The holy grail of business analysis is client profitability reporting. How much money are you actually making from each of your client accounts?
In order to deliver this view we obviously need revenue less any direct costs to produce a gross margin view, so far so simple. However, the challenge comes with the allocation of overheads to each client.
In Harmony, we assume that your overheads are apportioned across your business using the time employee’s work on the account. But for this to work, you need to decide how to calculate the fully overhead loaded cost of your staff.
To do this, the first key decision is which of your staff contribute to the revenue delivery channel. Normally, this would exclude management, sales and marketing, finance and administration staff, but include all others.
We will call these people Delivery Stream Staff. The FTE value of this group takes into account part-time workers and any phased headcount profile your budget assumes during the year. However, you need to make sure that you mark the tasks the excluded staff normally book to as “non-costed” as their salary costs are recovered by the delivery staff and you don’t want to double count.
We have already decided that contractors don’t contribute to overhead recovery, they are considered cost of goods in Harmony and so their costs are already in the gross margin calculation above.
With these assumptions, the fully loaded blended manday cost may be calculated as:
Blended Manday Cost = (Manday Recovery % x Total Overhead Budget) /
(Total Delivery Stream FTE x Effective Working Days per FTE)
Note: the total overhead budget here includes all salaries, burden plus all office overheads and other non-sales related costs.
Now, you can do this as a single overall figure, in salary bands or a typical figure with specific exceptions. The decision is about how uniform your salary costs are and how specific you wish the analysis to be. Harmony allows you to enter cost rates as a default and by individual so each method is supported. Once this is set-up, Harmony will use these values to cost every applicable time booking (all client work plus any overhead codes you have said should be costed).
The result a profit view by client, by period for the past 12 periods from the one selected. Always available with no analysis work needed. Below this is a table of the values that are hyper-links to the list of transactions that make up the figure allowing immediate drill-through to help you understand anomalies. The view can also be filtered by project or contract providing a full profit picture with real insight.
Now you know how much money you are really making from each client, you can use that data to run your business better. Remember, this does not take and special set-up, it is simply available on demand.
If you would like to know more about how HarmonyPSA can help you optimise your client business, contact us and we will be pleased to explain.
