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Profitability Tips from Real Clients & Profits Users

Clients & Profits users are happy to share their tips on how they increased profitability in their shops, and how you can increase it in yours:

Track time frequently "If time is entered daily, you can see a job's progress and know if it's going over budget," says Marty Pennoni of Pace & Partners. "This allows you to be proactive and do something about it now, instead of waiting until the end of the job, when it may be too late."

Once a client signs an estimate, use change orders "When a client wants a change to one of their jobs, it generally costs us in time and money," says Jim Littlejohn of Square One, Inc. "By using change orders after the estimate is signed, we have an opportunity to recoup the cost of the change. And by recording the change order when it happens, it's not forgotten when it comes time to bill the client."

Use job cost transfers carefully "It's important to us to know the real profit on the job, not what the costs are after any overages have been pulled out," says Leslie Duncan of Duncan/Day Advertising. "We transfer net costs only when we correct posting errors. If we're moving something for billing purposes, we move only the gross costs."

Write purchase orders early "By recording commitments early, you see if your estimate is sufficient to cover costs on the job or if you'll need to go to the client for more money," says Kathy LaBonte of VML. "It helps prevent surprise invoices from showing up on jobs and helps vendors live up to their commitment to you."

Q. What is an "AGI"?

AGI, or agency gross income, is an important tool in financial analysis. Analyzing your shop's expenses is more meaningful if you look at expenses as a percentage of income. In addition to the standard income statement, Clients & Profits provides an AGI-based report that calculates expense percentages based on gross margin, not total income. For example: Rent expense is constant each month, but the percentage of income differs each month. If you see consistently lower percentages over many months, you may decide you can afford more office space.

Q. How do we calculate the cost rate for staffers?

A staffer's cost rate should be based upon the staffer's gross salary, benefits and the employer's portion of payroll taxes. Or you can create an average cost rate for a number of staffers that are at roughly the same salary level. There is some debate as to the number of hours to divide the total amount by to achieve an hourly rate; many shops use 2,080 hours.

Q. What should be entered in the budget column on a job ticket?

(Budget appears on some Gross Margin reports.) Strictly speaking, the budget should include all the net costs that affect a job: both external and internal costs.

Q. What's the difference between gross margin and net income?

Gross margin is the amount of total profit from a job before applying overhead. Net income is the amount of total profit after overhead expenses are deducted.

Q. Should we include a client's unbillable jobs on profitability reports?

You have the option of being able to include them or not on job profitability reports. All job profitability reports are printed for a status code range. So, any job you don't want included should have a status code that's outside of the range for which you're printing. But when printing for the agency-as-a-whole perspective, anything and everything client related -- billable or not -- should be included. So, the Client P&L Analysis always includes everything.

Q. What's the difference between running profitability reports by work date or start/due date range?

The work date range option allows you to zero in on a particular point in time, for example, last month, and see where profit is being made. But work date range never shows the ultimate profitability picture of a job. Printing for a job's start or due date shows a job's complete profitability picture to date; it will be more complete. We suggest printing a profitability report each month for jobs closed during that month. Here you'll see the final tally on a job's profitability.