Project Cost & Profitability: Are You Turning A Profit?

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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:

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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.

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