Business is thriving, and you’re running many projects at once.
But are some of them actually hurting your bottom line??
Over the years I’ve helped many clients answer this very question.
Which projects are bringing me the most money?
Which projects are costing me the most money?
Which service types are giving me the biggest profits?
Find these answers, and you’ll be able to make far better decisions about your future.
You’ll know how to price future projects. Which projects to reject, and how to plan for delays, cost increases, and the dreaded scope creep.
How do you break it down?
Step 1: Good Data
You’ll hear me say this again and again, and I won’t apologize for repeating it. Good intel starts with good data.
As they say, “garbage in, garbage out”.
If your bookkeeper
- Doesn’t know what credit or debit means.
- Doesn’t track A/R and A/P.
- Doesn’t use consistent categories.
Then they are probably causing more harm than good.
Build a strong foundation with good accounting software and strong bookkeeping processes. The goal is to have accurate and organized data. If your data is off, all your decisions will be nonsense. If your data is messy, you’ll never be able to use it.
Step 2: Consistency
What kind of software are you using?
Maybe you have a unified management solution, maybe you have a specialized project management software syncing with QuickBooks or FreshBooks etc. Either way, you need to gather all that data into one location. If your category names or structures don't match, it will be the biggest pain to get it all to sync up.
It will make stepping on a Lego brick look like child’s play.
Step 3: Sort & View
Now that you have accurate, clean, and consistent data you can sort it.
Whether you choose to manipulate the data directly in your accounting software or first export it to Google Sheets or Excel is up to you. The goal here is to be able to sort all your transactions by different categories: by project, by service type, by customer etc.
A simple table in Excel can be filtered or sorted as needed.
Step 4: Analyze
Here’s the part where you get all the value.
With all your transactions organized and sorted, you can compare the expenses, revenues, and profits of each project or service types. If you have the information recorded, you can also compare how long each project drags on, or how long it takes to get paid.
Look for patterns.
Are there any similarities between the low margin projects?
Are there certain service types that repeatedly get delayed?
Can you spot any relationship between the projects that had a sudden rise in costs?
This is great information!
It may be worth it to avoid taking on certain projects in the future and to double down on the high-margin work. Now that you spotted where challenges pop up, you can start to anticipate them and prepare proactively.
Analyze your data like you would a puzzle.
Fit pieces together and see what picture appears. In reality, this will feel more like an archeologist fitting together fossils. You'll have no idea what you'll find or if you are even putting the right pieces together. Keep an open mind and challenge your hypotheses. The ideas that you can’t disprove become a workable theory that you can act on.
An objective, outside opinion can help you see past your own biases.
Bonus: Customer Rationalization
While you’re at it, you can do one more critical analysis.
Compare your profits between each customer to see which customers give you high margins and which are very low. Sometimes, your biggest client in terms of revenue may not be worth keeping if they are draining your resources and earning you poor margins.
A few smaller accounts could make you more money in the same time.
Project-Level Clarity
Start with accurate, consistent data.
Bring it all into a clean canvas that you can easily sort.
Here you can arrange the data by project, service, or customer to get a clear picture of what is actually going on at a project-by-project level. Analyze with a critical mind and see if some projects cost you more than they're worth. Are some customers draining your resources for little reward?
This is how you can avoid expensive surprises and costly time-wasters, so you can focus on the work that gets you closer to the business of your dreams!
