Predict Real-Time Project Profitability and Negotiate Better Fees

Profitability analysis is an important part of enterprise resource planning, it grants employees the ability to forecast the profitability of a proposal or client demand and optimize the profitability of an existing project. Profitability analysis is used to anticipate sales and possible profit in the context of certain markets. 

Profitability analysis can help a business identify the most and least profitable clients, products, or services. Using reliable sources of information and relevant data points key employees can assess the causes that lead to decreasing profit margins, understand what needs to change in a product or service to make it a profitable endeavor, and optimize client management.

Cost-volume-profit (CVP) analysis is a cost accounting methodology, it evaluates the impact that varying levels of costs and volume have on the operating profit of a business. The main takeaway of this method is understanding how fixed and variable costs affect a business’s profit and how many product units they need to sell in order to break even 

Resource management and profitability analysis are more and more important for any business that wishes to remain profitable, and in this increasingly complex market using a Software or a profit feature to aid in cost management and data gathering is a requirement. 

In the last decades we have seen a rise in the professional service industry, last April the sector reached a combined annual revenue of about $1.8 trillion. The profit analysis made in such businesses can’t be directly mirrored from product-based industries, since the nature of the overhead and operational costs are different.

When the primary revenue unit amounts to billable hours profit analysis gets a little more nuanced, and requires a reliable way of measuring billable and unbillable hours. The possibilities and opportunities for business growth and scaling are greater when having an accurate way of tracking the work done for a client.

Some of the common metrics are shared by most types of industries: Gross Profit, Operating costs, and Net profit among others. But there is a specific area that requires a great deal of attention from professional service businesses, and that is their pricing analytics. Understanding the numbers and costs that go into the final invoicing is the first step toward achieving better margins and increased revenue.

High invoicing volume does not necessarily correlate with a profitable company. Having a bird’s eye view of operations, resource management and billable hours allocation can help C-levels and leaders better guide a business in the right direction. Some of the relevant metrics in this regard are Profitability Index at a project level and the Employee utilization rate.

Business Intelligence allows operations to combine data from several sources, evaluate the information into precise reports and communicate the findings to pertinent stakeholders, letting them make smart business data-driven decisions. Having this information lowers the risk factor that naturally accompanies business daily decisions and helps them gain a competitive advantage over their direct competitors.