality for a 20% bottom line. So that is really the first way to start making some sense of a P&L and figuring out what's happening in that messy middle between top line and what we're actually profiting at the end of the day.
Profit First and Reverse Engineering Margin
Brendon Dennewill: So, I mean, a lot of business owners, no matter what kind of business, but let's just assume we're talking primarily about service-based businesses, a lot of us have heard about this Profit First idea. That sounds very similar to what your model is doing: you're trying to figure out how to make sure that you're starting by making sure you have that 20% profit, or EBITDA, or whatever you call it, and then everything else has to fit into the other 80%.
Kristen Kelly: That's exactly right. And I love that book, actually. You can think about it as reverse engineering your way. But basically, if you're trying to give yourself the optionality for a 20% margin, or if you're looking for an M&A of some sort down the line, what do you need in terms of the multiple you're looking for? So you can reverse engineer it that way. What has to be true from a margin perspective? Because it's all a big math formula, right? 50, 30, 20. And if you want that last number to be more than 20, we've gotta reverse that out. We're working with 100%.
Brendon Dennewill: Mm-hmm.
Kristen Kelly: So something's gotta be mathing up the chain to get us to the bottom line.
Brendon Dennewill: Yeah.
Kristen Kelly: And the good news is, with delivery margin, I mentioned three immutable laws, there are only three ways, simple but not easy, three simple ways to basically impact your delivery margin.
Brendon Dennewill: Wow, okay. I'm sure that's going to be valuable to anyone who's struggling with this profitability piece, which of course is very directly connected to the cycle of insolvency, I'm guessing. Okay, cool, that's really good stuff. So Kristen, one insight that really stood out to me is the idea that financial problems often begin long before they show up in a P&L. Where do those problems typically start, and what are leaders most likely to overlook?
Lever One: Average Cost Per Hour
Kristen Kelly: Yeah, this is great. So I'm gonna dive into the three metrics I just alluded to that actually help impact delivery margin. It's leaking in one of three areas, usually. So lever one is average cost per hour: the average cost of an hour of time in a business. So the formula there is total all-in compensation, the benefits, all that stuff, total cost of employing someone, divided by their gross capacity.
This is just a fundamental component of understanding cost basis. And this is where I think so many business owners who've really never dealt with the financial side of the business before kind of just miss the boat right out of the gate. It's really the linchpin here. If you don't understand your cost basis, you can't understand your margin. And therefore you really are not going to be successfully pricing most of the time, for example. So it can take a lot of different permutations if we just kind of lack that fundamental understanding at the very beginning, of what an average cost per hour is, on an individual basis, on a team basis, at the business level, overall. It really is just a central ingredient to being able to do a bunch of other things correctly.
Average cost per hour's utility is also in understanding if you're looking for efficiencies or gains as you're trying to optimize a business. Shifting high-level work to lower-level, cheaper resources within a business is a long-term play, but a really smart move, especially with a lot of macroeconomic challenges that businesses are facing today. So it's a really important metric, and it's point of failure number one in service-based businesses, that just lack of understanding.
Brendon Dennewill: No, were you gonna say something else?
Kristen Kelly: I've just got two more, but we'll go one by one. Does that resonate with average cost per hour? Do you see that?
Brendon Dennewill: Yeah, well, I mean, that all resonates. But where you ended that, where you're essentially pushing costs down to a lower-cost resource, I'm guessing I'm not the only one thinking, okay, this is probably where a lot of service-based businesses are leaning into AI, to build out AI to do some of those tasks that, in many cases, AI might actually do better than a hundred-dollar-an-hour resource, or whatever the average cost per hour is, fifty, sixty, eighty dollars, whatever it is. And with AI, the other thing you don't have is the gross capacity limitation, correct?
AI's Impact on Cost and Capacity
Kristen Kelly: Correct. Yeah, AI really does have the ability to impact a couple of different things. It can deliver faster: something that used to take a week could take a couple of days, for example. And, to your point, fewer hours, freeing up some of the human capital to deploy elsewhere, on higher-leverage tasks, for example.
So yeah, it really does offer a ton of additional value, just the ability to charge based on outcomes, for example, as opposed to a different methodology. But it's also gonna allow a business to keep the gains, if that's something that's deployed internally.
Brendon Dennewill: Yeah. And actually, as a side note on this, Kristen, one of the things I was predicting in 2025, when most leadership teams of businesses of all types, but let's just assume we're talking only about service-based businesses here, which, like every other business, they all seemed to be sitting on their hands in 2025, and my theory was that they were doing that because they hadn't budgeted to invest in AI to essentially reduce their total cost per hour and increase their gross capacity. My prediction was that in 2026, which of course now we're past the halfway point of, these leadership teams would be allocating budget for that. But what I've seen so far, now that we're already in August of 2026, is those budgets weren't necessarily big enough. So now my prediction is that their budgets are going to be more realistic in 2027. But what's something that I think just clicked for me is, especially if they were backing into these numbers the way that you're positioning them, that gives them the justification to say, well, if we have resources that are costing us, let's say, a million dollars for a certain number of humans, and we could reduce the average cost per hour and increase our gross capacity, what should we budget for AI to take on, even if we just budget half of what we think AI can do? That seems like a pretty smart move, right?
Kristen Kelly: In theory, yeah. I mean, from what I have seen, sometimes business owners are not necessarily accounting for the token costs, or the actual hard costs that are tied to AI. And that's been part of the learning curve of this first half of the year, in 2026, as they start to experiment, stand up systems, get their playbooks in order, all that stuff. They've learned that at first that's not very efficient either, and it can also be kind of expensive. So I think, if I had to insert my prediction, 2026 would be applying some of those learnings and becoming better at developing a more agentic approach to all of this, and finding out what has and hasn't worked and applying it there. But it's not that they're wiping out the human element, it's just being really smart with where the AI is being deployed, and using it for efficiencies and keeping the gains.
Brendon Dennewill: Yes, yeah, I really like that positioning. Did you say there were some other things you wanted to share along these lines?
Lever Two: Average Billable Rate
Kristen Kelly: Sure. I'll share the other two ways you can impact delivery margins. Remember, there are the three immutable laws, we've covered one, which is average cost per hour. The other, the second one, is average billable rate, which we refer to as ABR. A lot of people, when I talk to them about ABR, will kind of tune this out, because they hear "billable" and they think, well, we don't bill by the hour, which is kind of part of the misconception of that name. ABR doesn't care about the billing model that's being used. It could be hourly, retainer, fixed fee, or whatever. It's simply a representation of how much value per hour is being generated.
The formula for this is AGI divided by delivery hours, any time that's being spent on client work, whether that's billable or not. And that's really an important nuance. I actually don't care if the 180 hours we spent on the client work were billed or not. If 160 was, I want the full amount of time represented on the bottom half of that equation, so that we can see things like over-servicing, which is a huge thing in service businesses, that will cause a profit leak somewhere between your top line and your bottom, and you will just have no idea what's happening, because it's just the silent profit leak that really goes undetected quite a bit, for agencies in particular, which is an audience I work with quite a bit.
Just to give you an example: a website build that earned $50K in AGI with 500 hours, that's a $100 ABR. A brand design that was $15K in AGI with 100 hours, at $150 ABR. And then let's say the last one is a funnel build where, after paying out a third party for pass-through costs to do most of the work, the business retained $10K but spent almost no internal time, so their ABR was $200. Now, usually when I ask that agency owner which of those three was most profitable, they'd say the website, because it's the biggest dollar figure on the front end for AGI. But it's actually the least efficient thing they do. If they could fill their time with more projects like that last one, like that funnel build, they'd nearly double what their business makes with the same team, same hours, and nothing else changing.
So ABR is a really powerful lever we can raise by charging more or delivering an outcome in less time. And I think, to your earlier question, there's often an assumption that in order to make more money, you just have to charge more. Not necessarily. We already kind of talked about that with the average cost per hour concept. There are ways to impact that other side of the equation, becoming more efficient, that do position someone, without making any change in staff, to be more profitable. It's just understanding that really powerful metric of ABR.
Brendon Dennewill: Yeah, very cool. So ABR is kind of an industry term, and, like you said, the "B" in ABR can cause some confusion at first, although I'm sure most leadership teams will eventually get it. But if you were to rename ABR, what would you call it?
Kristen Kelly: Value per hour, maybe. VP...
Brendon Dennewill: Yeah?
Kristen Kelly: Yeah, sure, let's go VPH
Brendon Dennewill: VPH? Okay.
Kristen Kelly: That is exactly what it is: how much value per hour we're generating.
Brendon Dennewill: Right.
Kristen Kelly: VPH.
Brendon Dennewill: Okay, well, make sure you protect the IP on that before I do.
Kristen Kelly: Yeah, just to tie the two together, one of the back-of-napkin ways we can determine a target ABR for a business is to understand its average cost per hour at the business level. That's accounting for delivery roles and overhead roles together, everybody all in. What's the average cost per hour at the business level? From there, we understand how to make a 70% margin on an hour of that time. We basically take average cost per hour, divided by the inverse of 70%, which is 0.3, and boom, you've got a general ABR target for that business to be shooting for.
Brendon Dennewill: That's really helpful. Was there something else you wanted to mention on that one before we move on?
Lever Three: Utilization
Kristen Kelly: Yeah, we'll just do the last law of profitability here, which is utilization. Utilization is pretty straightforward. It's the share of your team's capacity that actually goes to earning revenue. This one is probably the most misunderstood metric that I see. There are wildly different definitions across all the different clients I work with, but ours is delivery hours, notice again, not billable hours. It's how much time was actually worked, divided by total gross capacity. We can slice this up across individual contributors, teams, whole businesses, to get an understanding of utilization.
It's a leadership team metric, in that it's the leadership team's job to keep the team fully utilized. And where I see things kind of go awry in service-based businesses is it's used as a stick among individual contributors, where the leadership team sees utilization that's dipping a little low, and so they automatically go to the team and say, hey, we need to get your hours up. And so what we have is a team who's basically just doing more work, but not getting paid for it. They're trying to appease, or give a false read to, a number that the leadership team isn't pleased with. And we're really just not achieving that goal by filling it with more work, more things we're not getting paid for.
Brendon Dennewill: Yeah, I've seen this. As a professional services business ourselves, having been in the space now for sixteen years, I've been part of different forums over the years, sort of peer groups of other agencies and consultancies. Even those running on EOS, for example, where you have your scorecard metrics and whatever, I'd agree that utilization is definitely the one that always seems to stump people, because they don't know how to measure it. So when you talk about gross capacity, can you explain that to us for a second?
Kristen Kelly: Sure. I think this is also a point where we see a lot of different permutations of someone's definition of capacity. Our point of view here is that we do include, it's 2,080, for example, across the board. We do not strip out vacation, time off, any of the holidays, because what it actually does, when you look at it, is give a false read. For example, if I was looking at an individual contributor's utilization over a week, but they were on vacation for half the week, if I changed the denominator to show them having less gross capacity, they would have worked the full 20 hours, and I've stripped out the other 20, they only worked 20. Well, they look fully utilized, but really that didn't tell us the full story of the whole week, they were gone for half of it. They were 50% utilized, and that's what we would want to know.
So we always keep those hours baked directly into gross capacity, we keep those hours visible in there, and we apply that to all tiers when we're looking at utilization. Where we're accounting for that time off, for that unutilized time, is in our delivery margin. I mentioned a couple minutes ago that we want to shoot for a 70% margin on an hour of time. We want to do that because we know there's going to be a drop-off between that 70% on the work itself and that 50% delivery margin we want to earn at the company level, on the P&L. So that 20% drop is where we're going to automatically account for my unutilized time, my vacation time, all that stuff. So rather than making it such that we have to bend over backwards to understand utilization at any given time, we're just going to count 2,080 as that annualized capacity. Of course you can look at it weekly, monthly, whatever, but just know that we're including all the hours in that denominator. We're accounting for the vacation elsewhere.
Brendon Dennewill: Very good. Yeah, that's super valuable. Okay, should we move on?
Kristen Kelly: Sure.
Brendon Dennewill: That was really good. I think if we did nothing else, that alone would be valuable for so many folks, whether they're running agencies or consultancies. And even if I think about all the home services businesses that we work with, or that exist in the franchise space, so much of this is actually transferable, even though some of them might have slightly more opex in their businesses. So, for example, if they're a plumbing franchise or a roofing franchise, obviously they have different costs of goods, but I think ultimately they're still service-based businesses that are reliant on humans to deliver their work, and not only their work, but their customer experience, of course, which we won't get into now. But I think these formulas alone are going to be incredibly helpful for anyone in that space listening.
Kristen Kelly: Yeah, I hope so. And hopefully it helps simplify the framework, or the way of thinking about it. I think so many service-based businesses get hung up on trying to account for overhead costs in a way that ultimately rolls them all the way into how they price, when really, if we separate out overhead and just understand that we need to achieve a certain margin on the work itself, to fund the whole business, then we're able to start thinking about that differently and focus on the efficiency and the margin on the work itself. It's just a much simpler way to think about things.
Aligning Finance, Operations, and Delivery
Brendon Dennewill: Yeah, which, actually, that's where I want to go next. The work that you do sits at the intersection of finance, operations, and delivery. So as organizations grow, where do you most often see those functions fall out of alignment, and what impact does that have on business performance?
Kristen Kelly: Yeah, so what's usually happening is a lot of looking in the rearview mirror. What I mean by that is the owner of the franchise, for example, or the owner of any entity of the business, is once a month taking a look at the P&L, and that's really just a reaction to what's already happened. The numbers themselves are a result of things that actually took place way back, it could be months or years, but any sort of framing that's been done to the business model itself can directly impact those numbers, whether it's a fundamental misunderstanding of the cost basis, or just some incremental things that happened in the past month, like our team wasn't utilized enough, or we over-serviced an account, did some things that were out of scope, for example, that eroded the profit.
So what we do is leverage those core metrics I just talked about, utilization, ABR, average cost per hour, and delivery margin, which alone can tell us a diagnosis about whether something was off on the delivery side of things. So that's what we're using the P&L for. We're looking to see where things kind of netted out. But what Parakeeto does well, and what's really essential for a service-based business, is to be able to look forward, and to know that the P&L is just going to be a validation of what you thought was going to happen. Maybe some things went awry here or there, but you mostly want to know, as a business owner looking ahead, am I forecasted to be fully utilized? If not, I need to sell more, or I need to correct my headcount. What we do, basically, is leverage things like our cost-basis scoping before pricing, so that we know what we're forecasted to be doing in the month ahead, the quarter ahead, and make some proactive decisions before they show up on the P&L.
Brendon Dennewill: Yeah, so, in a nutshell, and I know this is the focus of whether you're running on EOS or any other business operating system, the goal is always to have leading indicators versus lagging indicators. So what you're bringing to your clients is essentially, how do we make sure your scorecard is as much based on leading indicators of what will lead to success, versus just looking back and saying, dang, we missed it again.
Kristen Kelly: Exactly. Yeah. Really, what we help do, as a starting point, is understand the existing business model, and whether that's set up to be profitable in the first place. If it's not, we talk about what needs to be true to reshape that 50-30-20 split, or whatever makes the most sense for that particular entity, that business. And then the next step in the sequence is to be able to forecast. That gets into understanding, in advance, what our planned utilization is going to be, what we're planning from an ABR perspective. We can do that by understanding how many hours we're planning to spend on a certain thing, and how much we're then pricing, and what our margin is. So we can know, as part of our new-business process, what we're planning to achieve in the first place.
Really, it all starts with most businesses starting backwards. All they've got is the backward look. We're trying to start from the beginning: the model, the forecast, and then the feedback, which is what actually happened, so that we've got this point of comparison. Did we plan to be profitable? And then were we? And what's the delta, and how do we fix it moving forward?
Brendon Dennewill: Yeah. No, I was gonna say something, but I realized it was very sarcastic, so I won't go there.
Kristen Kelly: I love sarcasm. Come on, lay it on me.
Brendon Dennewill: No, well, it's just, it's when you, when you land where you did, because, you know, so many entrepreneurs are familiar with The E-Myth, right? And it's probably still the most-read book on entrepreneurship, whether it's a service-based business or not. But so many people get into business because they're wanting to help people in a particular area, whatever, and they're not really thinking about the money or the profit. But I'm guessing, for you, for example, and for us too, if our clients aren't actually in business to make a profit, then we're probably not going to be a good fit, because why would they need us if profitability isn't that critical, right? So it is snarky and sarcastic, but at the same time I know that it's true, because I've been there, and I've seen many other businesses that are like, well, we didn't start this to make money or be profitable, we just started it because we want to help people.
Kristen Kelly: Yeah, I hear that all the time. And that's a noble cause, but small businesses do a world of good for our society, just for the economy, right? So it behooves us to ensure that they're profitable, and not just doing what they do best and bringing their services to people.
Brendon Dennewill: Well, I think that's ultimately what they realize: if we're not profitable, we cannot continue to provide whatever value we provide, because we're gonna go out of business.
Kristen Kelly: Exactly right. Yeah.
Systems, Process, and Technology
Brendon Dennewill: Yeah, okay, cool. Okay, so Kristen, many organizations invest in new tools, hoping they'll improve performance. But, as we've seen over and over for the last sixteen years, technology alone rarely solves operational challenges. How should leaders think about the relationship between systems, processes, and technology, as they scale?
Kristen Kelly: Yeah, that's a great question. I can't tell you the number of times I have seen a leadership team think that just implementing a tool is going to be the answer to all of their problems. I think about things like, for example, it's just that we're not using the right project management platform, this one has all these new bells and whistles, it is the answer to our problems. Well, the reality is that until we get aligned with the framework we're using, the metrics we're measuring, and the questions we're trying to answer repeatedly, it doesn't make sense to procure a tool unless we know it can check all of those boxes, to answer all of our questions. Until all those things are agreed upon, the tool is just slapping a Band-Aid on something we just don't understand yet.
When we work with teams, really, it's imperative to start there. Like I mentioned, it starts with understanding our business model, understanding the metrics we need to be able to see how our business is performing, and is it healthy. And it doesn't have to be a ton. We need to just get really clear on what it is the tool is supposed to be telling us on a regular basis, in service of visibility toward those metrics. So yeah, I think the number-one flaw in just picking a new tool, with all the optimism in the world, is just not understanding the upstream things that may or may not be working, be that a process or a system or whatever. But usually one level deeper than that, we just don't understand what it is we're trying to measure. And more than that, we don't understand what question we're asking, and why we need to know the answer, as a leadership team.
Brendon Dennewill: Yeah. No, of course we see that as well, because the framework we use to drive revenue and profitability from a systems perspective, which is ultimately what our clients come to us for, is very deliberate. It's not technology, data, process, people, it's people, process, data, and technology. So when a prospective client comes to us, they're coming to us because they want us to build a new revenue operations system for them, which is ultimately technology. The end result they get is a system that works to drive their revenue and their scalability, but they often come to us thinking that it's going to fix the issues that they have further upstream, whether it's people, leadership, culture issues, or the process issues that they haven't quite identified, or not knowing what data, metrics, or KPIs they're actually working toward.
So one of the things we always do first is we say we have to be able to map whatever they want to do manually first, because we cannot implement, customize, design, and build a system until we've mapped it out literally manually. You could do it on a whiteboard, and of course there are other ways to do it too. And that's often when they realize that maybe the issue they're having is not going to be solved by technology, so they need to go and solve that first. And once they've solved those things, then we can go back and implement the system that's going to make what they've designed, or re-engineered, more successful.
Kristen Kelly: Yeah, I would add, or double-click on that too, where I think a lot of the data layer is often misunderstood too. It's not that the data is in disparate locations, oftentimes; it's also that there's not a process for cleaning it up, or transforming it into an entity that actually will allow you to have a clean read on a metric you're trying to achieve. Parakeeto uses an ETL process with all the data that's being funneled into our software platform. I think it's just super important, because data's messy, right? There's a human element that's upstream from all of it, that you've mentioned, and humans are imperfect, right? So we're dealing with data coming in from all systems, and also being entered by humans most of the time. That's a huge area, too, that's often not really considered, when it comes to tooling and getting the visibility we're trying to get on certain things.
Brendon Dennewill: Absolutely. Yeah, and this has been true already for the last year and a half: as more and more businesses want to invest in AI, you cannot actually really effectively use AI if you don't have control of your data, right?
Kristen Kelly: A hundred percent, yep.
Brendon Dennewill: Not to mention the technology component, and you talked about having data in different places. Most businesses do have data in different places, but you still need to be able to pull that data from three, four, or more sources in real time, to be able to tell what's going on. Because what we see most of the time is, when someone wants to make a decision at the leadership level, or at a functional level, they need to go pull reports, which might take hours or days, which means they're delaying making a decision for hours or days. And we won't go into what the potential cost of that is, but if you have that data in your aligned systems, you should be able to make decisions literally within an hour.
Kristen Kelly: Right, which is exactly why a P&L is not often a very useful document, because it's just a singular data set. It's not pulling in any of the operational metrics to give us a view into any of the other things that led to that P&L.
Brendon Dennewill: It's a point in time, yeah.
Kristen Kelly: Which is exactly what Parakeeto fills: bridging the data between delivery, sales, ops, and finance, all those sources.
Brendon Dennewill: Yeah, it's interesting, we should probably talk more about that, because we're typically brought in from a revenue operations perspective, so it's sales, marketing, and customer service. But pretty much every single time, we're also the ones integrating whatever is happening on the back end, whether it's the financial systems, or if they have an ERP that has to be integrated with whatever we're building, so that the data flows across the entire organization.
Kristen Kelly: Yeah. Parakeeto is pulling from a financial platform, usually the accounting one, the project management platform, so the in-flight work, time tracking, and then any sort of sales data, so that we're understanding the impact of work that may land in the pipeline.
Brendon Dennewill: So, from a CRM. Right. Okay. Cool. Well, we should talk more about that, because it sounds like we might not have the same seat at the table, but our seats might be next to each other.
Kristen Kelly: There's some overlap. Yeah, a little bit.
AI, Playbooks, and the Future of Service Businesses
Brendon Dennewill: So Kristen, we touched a little bit on AI, but let's go back there. So AI is changing how service businesses operate, from delivery to forecasting to internal workflows. Where do you see the biggest opportunities, and where do you think organizations risk expecting too much from technology?
Kristen Kelly: Yeah. I think where a lot of service-based businesses maybe haven't gotten as tight as they should, before chasing down this AI path, is really dialing in their playbooks. What I mean by that is, simply, what are the repeatable processes we do every day? And we want to start with the lowest-hanging fruit, the stuff we've done a million times and it just doesn't change. I say that because, first of all, even without AI, it's essential to operations, right? It's sort of like writing out a glorified SOP, but it's more than that when you're prepping this for AI.
Once you've got a playbook in place, where you're sourcing certain things, what has to happen sequentially, a trigger, things like that, we can leverage this playbook in any AI platform. And AI is only going to keep evolving, so whether you're all in on Claude, whether you're all in on ChatGPT, it doesn't matter, you'd be able to be nimble as long as you've got your playbook. Your playbook is what belongs to you. You can plug it into whatever model is going to be able to serve you best into the future. So I think that's really the core, along with, to your earlier point, really structured data, because that's what's required to feed these AI models. AI really needs structured context in order to be able to fulfill playbooks.
The sooner a service-based business can get that structured in databases, or entities like Notion, which has a bunch of databases and also happens to be perfect for SOPs, there's just a lot of initial work and diligence that needs to be done, before we can even talk about the gains to be had when we can give AI all this stuff and develop things like agents to run certain processes repeatedly, and take those things off our hands without much thought.
Brendon Dennewill: Yeah, I really like that answer, because that's kind of where we landed ourselves earlier this year. We just launched what we call the Franchise Growth Playbook. And actually, now that you mention that, I want to run that by you, just to get your perspective on that from a financial and profitability perspective, because we're seeing the same thing. And even though you mentioned a few different tools there, you were also saying it in such a way that really you should be agnostic to whatever the tool is you're using. It's the playbook that matters, because the tools will change, the tools will evolve, and you're gonna want to switch tools, whether it's next month or next year or whatever. So I really think that's good advice, making sure you own the playbook that sits above the technology you're gonna be using to run that playbook.
Kristen Kelly: Yeah, absolutely. It's the playbooks and the databases, those are your assets, really, when it comes to being able to leverage whatever AI of the moment is most efficient for you.
Parakeeto's Evolution Into Full-Service Financial Support
Brendon Dennewill: Hmm, yeah, that's really good. I like that. Okay, so Kristen, Parakeeto has evolved from helping agencies understand their numbers to helping them manage the financial side of the business more holistically. You've sort of added these financial services, including, I think, now also accounting and bookkeeping. What prompted that evolution, and what problems are you solving for clients today that you weren't a few years ago?
Kristen Kelly: Yeah. So you mentioned agencies, and yes, we do work quite often with agencies, like marketing agencies, digital agencies, but our framework, and the framework that I described today, is really applicable to any service-based business. And as you've heard throughout today's conversation, we've talked about the P&L quite a bit. So basically, as a natural evolution to that fractional CFO/COO advisory work, we determined that it would also make a lot of sense to have the books be able to be handled by a singular entity. So we're now able to help our clients understand the financial side of their business more holistically. We help shape their chart of accounts, and make sure they are not just getting a P&L that's useful for tax purposes, for checking those boxes every year, but also producing a separate managed accounting report that is easily understood and full of insight.
They're able to see those benchmarks that we just talked about today on their P&L, and we're able to extract those insights and advise on them from a forward-looking perspective, every month. So those two things really go hand in hand. The financials, like I mentioned, are important. They tell us what has happened, and we want to keep an eye on that to diagnose things like over-servicing, like where those three levers kind of missed the mark. But it's really the backward-facing information, the lagging indicators, paired with the forward-facing insight, that's really all the leverage for a service-based business, having that holistic view.
Brendon Dennewill: Yeah, that makes a lot of sense, and I'm sure is incredibly valuable to your clients.
Kristen Kelly: We have found it to be. Yeah.
Closing Advice
Brendon Dennewill: Good, good. Okay, Kristen, so unfortunately it's time for us to wrap up, because I know you and I could probably both talk for quite a bit longer. Based on kind of what we've chatted about so far, what is one last word of advice you would leave with anyone potentially grappling with some of the solutions you've talked about?
Kristen Kelly: Yeah, I would say focus on delivery margin. If you can figure that out, by just taking a handful of data points from your P&L, the ones I mentioned earlier, and be able to understand where that sits today, is it above or below 50%, and then compare that to the bottom line, that's gonna get you more than half the way there, in terms of diagnosing where the problem lies in the business. And knowing that is step one. Right, start.
Brendon Dennewill: Awesome. Kristen, thanks so much for joining us today.
Kristen Kelly: Thank you for having me.
Brendon Dennewill: And I look forward to the next conversation.
Kristen Kelly: Likewise.
Brendon Dennewill: See ya.