A Finance Department for
Professional Services Firms
Professional service providers come to us trying to better understand their labor force productivity and customer profitability. The question we are often asked is “when is it the right time to hire someone?”
This video will tell you how our subscriptions answer questions like that and much more.
See what our customers have to say.
Professional service providers come to us trying to better understand their labor force productivity and customer profitability. The question we are often asked is “when is it the right time to hire someone?” Our subscriptions are designed to answer questions like that and more.
We measure customer profitability as total revenue for a customer, less labor costs and out of pocket expenses. Labor costs is where many of our customers get tripped up… they have problems properly calculating and tracking it.
We use the Projects feature in QuickBooks Online to calculate customer profitability. See this button here called Hourly cost rate? What we do is calculate what we call the fully loaded labor rate. This is what an employee actually costs your company. It includes wages and other employer paid costs like payroll taxes and benefits.
Since we are already tracking costs by customer in Quickbooks, we simply bring the hours worked into QuickBooks and multiply it by each employee’s rate. Quickbooks will calculate profitability.
You can get more detail by looking at project reports and adding in another column to get your true gross margin for a customer
You don’t have to use QuickBooks Time either… we have ways of bringing in time from other systems such as Everhour.
There are other metrics we track for our customers, such as employee utilization, revenue and cost per labor hour.
Employee utilization is the number of hours an employee works on customers divided by the total available hours for a period.
We use 2,080 hours as a standard year: 52 weeks multiplied by 40 hours per week. Someone 85% chargeable is effectively spending all their time on your clients. The remaining 15% is reserved for PTO, training or other non-client activities.
We also calculate revenue and labor cost per hour. We’re simply dividing revenue and labor cost by hours worked. This helps us understand the money we make on our labor and is very useful when bidding jobs.
Ideally, we want to see a ratio of three to one. For example, if your labor cost rate is $50, your revenue per hour should be $150 per hour.
Calculating labor metrics and helping you monitor and understand them is one of the many things we can do for you. Learn more about us by clicking one of the buttons below
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