Clients & Profits Online User Guide

Glossary Contents

There are many kinds of job profitability reports. Each report gets its information from a different source, so each has a slightly different focus -- and usefulness. The Job Profitability reports show costs, time, and billings for jobs and tasks. The Client Profitability reports are based on journal entries from the General Ledger, including overhead expenses you’ve directly allocated to clients, for one accounting period. The Gross Margin report compares costs, time, expenses, and billings for a week, a month, or any period of time -- so it’s the most flexible way to track your shop’s performance. The foundation of the Job Profitability reports is the job task. Jobs remember everything purchased and billed by job task. Job tasks keep job-to-date totals for costs, time, expenses, and billings from the date the job was started. Since job tasks are connected to jobs and clients, they are an ideal basis for analyzing profitability. Job-to-date profitability reports search for job tasks for a period of time (using the job’s start date) and billing status (such as closed jobs, for example). These tasks are rearranged, subtotaled, and printed by job, project, client, task, etc. based on the options selected in the Profitability window. In most cases, the job tasks themselves are hidden to save space; what you see instead are just the job’s totals. These totals are based on the same job tasks you’d see in a Job Summary report. The Job P&L and Client P&L, which is based on G/L journal entries from billing and job costs, is printed from Financials. Every journal entry can be given a client number and a job number. If a journal entry has a job number, it is selected for the job income statement. The Job P&L is printed for one accounting period, just like the agency’s income statement. It can reflect the client’s overhead allocation, if entered into the Overhead Allocation Worksheet. You can print the report for one job or one client. The job income statement doesn’t show time, expenses, or any other amount not posted in the General Ledger -- so it may be drastically different (and probably less accurate) then the other profitability reports. The Gross Margin report compares costs and profit for any period of time, such as a month or a quarter. This report is distinctive because it shows profit both before and after labor. Direct costs are the total vendor purchases, checks, and expenses. Net Revenue is billings less direct costs. Direct Labor is the total time cost for the month. Profit is net revenue less direct labor. Jobs are subtotaled by client for easy comparison. The last bill date is shown from the last invoice billed for the job. Job profitability vs. agency profitability You can see profitability two ways: Job profit is focused on job costs -- vendor purchases, labor, cash disbursements from checks, and out-of-pocket expenses -- and job billings. Agency profit is based strictly on income and expenses for everything -- whether they were the result of jobs or not. The analysis reports allow you to see which tasks were completed on time and which were late, or a list of missed deadlines can be printed for each staff member You can’t rely on just one profit report to keep you informed. Job profitability and the income statement emphasize different things: job profitability reports are based solely on jobs, tasks, and clients; income statements are based only on the general ledger. Job profitability shows only costs and billings for jobs and tasks, and does not account for overhead expenses like rent. Income statements don’t reflect the cost of time spent working on jobs, only the total payroll expense. Income statements take into account other non-job income, like fees and interest income; job profitability doesn’t reflect adjusting entries to the General Ledger. What’s the difference between gross margin and net income? Gross margin, as it is used in Clients & Profits, is based on jobs and tasks. It is the difference between a task’s billings and its costs -- vendor purchases, time sheets, and expenses. Net income, as it is used on the income statement, is the agency’s real profit after overhead expenses. Job Profitability vs. the Income Statement Both reports show important information about how well you’re doing. Job profitability shows exactly where your revenue is being earned, even showing each client’s total contribution to profit. Income statements can’t show this kind of detail without a lot of extra work on your accountant’s part. However, the job profitability doesn’t include overhead -- so it’s not a complete picture either. When used together, both reports provide the complete picture you need to stay informed. Differences include: Job Profitability -- Job-based -- Uses tasks to calculate totals -- Shows job-to-date totals -- Based on job start dates -- Shows Income based on job billings -- Shows labor based on cost rate -- Reflects job cost transfers -- Shows open POs -- Can show profit by client, task, project, or job type Job P&L -- General Ledger-based -- Uses G/L to calculate totals -- Shows month-to-date account totals -- Based on accounting periods (i.e., months) -- Shows income on agency billings -- Shows labor costs based on payroll -- Doesn’t account for down time (includes down time as part of payroll) -- Transfers don’t affect the G/L -- POs aren’t reflected in job totals Cost rates and profitability Cost rates are important because they directly affect the job’s profitability. Time sheets use cost rates to calculate the cost amount of labor automatically. The total cost of each time sheet increases the job task’s cost amount when time is posted. Costs rates are flexible, giving you complete control over rates for each staff member. Carefully choosing resource cost rates is an important and necessary step to make your profitability reports meaningful. Each staff has his or her own individual cost rate. For flexibility, cost rates are completely customizable. The staff’s cost rate is entered onto each time sheet automatically, but can be changed. What if you don’t use cost rates on time sheets? Your profitability reports will be significantly affected. Your jobs will appear much more profitable, which is wrong. The job’s cost totals would show only vendor purchases and checks, and won’t reflect the value of your time. You’re not required to use cost rates, however. But if you don’t, be consistent -- don’t use cost rates on any time for any job. And just be aware that when you look at a profitability report, the total profit doesn’t include labor. Unbillable jobs and job profitability Unbillable jobs can be included on the gross margin report if they have the same selections (billing status and start date) as other jobs. It’s a good idea to include these jobs on the report, since it makes your client totals more realistic. Your total billings, costs, and margin for clients will be more accurate, since the cost of the unbillable jobs will be included. To see the most accurate job totals, you should include your agency overhead jobs as well. To include these jobs, make sure they have a billing status and a start date. When you print a profitability report, enter the billing status that includes your agency jobs as well as the billable client jobs. Job costing and profitability It is important to be consistent about how you track job costs. On profitability reports, the cost total includes all vendor purchases, time sheets (using the resource’s cost rates), expenses, and checks written for job costs. The cost total is the total amount you’ve spent to complete the job (so far). If you don’t include all costs that you really incurred for a job, then your cost total will be too low -- and the job’s profit will be overstated. Likewise, if you don’t enter time with accurate cost rates, the cost total won’t include the cost of the labor used to complete the work -- and the job’s profit will be too high. Tips for printing profitability reports You can look at profitability from the production perspective and see a different picture than the agency profitability. This isn’t a problem. The two sides look at what you make and what you spend differently intentionally, providing insights into where the money’s coming from and where it’s going. Without these different points of view, there’s a big chance you’ll miss some key details. Knowing where your profit is coming from is much more important than knowing how much profit you’ve made. Because in an advertising agency or design studio, there are really only two ways to improve profits: get more clients and bill them for more jobs; or, know where you’re spending every dollar. All of the job profitability reports are based on job tasks. While the reports don’t show the tasks in detail, the costs and billings on these tasks are calculated and totaled on the reports. Profitability Reports Job Profitability Gross Margin by Job The Gross Margin by Job report compares costs and profit for each job, subtotaled by job type. The net revenue is calculated based on the billings less direct costs, and the gross margin (or profit) is calculated by the net revenue less direct labor costs. Projected Gross Margin The Projected Gross Margin report calculates a projected gross margin based on the job’s estimate less the costs expected to be incurred to complete the job (i.e., budget). Projected vs. Actual Gross Margin The Projected vs Actual Gross Margin report compares the job’s actual gross margin to the projected gross margin. The job’s are subtotaled by job type. Client Profitability Gross Margin by Client The Gross Margin by Client report shows the net revenue for every client’s jobs. Project Profitability The Project Profitability report compares gross margin for jobs within each project. Division Profitability The Division Profitability report compares profit between divisions and their clients. Client vs. Client Gross Margin The Client vs Client Gross Margin report shows the costs and profit for each client and calculates each client’s net revenue and gross margin. Comparative Client Profitability The Comparative Client Profitability report compares this year’s and last year’s profit. Projected Gross Margin by Client The Projected Gross Margin by Client report calculates a projected gross margin based on the job’s estimate less the costs expected to be incurred to complete the job (i.e., budget) and the jobs are subtotaled by client. AE/Team Gross Margin by AE/Team The Gross Margin by AE/Team report calculates the net revenue and gross margin for each job and subtotals the jobs by AE/Team. AE/Team Projected Gross Margin The AE/Team Projected Gross Margin report calculates the projected gross margin based on the job’s estimate less its budget. The job’s are subtotaled by AE/Team. AE/Team Projected vs. Actual Gross Margin The AE/Team Projected vs Actual Gross Margin report compares the projected gross margin to the actual gross margin for each job and subtotals the jobs by AE/Team. Profit Center Gross Margin by Profit Center The Gross Margin by Profit Center report calculates the net revenue and gross margin for each job and subtotals the jobs by client, then by profit center. Profit Center Projected Gross Margin The Profit Center Projected Gross Margin report calculates the projected gross margin figure for each job based on the projected billings (the job’s estimate) less the costs expected to be incurred to complete the job (the job’s budget). The job’s are subtotaled by client, then by profit center. Profit Center Projected vs. Actual Gross Margin The Profit Center Projected vs Actual Gross Margin report compares the projected gross margin to the actual gross margin for each job and subtotals the jobs by client and PC. Miscellaneous Task Profitability The Task Profitability report compares profit by client for each task. Task/Group Profitability The Task/Group Profitability report shows profit earned by each task and group.