In this solo episode, I’m sharing a part of my planning process for ensuring profitability. Grab your notebook (or a google sheet) and follow along in setting up your client profitability analysis!
In this episode you’ll hear:
Resources mentioned in this episode:
To start the conversation about 1-1 Mentoring, please email support@ambitiousbookkeeper.com. I offer:
Single strategy sessions
3-month mentoring
Voxer-only mentoring
Thanks for listening. If this episode inspired you in some way, take a screenshot of you listening on your device and post it to your Instagram stories and tag me, @ambitiousbookkeeper
For more information about the Ambitious Bookkeeper Podcast or interest in our programs or mentoring visit our resources below:
Visit our website: ambitiousbookkeeper.com
Follow the Blog: ambitiousbookkeeper.com/blog
Connect on Instagram: instagram.com/ambitiousbookkeeper
Connect on LinkedIn: Linkedin.com/in/SerenaShoup
Connect on Facebook: Facebook.com/serenashoupcpa
Thank you for your support of our show. If you haven’t left a review yet it’s super simple. Please go to: https://www.ambitiousbookkeeper.com/podcast and leave your review.
Podcast Publishing Tools we use:
Click here to get the free First 100 Leads Training with James Wedmore >>
In this solo episode, I’m sharing a part of my planning process for ensuring profitability. Grab your notebook (or a google sheet) and follow along in setting up your client profitability analysis!
In this episode you’ll hear:
Resources mentioned in this episode:
To start the conversation about 1-1 Mentoring, please email support@ambitiousbookkeeper.com. I offer:
Single strategy sessions
3-month mentoring
Voxer-only mentoring
Thanks for listening. If this episode inspired you in some way, take a screenshot of you listening on your device and post it to your Instagram stories and tag me, @ambitiousbookkeeper
For more information about the Ambitious Bookkeeper Podcast or interest in our programs or mentoring visit our resources below:
Visit our website: ambitiousbookkeeper.com
Follow the Blog: ambitiousbookkeeper.com/blog
Connect on Instagram: instagram.com/ambitiousbookkeeper
Connect on LinkedIn: Linkedin.com/in/SerenaShoup
Connect on Facebook: Facebook.com/serenashoupcpa
Thank you for your support of our show. If you haven’t left a review yet it’s super simple. Please go to: https://www.ambitiousbookkeeper.com/podcast and leave your review.
Podcast Publishing Tools we use:
Click here to get the free First 100 Leads Training with James Wedmore >>
A key component of planning for a profitable year is to evaluate where you're at currently. And I'm not just talking about looking at your own P and L although that's a great start. We do need to get a little more granular. So in today's episode, I'm guiding you through a part of my planning process, evaluating client profitability. So grab a notebook or pull up your favorite notes app and get ready for a little step-by-step to guide you in thinking like a CEO. So, as I mentioned at the top, I'm going to walk you through how I determine client profitability. I just did this exercise as we're coming up on a new year, so I can determine whether we need to do price increases. Letting go of clients or where we need to become more efficient. or possibly delegate. Analyzing, this gives a lot of insight into how you actually feel working with some of your clients to. we sometimes get so caught up in the day-to-day that we're not really tuning in to how much time things take us, how much energy we're giving away to certain clients. Or where we are becoming the bottleneck. If we have a team. But to begin this process, you have to start tracking your time. I don't get super detailed in my time tracking, but I do track everything by client. In scope services out of scope services. And I leave a little description of the tasks that are being done. I use Clockify as does most of my team, except my contractor who keeps time in her own system. But we are currently on a flat rate for all of the clients she works on anyway. So that makes it easy when I'm plugging things into this spreadsheet that I'm going to talk about. It's also really helpful to have your team's hourly wages assigned inside of clockwork. If that's the system you're using. So that when you run reports, it calculates the cost for you. It spits out their hours and the total cost of their time. And for your own rate, even if you don't bill hourly, you want to plug in what the hourly wage would be. If you were to pay someone else and to be completely removed, or if you're an S-corp owner, you can plug in your reasonable compensation number. I personally have a hundred dollars an hour as my rate inside of clockwork. Even though I likely wouldn't pay someone that much to do some of the work that I'm doing for clients. And I'll get into a scenario that this caused in a moment. And the report that I export out of clock, if I, in case you're using the same system is the summary report by client. And I run it on a year to date or this year basis. we don't need to get super exact, but depending on how often you're doing this analysis, you might run it by the previous quarter. Or. Run it by month, but I went ahead and just pulled all the data for the entire year. And if the client hasn't been with us the entire year, I look at the little graph that pops up on the screen to see when they started, because it shows you a bar graph of hours and time spent per month. So you have a nice little visual showing you like which months took more time, which ones were lower. And so if the client. Hasn't been with us for the entire year. I look at that graph to see when they started and I make sure to divide the total cost by that many months. So for instance, if the client has started with us in July, I divide the total labor costs that spits out on the report by five months, since I did this exercise at the beginning of December and not all of the hours were in yet for the current month end, doesn't need to be exact either. So I exported the report to Excel and I add each report as a tab in the spreadsheet. And then I link a summary page, which I'll go over in a moment of what information is on that summary. in addition to time-tracking you want to gather all of your software costs. So if you are covering any software costs for clients that are directly related to delivery of the product, I'm not talking about a sauna or your internal software, I'm talking about anything that is necessary to complete the bookkeeping for the client. So for my firm, this looks like. Xero or QBO if you use QBO because we cover the Xero subscription. A2X our e-commerce clients.. We also use G-ACCON for one of our clients who has two entities to run consolidated reports. Or you could include live flow or any other software like that, that you're using to do your reporting packages. bill.com. If you're covering that cost for any clients, hub doc, if you're paying for hub dock for QBO clients and tax jar, if you are covering like the sales tax software. So. Once you build this out once you can add to it, anytime you audit clients. So you always have a visual of your software costs. Logistically on the GL for the software that we cover. I book those costs to an account called client software, which is a cost of goods sold account. So it shows up as part of the gross margin. So for this exercise, you gather your time tracking reports. If you haven't been tracking your time, you're not going to really be able to do this exercise. So hopefully at least your team is tracking time and you can pull their hours. And then you're going to have to estimate what you're doing. In addition to that. Pull your software costs and any contractor fees that you're using since those may not come up in your clock of fire reports or whatever time tracking system you're using. So my spreadsheet looks like across the top row. In column a. I have the client initials. And then the next column over column B, I have listed out the package that they're with for us. So I have four packages that our clients could be on. We have our base packages essentially. Then we have advanced VIP and a CFO package. So I list out the package. And then the price of the package and the next column. And then, Just as a side note, even if we have a client, like I have two clients that are on the VIP package, but they're priced differently because I priced the client. They're both getting the same services, but they have a different price because they have different business models in a different volume. So I then list out the price. And then I list out all the software as other columns that way. for instance, we cover zero for pretty much, pretty much all of our clients. So there's something in that column for every client. And then we have other softwares that may not be used on every client, like a A2x or tax jar. So each software gets its own column. And then I can pop it into the rows that it belongs in for each client. If that makes sense. So then I've listed out all the softwares that we cover. We cover hub doc zero. tax jar. bill.com G-ACCON. and then I have a total software column. So it totals up all the software costs. And then I have a column for monthly employee cost or labor. And that's, what's going to be linking to each individual. Calacanis. report. On the average. And, then I have a column for contractor labor and I do have, like I mentioned before, I have a contractor that helps on a good portion of our clients, but we have her on a flat fee per client. So I was able to easily pull that fee that we pay her for each client and plug that in. And then I have a column for profitability in dollars and a column for profitability in percentage. And I like to do conditional formatting so I can easily see what's. You know, what's happening. So I have conditional formatting on the percentage column. To be green if it's above my goal of 50%, if it's, between. 30 and 50% it's orange. And if it's below 30%, it's. Yellow. And if it's below zero, it's red. Um, meaning we are losing money. Okay. So I've done all that. And then I sum everything up at the bottom. So I have a total revenue under the, you know, the price column for the package. I have a total for each software costs and, you know, just a row of totals for everything and then same with, The profitability. and the percentage. So this whole exercise took me about one and a half hours to do on 16 clients. And like I mentioned before, my target profitability by client. Is 50%. But in total, on average, I achieved a 30% profit margin, which was mainly due to the fact that I do almost a hundred percent of the bookkeeping for one of our biggest clients. And some of the tasks take me a long time. I'm still flushing out the process. But I realized after this exercise that if I continue to do the end to end process without delegating any of it, I either need to increase that client's price to cover my hourly rate. Because as it is, we're not profitable on that client with my rate plugged in there. Or. I need to create efficiencies with systems. So things take me last time. Or I need to delegate more of the process. And what I will likely end up doing is a combination of all three. But this is the clarity that this kind of exercise does it pinpoints the one or two clients that are taking most of your time and energy and perhaps. Pulling down your average profitability. And helps you gain clarity so you can strategize on how to handle things going forward. So these are some questions that might come up. Do we fire the client and replace them with different clients? Maybe if that client is an energy suck and you don't like doing the work for them, or maybe they're always late getting you things. Do we delegate? Does the team have capacity? If we delegate, if not, how can we automate for this? You need to loop in your team to brainstorm you can't make these decisions in a silo. So if you do have a team, I know a lot of times we. feel like we need to make all these decisions from the top and like, Just kind of push the decisions down to everybody, but. That's not a great environment, if you want to get people to buy into the decision. So I really encourage you. If you do have a team. Start the conversation with them on your next team meeting. And hopefully you're doing these weekly. Or biweekly, start the conversation. Say I did this profitability analysis and on these two or three clients, or however many clients were not meeting our profitability goal. So I want to brainstorm with you guys on what we can do. So. I'm current. Like for my, this conversation for me would look like. I'm currently doing like 98% of the work on this one client, because I've been flushing out the process. I think it's to a good point where I could delegate more of this to someone else who has capacity for this type of work. And. Hopefully someone on your team, volunteers. And if they don't, then you can start asking them. if not, like do you guys have any ideas on how we can automate some of this work? And having them part of the process is going to help a ton. And then the other question is, are we pricing our clients appropriately? So once you have this spreadsheet built out, you can fiddle with the scenarios. For instance, I deleted that one line, which was resulting in a revenue, which was bringing my whole average down. So. Once I deleted that line. It resulted in a drop of revenue of $1,400 because that's the total that we're charging that client, but a profitability percentage increase getting the average up. Two 45%. So, this is nearly to my overall goal. However, since I'm the one who does most of the work on that client, that's essentially cutting the cash. I bring home by a thousand dollars after software costs. But that would give me 10 or more hours per month back. If we completely got rid of the client. and then I could replace that client with two smaller clients that don't require any of my time. But then I have to consider, does my team have the capacity to take on two more clients? All of these are things to consider. So another way that you can play around with the spreadsheet is, okay, well maybe I plug in someone else's, so maybe it takes me 10 hours of my time to do this work. So this is when you're looking at the detail of the spreadsheet. You're looking line by line. What am I doing? hopefully you have good descriptions. What am I doing on this client? what are the things that are taking the most time? That are things that I could delegate and then plugging someone else's hourly rate into that. So make copies of this spreadsheet so that you don't mess up the whole thing. But maybe do like a second scenario. Where you duplicate the tab and then you start plugging in. Okay. If I delegated this to someone else on my team, whatever their hourly wage is, I'm going to plug that number into those time entries and see what that does for my profitability. And you can start. Playing around with it like that and come to a decision. That is well thought through. And, you're making decisions based on your numbers, which is what we preach to our clients. Right. So all of these things are things to consider. There aren't any right or wrong answers. This is about giving you clarity questions to ask yourself your team and discern whether. You are in alignment with your ultimate goals, not just profitability, but energy exchange on each client. So for me, I will likely work to replace the one client since my ultimate goal is to have me doing zero bookkeeping. And to be a true CEO of my business. Will it happen immediately? No, I'm not going to go into fire that client tomorrow, but. I also have a goal to get this client to a certain place before stepping away. But the goal to replace this client will likely be a Q2 24 goal. Right? So this is something that can help you plan out your, you know, bringing on new clients for the next year. So now, in addition to my regular growth goal for 2024, I need to add in bringing on an additional two clients in Q2, right? If that's my goal to offboard that client. And when I look at the profitability for the rest of my clients, I'm pretty satisfied. Maybe we increase price on one or two clients to bring up their individual profitability. And maybe we increase our base price for new clients coming on, but all these things are things that can come out of this analysis. I hope this episode was helpful for you. If you want support analyzing your pricing and profitability, setting you up for a profitable 2024, I will be opening a couple of one-on-one mentoring spaces in January. Or you can book a single strategy session with me. So email support@ambitiousbookkeeper.com to get all the links and the information. On my one-on-one mentoring. Or you are more than welcome to DM me on Instagram to start the conversation I'm @ambitiousbookkeeper. And if you've found this episode helpful, please share it with another bookkeeper or an accountant and come on over to Instagram and let me know, or screenshot and tag me in your stories even better. To let me know when you've analyzed your client profitability and what you learned from the exercise. All right, until next week, stay ambitious.