Project Cost & Profitability: Are You Turning A Profit?


In the world of professional services, time is your product. There is no inventory, no production line, no factory. It can be hard to know how well (or how poorly) your company is performing.

  • Money might be coming in, but are you really making a profit?
  • Is your biggest client really bringing in big profits?
  • Is your best employee really billing enough to be worth their salary?
  • Are you sticking to your budgets regarding project spending and billing?
  • How much do you expect to make at the end of the month?
  • Does a big project really bring in more profit than a small one?

The only way to know the answer to all these questions is metrics. Metrics are measurements that can be established in order to assess the performance and progress of the company.

It’s surprising how many businesses only know their metrics globally from the annual balance sheet. Projects should be profitable, and non-profitable projects should be identified as quickly as possible.

All expenses should be associated with a project. This includes resource costs (from time sheets, for example), expenses, vendor and contractor invoices, and overhead related to the project. When all costs are coded to the right project, it is easy to use invoices for the project and identify profitable projects.

Businesses should have a target profitability level per project and per client:


In the table above, we can see that Project C is bringing in more revenue. However, since only half of its time is billable, it is not turning a profit at this time. Project B, on the other side, is returning a higher profit, mainly because of its higher proportion of billable time.

About Gut Feelings, And Why You Need a Time & Billing Software


We had a client who signed on to us because he and his associate could not agree on what was most profitable in their business. While one thought one type of contract was most profitable, the other associate believed it was something else entirely.

The problem was: they were both basing their conclusions on their gut feelings, their instinct. And while instinct is indispensable in business, it may not be the best guide to assess business performance.

Why? Because our gut feeling does not have a 360-degree view of the business. It only has access to the data we pay attention to.

Sales Myopia

From the sales perspective, we’re focused on sales contracts; in other words, how much one client signs for over another. However, once the contract is being executed, it is often out of our hands. Hence, we may not know that the client requires a lot of non-billable work, which drives profitability down faster than a mortgage crisis.

Project Manager Myopia

From a project management standpoint, we can see how projects go: how fast we get approvals from the client, how well the project is scoped and how many (or how few) change requests we get. If the project budget and timeline are respected, then the project seems successful. However, if this client takes 90 days instead of 30 to pay invoices, and requires a lot of legwork to get contracts signed before the project can start, it may not be as profitable as it seems.

Administrator Myopia

From an administration standpoint, what makes a good client are accounts receivables. However, the speed at which a client pays does not necessarily mean profit. What if this client generates too much non-billable work? What if this client’s projects consistently go over-budget?

Our gut feeling doesn’t see straight

Because our personal perspective on the business is not as accurate as we would all like to believe, we need data. Cold, hard, heartless data.

Billable time: how much is your time worth?

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Deciding how much to charge for our time is always a tricky thing: if we charge too much per hour, we will lose clients. If we charge too little per hour, we won’t make enough to cover our costs.

Too often, we choose how much to charge for our services based on industry standards, previous jobs, or competition. While those are worthy benchmarks to gage our pricing against, they may not be the best factors to use while building our rate sheet.

Here are a few questions worth answering before choosing a rate:

  1. How much revenue do you need? Work up your costs, such as office rent, administration expenses, wages, etc. Then, add your target profit before taxes. This should give you a good idea of the amount that must be billed in a year. Knowing your costs will also allow-you to compute your break-even rate – the rate at which you’re not losing money.
  2. How many billable hours can you and your team work for? It’s naive to assume that 100% of work time is billable. Previous years can give a good idea of how many billable hours can be expected by a person and by the organization as a whole.


Once you know your revenue needs and your productivity, divide one by the other and we get our billable hourly rate. For example, let’s say we have the following costs:

  • A team of 10 employees costing us 500 000$ per year in wages;
  • Office rent, equipment and administrative expenses costing us 60 000$ per year;
  • We aim for a 15% before-tax profit, which amounts to 98 823 $.

Our revenues should be of at least 560 000$ per year (to break even) and of 658 823$ to make our target profit.

Now, let’s look at our productivity:

  • Out of our team of 10, we have 7 consultants who can produce billable time;
  • We estimate that our consultants should bill around 70% of their hours, which equals 28 hours per week per consultant;
  • We estimate that each consultant will work around 48 weeks per year, keeping 4 weeks for vacation, holidays and other absences.

Our total productivity is

7 consultants

x 48 weeks

x 28 billable hours per week

= 9408 billable hours per year.

How much should we charge per billable hour?

To attain our profit goal, we need:

658 823$ / 9408 hours = 70.03 $ per hour

To break even, we need:

560 000$ / 9408 hours = 59.52 $ per hour

Can this work?

  • Once we’ve made those calculations, the question remains: is this realistic?
  • Are those rates in line with your peers in the industry?
  • Is your product more or less expensive than your competitors’?
  • What happens if your team’s billable hours ratio is 60%?
  • What happens if your expenses go up? If one of your consultants leave the company mid-project?

Today’s economy has taught us the importance of hoping for the best while planning for the worst.

Time Is the Product, Profit Is the Goal


It seems that in manufacturing, business managers are used to having metrics like product line profitability, expected revenue from sales, breakeven points, and the like. In professional service businesses, the same performance metrics can still be obtained, if we use time (and billable time) as our product, and resources as our product lines.

As we can see in the table below, the metrics really are the same; it’s just the names that change.

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Are your projects profitable?

The payments come, checks are cashed but the funds come out as fast as they were calculated in the company’s cashier? Furthermore, what about profitability and profit margins? What tools are available to measure your business’s vital financial information?

In a context of frequent movements of money, it is easy to get a profitability illusion when you don’t properly compare the revenues to the costs incurred.

Let’s not confuse revenues and profits

With a bookkeeping of project revenues and expenses, it is much easier to identify profitable projects from those that are delivered at a loss. The ideal tool should offer management indicators to display in real time the budget situation, the project’s profitability and the return indicators calculated using various parameters. In project accounting, it is possible to know at any time the financial results of your projects with a tool that combines financial and project management.

To do this, you should budget all required expenses and hours while applying a safety factor to the quantities – both on expenses and hours.

Regarding the hours, we will take a cost-plus into account, which involves the contributor’s real cost as well as the calculated proportional operating cost of each resource.

No flexibility

The current economic climate leaves no flexibility for companies. It is therefore essential to know all of our projects’ profitability. This helps making an informed decision: does the project bring anything else than an economic value to the company? Will the loss be covered by another project from the same customer?

The information

Knowing the profitability of our projects at any time allows us to make pragmatic and well-founded decisions for the company. Abak 360 allows a seamless project income and expense accounting; thus, the financial results of each project will have no secret for you!

Contact us for more information!

6 reasons why spreadsheets turn timesheets into a nightmare

Spreadsheets are great: they allow us to log a lot of information in an efficient format. They allow us to make computations, charts, and lots of fancy stuff (if you know the formulas). And because everyone has a spreadsheet program (Excel for most of us), it’s easy to send the information to someone else.

However, spreadsheets are a nightmare waiting to happen

Why? Because we expect spreadsheets to behave like centralized databases, self-updating and self-managed which is not the case.

Here are 6 reasons why you should stay away from spreadsheets for your timesheets:

  1. Spreadsheets don’t report to central when something changes. Updating your timesheet? Making a correction? Unless you remember to let management know about the change, it stays in the spreadsheet.
  2. An endless number of versions. With email, spreadsheets have become even more disastrous. As one version is sent, someone sends back a correction, and then we need to resend the corrected time sheet to everyone over again. We end up with so many versions of the same file, it’s maddening!
  3. Spreadsheets are an island. Unless equipped with advanced knowledge of Excel programming, what is in the spreadsheet stays in the spreadsheet. If we have a team working together, they cannot log everything in the same spreadsheet at the same time. This creates and archipelago of information that needs to be reconnected by the administration.
  4. It is a pain to turn them into an invoice. Unless significant investment is made in turning spreadsheets into a billing system (and think of the pain of maintaining this!), information from the team’s time sheets has to be copied and pasted over to the invoice. Can we think of a better way to introduce mistakes in our invoices?
  5. Consolidation? How does information flow from timesheets to invoices to accounts receivables and to payroll? With spreadsheets, it’s all done by hand, with – of course – risks of error …. And a bonus!
  6. Forgetting is just a fact of life. We forget. We forget about this one billable call we took while driving. We forget about the business lunch we had last week. It’s normal. With spreadsheets, those things get left out, and the company loses revenues.

Isn’t it time those systems talked to each other?

We live in this great modern world. We have the technology to flow information from one system to next, seamlessly, automatically. So why are we so bent on doing it all manually? An advanced system such as Abak 360 allows you to eliminate the risks occurring when using numerous solutions. With Abak, you enter your timesheets, your invoices, your accounts receivables and your payrolls in the same system. Managing your timesheets has never been so easy!

Including operation costs in projects: For or against?

There are two schools of thought when it comes to project costing:

  • Charge only direct costs to the projects. In a second step use the project’s contribution margin to cover operation costs, also called overhear costs. This method makes the global profit margin more visible.
  • Charge all costs, including the operation costs, to the projects, and get net profit directly from each project.

How does it work?

Computing net profit globally

When charging only direct costs to the projects, the profit is called a contribution margin. It’s normal, since operation costs are not paid for yet.

At the end of the project, I compute my contribution margin:

  1. I invoiced $50,000.
  2. Direct costs for the project, including employee work, supplier invoices and contractor costs, are $23,000.
  3. My contribution margin is $27,000.

By adding this contribution margin to that of my other projects, I create a reserve to pay for operation costs. At the end of the quarter, for example, I can total my operation costs and subtract them from my contribution margin, to get my net profit for the period.

  1. I have $103,000 in contribution margin from my projects this quarter.
  2. I have incurred $60,000 in operation costs.
  3. My net profit for the quarter is $43,000.

Charging operation costs to projects

Project direct costs are easy to charge: supplier invoices, expense reports, time sheets and contractor costs are already associated with a project when logging them in Abak. When we want to add operations costs, it gets tricky. How can we decide how much of the operation costs to charge to each project? We’re talking about rent, administrative staff, computers, etc.

The simpler method is to add an extra amount to the hourly cost of resources.

Here’s an example:

  1. My operation costs are $100,000 per year. This includes all costs not charged directly to my projects.
  2. I have 10 employees who work on projects, on average 2,000 hours per year.
  3. My total worked hours for the year is 20,000 hours.
  4. I can divide my operation costs by my worked hours: $100,000 / 20,000 hours = $5.

This $5 is the amount I will add to my hourly costs for all employees that charge to projects. If my employee has an hourly cost of $32, including salary and benefits, then I’ll us a cost rate of $37 per hours to include operation costs. I can do this directly in the employee’s cost rate in Abak, or I can configure a $5 cost mark-up in the employee functions.

With the adjusted hourly costs, I can include my operation costs in my projects. This operation cost mark-up can be computed on a yearly basis by accounting and finance teams.

At the end of the project, I can see my net profit easily:

  1. I invoiced $50,000 for my project.
  2. My costs, including the operation costs mark-up on hours worked, total $37,000.
  3. My net profit is then $13,000.

Good sides, bad sides


Document Management for your Projects

There was a time, not so long ago, when metal cabinets heavily loaded with files were the only solution to preserve and file documents. This time now belongs to the past and paper is gradually replaced by the more convenient electronic format, less bulky, and easily sent to multiple recipients.

Storage and classification of documents in electronic format are performed on directories located on the computer disk, in emails, on server, or in cloud mode.

Indeed, though this solution is rather convenient when one wishes to manage a virtual library, limitations will soon appear. We will get back to this topic a little later.

Demand generating supply, new tools and concepts quickly appeared on the market.

Indeed, terms such as Electronic Document Management and Content Management (better known under the term Enterprise Content Management -ECM) are now common; there are numerous document management systems.

Collectively known as content management solutions, they meet very diverse needs. Let us mention a few of them:

  • Document management;
  • Web content management (WCM Web Content Management);
  • Multimedia document management (DAM (Digital Asset Management);
  • Archives management;
  • Email management;
  • Content analysis of digital documents (Content Analytics or Content Analysis).

The aim is to manage the content of numerous unstructured documents in order to automatically analyze and identify trends in those documents.

What are the benefits of document management?

Utilizing a document management system offers numerous benefits. However, it is mandatory that the solution is integrated in a software suite which brings together the various modules required for appropriate and effective project management. In fact, quite often, organizations will have a whole range of management tools:

  • Time Management
  • Budget Management
  • Management of the deliverables
  • Management of changes occurring in projects
  • Management of work in progress and billing
  • Management of time banks
  • Document management
  • Etc.

The problem that arises does not involve the tools themselves. The problematic rather lies in the fact that those different systems do not communicate with each other. Therefore, the benefit of these solutions is dissolved in the time needed to forward information from one application to another with all the risks of mistakes and forgetfulness that this delicate operation involves.
Ideally, the document management tool must be available on a versatile software platform, easily operated by the project manager, that is to say; no need to use multiple software, and direct access to all components of the project:

  • Budget;
  • Project WBS;
  • Allocation of resources;
  • Monitoring the availability of resources;
  • Transactions (timesheets, expenses);
  • Management of vendor invoices;
  • Billing;
  • Financial Reports;
  • Notes on project;
  • And other documents related to the project itself.

The direct benefits are time saving and centralization of information.

Abak360 was recently fitted with a versatile document management module. It is thus possible for the user to centralize all documentation relating to a project directly in the project folder (receipts, pictures, layouts, and any other type of documents). An employee who enters his/her time and expenses also has the ability to electronically attach receipts to the expense account.

For further information do not hesitate to contact us!

Time and expense tracking software for R&D projects

Tax credits on R&D projects constitute a significant financial source that contributes to the growth of your company. However, preparing credit application files often represents a time consuming and rather painful process both at administrative and organizational levels.

Are these issues familiar?

Permeability between different projects: how to log the actual time against the appropriate project? Most of the time, various R&D projects are carried out simultaneously and may be related to similar tasks. Therefore, unless you have a flexible tool to manage those projects, time recording may become unreliable and tedious.

Create project templates in Abak 360, duplicate them each and every time you launch a new R&D project, and assign employees to the project. Reliable data entries will be logged against the right project, by the appropriate resources. Quick and efficient!

Everyone can log time on a project according to one’s own method (task description for instance). Quite often employees will not log their time and related expenses on a day to day basis. In the absence of a systematic input method used by all, data entries may vary depending on individuals, their attendance, and their attention to details. Thus, the information might not be realistic, nor reliable.

In Abak 360 create all the tasks and expenses types that you need. List those tasks and expenses types in your project, organize them in phases and sub phases. All employees assigned to the project will access the same list of tasks and expenses.

Correlating time/expense entries and documentation: tax credit applications require detailed documentation in regard to the projects and the time devoted to them. In most of cases, documents and receipts are not correlated with the time/expense tracking solution.

Abak 360 includes a powerful document management tool which allows storage of documents in electronic format for a given project. Centralizing all information on a R&D project including documentation will save you precious time.

Omissions and errors regarding hours and expenses logged on a R&D project are quite common.

With Abak360 It is possible to limit the risk of errors and omissions by building phase based project architecture. Moreover automatic alerts will be triggered when a project has reached a problematic or critical situation (in regards to the budget for instance or on planned quantities). Abak360 will warn you when a project is drifting away from its boundaries.

Managing expenses for R&D project is quite often difficult. Are all the expenses planned, have they all been approved. Are the expenses assigned to the right project?

Planning and budgeting your expenses is easy in Abak 360. Within your project tree you even can plan you expenses per phase and per sub-phase. Invoices and receipts (in electronic format) will be kept in the project file.

Preparing an application for a R&D tax credit requires a lot of time. Very often information is scattered throughout different files.

Abak 360 standardizes and secures your project management process. Further, all the information related to the project is centralized onto one platform (time and expense entries, budget, report, documents, resources assignations, and notes on project). With Abak360, you spare a lot of time. No rush anymore to complete and send your application for tax return on time!

The right tools for the right team!

As you know, we live in a very competitive world.

To gain contracts and projects, a nice reputation and past successes aren’t
enough anymore; you have to gather the key elements of the achievement equation:

Quality of the product or service + Reputation & referrals + Optimized prices and delays + Pragmatic organisation = Project acquisition

Therefore, the focus must be put on the preciseness of the price and the accuracy of the project’s structure as well as a satisfying accomplishment delay for the prospect.

At a preliminary stage (the quote), it is important to use work methodologies that allow you to calculate the price of a project. This price has to be competitive but should also generate important profits for the company.

With this in mind, a time management, invoicing and project cost management software is a must-have; its efficiency can be found in a logical follow-up of actions:

  1. Project architecture
  2. Quote preparation
  3. Budgets
  4. Time management
  5. Follow-up of project’s cost
  6. Invoicing

At the preliminary stage, the project management can define the main phases of his project and extrapolate any expected sub phases and activities.

That way, it is possible to anticipate different skill levels and attribute them diversified tasks, therefore make responsibility choices according to each team member’s abilities.

Honorary optimisation for everyone is then possible. For example, visiting a building site costs less that writing a technical report; elaborating a building plan costs more that informative meetings or administrative paperwork related to the project. A wise decision regarding those choices will optimize your offer’s competitiveness.

The software allows you to partition the project in as many phases, sub phases and activities you need in order to understand better the client’s needs, the project’s challenges, its risks and the time it takes to fulfill it. Above all, the software allows you to plan in details the required activities, the costs and the prices while considering competitiveness.

Working with this method allows a competitive positioning but also lets you save time when obtaining a project because most of the management and budgeting is already done.

No more double entry of data: you can just keep on working with Abak and follow-up on your project’s real-time cost until it is over!


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