In today’s financial climate, it is important that work you do for clients returns a profit. However, the revenue earned from the completion of the work is only half the story. Are the profit margins really what you thought they would be?
As any successful business knows, profit gained from work billed is not determined just by the revenue received, but also by the cost of performing the work in the first place. Therefore, the key to maximising your profit is to minimise the costs to your company. Here are our top 5 recommendations on how to ensure you’re accurately tracking your clients’ profitability and identifying slippage:
1) Record time worked regularly: All staff assigned to a piece of work should first ensure that all their time spent working on that client is recorded regularly and accurately. Did you know that software is available that can enforce your staff to complete their timesheets on time by locking them out of their machine until their timesheets are up to date? The benefit of this is that you can really break down your costs to a granular level, identifying both your most and least profitable areas or even compare department efforts.
2) Produce estimates for your jobs: Estimating the cost of performing the work can help to reduce your costs by identifying and planning ahead for any expenses prior to starting the work. In addition to this you can see if the work is worthwhile you undertaking in the first place, given the costs you’re likely to incur. Furthermore, the more accurate your estimates are, the stronger armed you are for fee negotiations as you’ve the evidence to back up the figures you’re quoting.
3) Produce WIP reports: Regular reporting on the progress of work allows you to closely monitor the accuracy of your estimates and where any over-servicing may be occurring. WIP reports can enable you to take remedial action before a lucrative work turns into an unprofitable work. In addition to this, tracking WIP helps promote accountability as you can begin to see slippage as it occurs, and negotiate changes in fees appropriately. By closely monitoring your WIP you know if you are keeping on track.
4) Run Profit & Loss reports: On completion of work, it is imperative to run a profit and loss report to see whether the cost of the work was worth the ROI. If the reports show that you’re making a loss, this will then indicate to you that it’s time to investigate cost-reducing measures that will help make your business profitable on future work. As previously mentioned, areas with gross expenditure will become apparent therefore allowing you to modify certain areas of your business.
5) Use a Comprehensive Job Costing System: You need to use a robust Job Costing system that enables you to accurately track the cost of a job from its inception to its completion. Such a system should enable you to record time worked on a job, as well as produce job estimates, supplier invoices, WIP reports and profit and loss reports, all in one integrated solution.
Tempora addresses all of the above five key points to producing a profitable client portfolio. Tempora can work with your business to help you identify and minimise the costs of the work you undertake. Let us take your mind off the costs, so that you can then focus on the key factor that drives your business – profit!
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To see how an easy-to-manage job costing system like Tempora could help your business, why not give us a call today