Becoming Profitable

How to calculate ‘true’ agency profitability: Part 4 – How profitable are your projects?

By December 13th, 2019 No Comments

We’ve now looked at calculating the cost per hour of your team, analysing client profitability, and establishing whether your team are spending time in the right areas. The final step is to look at completed projects.

Project Management is a real skill. The ability to analyse projects ‘in play’ to determine where we need to hold some hours back, where we’re going over budget and why the project is stalling is critical to ensuring that each project is profitable. But it’s also vital that you analyse a project once it’s completed rather than moving straight onto the next one – to take learnings and improve for the future.

We’d suggest that as with client profitability you analyse completed projects once a quarter. You may want to analyse every completed project, or pick out certain projects, maybe over a particular level of revenue. Again, you should use timesheet data recorded against the project, to analyse:

  • Total estimated hours vs actual hours recorded
  • Estimated hours vs actual hours by department/project stage
  • Estimated hours vs actual hours by person
  • Estimated cost vs actual cost
  • Estimated profit/margin vs actual profit/margin

Once you have this analysis, you’ll be able to see how the project has performed against what your team originally estimated at the start of the project. Again, this will give you a framework to review the project with the relevant members of the team, highlighting potential improvements in areas such as:

  • Sales – did we discount our quote to win the work?
  • Scoping – did we under-estimate the hours involved to complete the project?
  • Task Assignment – did we under/over-estimate the hours involved in particular stages of the project?
  • Communication – were their issues in communicating progress & issues both internally and with the client?
  • Efficiency – did certain areas take too long, and if so, why?
  • Setting expectations – did we set clear enough expectations from both agency and client-side? How can this be improved on in future?

You now should have a full picture of clients, people and projects within your agency. By getting into the routine of repeating this process each quarter, you’ll be able to consistently drive improvements across the agency and have a full awareness of where you are making and leaking profit.