Project-based accounting: how to find where your highest margins are hiding

Margin's logo: "Make mine Margin's"

In the world of a service-based business, like any business, you have to know where the money is coming from. More than that, you have to know where the profits are coming from. After all, running a charity is not the intention, so why take on contracts for clients that are barely breaking even? Why work with clients that always end up costing more than they bring in revenues?

With project-based accounting, knowing where the money comes from and where the money goes can be done in real time. With a centralized time and billing system like Abak, you can charge all costs to the proper project or contract. You can also attribute all revenues to the relevant project. Once the data is there, figuring out where the margins are highest is kid’s play.

When costs and revenues are associated with a project, a client, an account manager, a project manager, a business line, or even a partner, it becomes easy to analyse your business performance. For example:

  • Do margins differ significantly from one project manager to the next? What about account managers? Partners?
  • Is there a specific client type where margins are higher?  What about project types?

With quality business performance data on project margins, our clients were able to identify where they were successful financially, and where they were not. The next question would then relate to business strategy:

  • Are you willing to tolerate a lower margin on some projects, because they bring in other higher-margin project?
  • Are you willing to keep a low-margin client because of the visibility it brings to the business?

What do you think? How to you evaluate profit margins with your projects and clients? Tell us in the comments!

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