Client Profitability Analysis

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Client profitability is fundamental to the continuing success of any professional services organisation. The client profitability analysis that TimeSheet Professional can provide is a key element of understanding and improving your client profitability.

It may well be that your prime relationship with your clients is defined by a fixed price contract, a flat fee or a retainer, with or without other jobs or projects for work outside the contract. Such contracts, fees or retainers will be negotiated for a period of time, typically a year. You may also have additional ad hoc jobs or projects for the customer. Even if your work is made up of individual projects, it is still worth aggregating projects by customer and reviewing the client profitability analysis, both for the relative profitability across clients and for an more detailed analysis of profitability on individual clients.

It is critically important to understand how much resource these contracts consume and how much revenue you would expect that resource to generate. Then you can begin to analyse client profitability. This information will provide a far greater understanding of:-

  • Whether the profitability of an account is lower than it should be.
  • If you are apparently making a super-profit on the account.
  • Whether you are under-servicing or over-servicing the account.
  • What are the seasonal patterns of the resource consumed by the account.
  • Whether the pattern of servicing the account is similar or different to otherwise apparently similar accounts.
  • How to price new contracts that are similar to an existing contract or contracts.

Contract Negotiations

The single most valuable use of TimeSheet Professional’s client profitability analysis is in contract renewal or fee or retainer renewal negotiation. Often, regardless of the success of the past year, the pressure from the client side is to maintain or even reduce the current fee level or, perhaps, seek a disproportionate increase in activity for the additional fee that they are prepared to pay.

With time recording and client profitability analysis in place, you have the hard facts on the cost of running the business as well as the information that you already have on the value of what you achieved. This puts you in a far stronger position to make a case for a fee level that is appropriate, maybe achieving a bigger increase than you would otherwise or, in the worst case, holding the existing fee or suffering a smaller reduction.

If you haven’t already, it’s important that you start collecting this valuable information now to ensure that you have as much information as possible when contract negotiations are due. What information you record time against is simply what information is valuable to you. And also, increasingly, our customers tell us, what information is important to their clients. Examples of what our current customers find important include:

  • The contract, fee or retainer, as a project – to differentiate it from and as well as other ad hoc jobs and projects
  • The activity – what is being done – sometimes, but not always.
  • Whether or not time is “chargeable” – it may relate to running the relationship, rather than delivering the contract – again sometimes, but not always.
  • The different Services provided under the contract – unusual, but useful for larger contracts.

In larger organisations client profitability may be aggregated for further review, for instance by account team or director, by office, or by client type. This sort of information comes at no additional cost in system implementation or ongoing ease of use and administration.

Generally, the detail in which time is recorded is a compromise between making time sheets as easy as possible to fill in and providing what information is valuable for running the business. Deepak Sareen Associates have the experience and expertise to reduce any compromise to a minimum.

Client Profitability Analysis is critical for firms whose relationships are based on fixed price contracts fees or retainers. It is also a very valuable tool in more project-focused businesses. Contact Us today and discover how TimeSheet Professional can help you improve your business.