5 Tips For More Profitable Projects
This post is a contribution from Koren Wines, Global General Manager at WorkflowMax.
To read our advice on how professional services can transform their businesses with a cloud ecosystem, head over to the WorkflowMax blog.
When the BlueRock Digital team asked me to write about profitability, I jumped at the chance. Having run businesses and knowing the importance of visibility on profitability, and now as GM of WorkflowMax, I want to give our customers the clearest picture of where they’re making money – and where they may not be.
Of course, I think online job management software gives you the most accurate information because it gives you that visibility across your whole workflow, but the tips below go beyond software and can be used by business owners across many industries.
1. Use past information for more accurate cost estimates today
As I’m sure you would know, for a job to be profitable when it finishes, it has to start with an accurate estimate that includes the cost of individual job elements, plus a certain amount for your company’s markup. Yet even the best of us can fall into the trap of underestimating project costs especially if we don’t have good visibility. A long term study of transport infrastructure projects cited by the Project Management Institute found that actual costs were, on average, 28% higher than estimated costs.
Underestimating project costs and committing to delivering projects at prices that are too low, eats away at profit margin. Less profit could result in less overall money on jobs, which means less wiggle room if something blows out and has a negative effect on your cash flow. Worst case long term, it can send a business into bankruptcy.
While it’s tempting to rely on judgement and past experience to come up with job estimates, a job and project management system (like WorkflowMax) speeds up the lengthy cost estimating process, takes away the guesswork, and gives you valuable information so future estimates can be as accurate as possible.
A cloud-based solution lets you create customised business proposals and estimates, capture employee time, and run reports before, during and after a job – all in one place, and from anywhere. This end-to-end job detail helps you compare previous time and cost estimates with actual performance data and look for variation.
A good place to spot discrepancy is in your write-off rates. To clarify, that’s the amount of billable time or costs that you recorded on a job that you couldn’t invoice to your client. Write-offs can indicate that your cost estimate was too low, your team didn’t work as efficiently as you expected, or the project went beyond the agreed-upon scope – all factors that can negatively impact job profitability.
Comparing estimates and finished job reports can help you find the ‘why’. Do you have the best briefing processes in place so your team knows exactly what’s expected of them? Was someone new working on the job and maybe they needed more training? Are your services priced too low? Did you have to go to the client more than once to get all the information you needed to start?
Having historical information available and using it for future estimates can lead to better profit margins for you, and fewer issues with your clients.
2. Try to up your team’s recoverability rate
Recoverability represents the amount of billable time you invoice a client. It’s the opposite of a write-off.
You can measure recoverability at a project level or an employee level:
- Project: If billable costs equal $10,000 and you invoice $8,000 to your client, your recoverability rate is 80%
- Employee: You invoice 80% of the billable time Joe recorded on a job
By reviewing these numbers in an online job management system, you can check employee performance and everyone’s ability to complete work according to projections. It helps your team to have information on how long a piece of work should take them, and you can also keep them up to date on their progress in near real-time and encourage them to notify you if they think they’re going to go over budget. This insight helps you get ahead of issues before they eat into your profit margins.
Offering an incentive – like a bonus, time off or morning tea – can be a motivational way to get employees to finish work on time and on budget so you can hit the recoverability rates you want.
3. Involve the whole team to manage scope creep
As you’ve probably experienced, clients can sometimes request additional tasks or services that aren’t included in the original job scope – the deliverables, costs and resources that you’ve agreed on. Even if the requests seem trivial, they add up, use a lot of your team’s time and set the stage for similar behaviour from clients in the future. This scope creep could end up costing you time and money and have a major impact on profitability.
Your team should be empowered to speak up and guard against scope creep – especially those in direct communication with your clients. I like this quote from Josh Licence of BlueRock Digital, a WorkflowMax Implementation Partner: “Creating a culture where every staff member and external stakeholder feels empowered to be proactive is so important. That means the staff member tracking their time, the client partner calling out scope creep, the client understanding their own responsibilities, and the professional practice, as a whole, monitoring progress to ensure all projects are delivered on time, within budget and scope.”
So, the tip here is to get your team together before estimating and starting a new project. Discuss the work to be delivered and the allocated budget. Get input from the team on how long their tasks will take and if they see any potential red flags. Make sure they know how to inform you if any scope creep does take place. Transparency with your team and your clients will lead to smoother projects.
4. Stay on top of time tracking
For many businesses, labour is the biggest cost. To maximise profit, it’s essential that you accurately track, monitor and report on your employees’ time.
Time tracking software – from standalone apps to larger job management systems – makes it easy for your employees to track every increment of time spent on a job. For example, WorkflowMax has eight different ways to track time so you can choose what’s best and simplest for the way you work.
When you’ve got this rich timesheet data, you can look at where you might be missing out on profit. Is your team spending time on the initial project assessment that you didn’t include in your estimate? Do they need support to complete work more efficiently so you can keep costs down and profits up?
Job management software also lets you track jobs while they’re in progress to make sure that the labour component of your billable work is on budget. I’m talking about the time and expenses that have been recorded on a job but not yet invoiced to the client.
If it’s looking like you’re spending more than your estimate, you can make adjustments for the next job. These changes can include increasing your price, reviewing your overall resource management strategy, standardising your processes, and removing roadblocks to help increase efficiency and get work done faster.
5. Account for all costs associated with a project
While this tip sounds obvious, it’s always good to take a step back to check that your estimates and invoices include everything you do for a client. Small costs add up and if you don’t manage them properly, you can underestimate and lower your profit margin before you even begin a project.
If you’ve got all your cost items in a job management system, you can choose from your pre-existing list and easily add new items that will be visible for all jobs in the future. Include every relevant cost when you estimate and invoice jobs to help you increase revenue.
Consider building overhead costs such as admin, legal services, utilities, travel and site visits, and specialised hardware and software into your staff base rates so that your labour costs accurately reflect the real costs of delivering your services.
Setting the foundation for more profitable projects
By thinking about profit before you begin any job and setting up your estimates, client expectations and team responsibilities with profit in mind, you have a much better chance of achieving the margins you want. To see if job management software could help across the board, why not try WorkflowMax? It will keep your projects on track and help you make better business decisions based on real-time data. Try it for your business today with a 14-day free trial.
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