Are you using Excel spreadsheets to do your profitability analysis? (If you want to get started using Excel for your profitability calculations, stay tuned for a link to a free template...)
Regardless of your system, profitability analysis can and should get granular in professional services.
For example, most growing agencies want to know the profitability of their individual projects, their customer profitability, profitability during certain time periods, in certain scenarios, etc.
This information gives key insights into how efficient the business really is. Perhaps projects are more profitable when certain team members are or aren’t present. Maybe certain clients generate large net profits, but the profit margins on their individual projects aren’t where they should be.
Small businesses in professional services, especially, can garner super-impactful knowledge to help achieve higher project profit margins. Another benefit is the ability to pick and choose clients as you scale the business, or alternatively fine-tune your processes to make your existing clients more valuable.
Lots of startups and SMBs begin calculating profitability analysis with Excel spreadsheets at the jump. After all, you can get started easily right away and it seems like an easy way to get the profitability metrics you want to see.
Doing your profitability calculations with Excel isn’t uber-complicated, but it still is prone to human errors and the time-and-energy suck of manual entry.
As small businesses grow and scale, they usually hit a point where they look for something automated and easier.
If you’re still using Excel spreadsheets or Google Sheets to do your profitability analysis, check out the following pros and cons of using them for your small business.
As a number or series of figures, project profitability reflects the rate of efficiency by which a business generates profit for its services. The definition of profitability analysis is simply the process of figuring out how profitable your projects and your customers are. Profitability analysis for professional services includes the following figures:
Net project profit - The net profit total equals your Revenue minus all the costs incurred by your organization to complete the project.
Net customer profit - The net profit total equals the sum of all the net profits from your projects with the customer you’re analyzing.
Project profit margin - The project profit margin measures the project’s net income against total revenue as a percentage.
Customer profit margins - You can figure out the average project profit margin per customer by simply averaging your current project profit margins for said client.
Time & Energy metrics - (i.e. What do your projects and customers cost you in terms of time and resources? Are they worth the energy they require?)
For growing businesses and those who want to get more accurate profitability forecasting, there are superior, more automated alternatives. In fact, we think one of the best hacks to increase the profitability of your projects is to use profitability analysis software. No, you don’t have to go find some siloed platform that adds to your monthly/annual software license spend.
Profitability analysis is a feature that comes with a lot of SaaS subscriptions that professional services already use! This includes both project management solutions and PSA tools. Check to see if your project management software or PSA tool has a profitability calculation feature. Or reach out to customer support; they can often guide you through the process of doing it with the software and give you tips on automation.
PSOhub is one of the only solutions that double as project management AND PSA software. The Quotes feature lets you accurately and efficiently measure the profitability of your projects without the legwork. PSOhub can automatically feed your project data, sales data, customer data, and financial data related to the profitability metrics you want to see. That means you can get granular and see profitability in terms of your clients, your time, and even per resource.
With PSOhub, it’s easier to get accurate analytics and reporting at the tip of your fingers. PSOhub keeps all of your project management under one roof, including: