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Keeping track of projects’ profitability is essential for agencies, software companies, or consultancies of any kind. When you work with multiple clients on delivering multiple projects, you simply have to make sure that your efforts generate profits.
On top of that, analyzing the profitability of your projects will help you improve your pricing strategy. It may turn out, for example, that you’re charging too little or putting in too many unbillable hours.
The thing is, you also want to track the profitability as the project happens, not after it’s wrapped up. Why? Because the sooner you spot improvement areas, e.g., that your employees spend a lot of unbillable time on client meetings, you can address these issues.
Do you need specialized accounting tools to monitor your project profits? Not necessarily. In this blog post, we’ll show you how a resource scheduling and time tracking app, Teamdeck, can be a handy tool to keep an eye on the project’s costs and profits.
Before you start building your project profitability report, you need to sign up to Teamdeck (you can try it out for free for 7 days, no credit card required). You’ll be in a great company: over 3500 customers from interactive agencies, software companies, and startups use Teamdeck to plan and manage their teams’ work every day.
Now, let’s get to your project profitability report. We’ll cover two typical types of project budgets: fixed price and time & material.
Fixed price: track the costs of your project to evaluate its profitability
When you operate on a fixed budget, all you have to do is track your project’s costs and subtract them from the overall price. Tracking expenses like software licenses or travel costs is usually relatively straightforward, as the accounting department controls them. However, the bulk of your project’s cost lies in your team’s labor. How to keep track of these costs?
The easiest way to do it is to embrace time tracking at your company. It has many benefits, one of which is the fact that you monitor project expenses accurately. Of course, for your timesheets to be reliable, your team should track their time regularly, ideally in real time. Robust time tracking tools like Teamdeck offer convenient time trackers for web and mobile devices.
When your teams track their time spent on different projects, you can easily create a project cost report in Teamdeck:
1. Go to the reporting suite in the upper menu bar and click on the “create new” plus icon. Pick the “create custom” option, as we want to create a report from scratch without using a template.
2. Add a new table. By default, it will show all of your company’s projects together with data about timesheets, bookings, and vacations. In order to track the costs of your team’s labor, you only need the timesheets, so you can remove the other columns. Your table should look like this (only with your projects listed in the left column):
3. Since you want to only track the costs of one project, you can filter the others out. Click on “Filters”, then add a new one that’s supposed to filter information by projects’ names. Enter the name of the project you want to analyze and click “apply”.
4. The next step is to calculate the costs generated by each employee working on this project. You can see their timesheets when you click on the little arrow in the table, next to the project’s name:
5. We’re going to assume that each of them has a different hourly rate. Let’s add a new column where we can enter that value. Go to metrics -> Add custom -> Add custom values column. Then enter the name of your new column (say: “Internal hourly rate”) and pick the currency data type. You’ll see a new column appearing in your table with empty cells.
6. A custom values column works like a spreadsheet’s column. You can click on a cell and manually add a number there. Let’s fill this column with your team’s rates. You can leave the first row empty as we don’t have a standard hourly rate for the whole team.
7. Now, let’s add a column that will calculate the costs generated by each employee working on this project. Add a new column but this time, instead of picking a “custom values column”, you’ll select “add custom calculation field”, because we need to do some math here.
Name your column (e.g., “Costs”), pick a currency data type, and enter the formula:
(Timesheets: Time / 60) * Custom values: Internal hourly rate
As you start typing your columns’ names, Teamdeck will suggest the right field to put into the formula. Remember about dividing the timesheets by 60 if you want to operate on hours—time is stored in our system as minutes.
There you have it—a new column with costs assigned to every employee.
8. The last thing we want to do is to sum all of the individual costs values in the “Total” row. Click on it and enter the following formula:
= sum(nested(Group: People, Custom formulas: Costs))
Again, as you type the values, Teamdeck will suggest matching column names.
That’s it! You have your accurate project costs report, which you can compare with your fixed budget to see the project’s profitability.
Would you be able to create such a table in your Excel spreadsheet? Yes, but it would require regular updates as people keep tracking their time. With Teamdeck, you always get accurate timesheet data so you can track the costs almost in real-time. It’s just much more convenient and quicker than maintaining a spreadsheet-based report.
Time & Materials: monitor your project’s profits
When you charge your clients based on a time & materials model, you’re likely already tracking your team’s time. It’s essential to have precise timesheet data in order to invoice clients accurately.
With Teamdeck, your team members can track their time easily, and you are able to monitor your project’s profits with great accuracy. As soon as someone enters a new time entry in their timesheet, your project profitability report will have up-to-date information.
Creating a report that calculates your project’s profits requires you to repeat steps 1 to 6 from the fixed price report described in the first part of this blog post.
By this point, you have a table showing your team’s timesheets and their internal hourly rates (i.e., the money you pay them for each hour of work). Now it’s time to add a column for their external hourly rates (i.e., the money you charge your client for an hour of a given employee’s work). You can do it by adding a new custom values column and typing values into cells.
Your company’s profit is the difference between the external rate and the internal one. Let’s create a column that calculates the profit and multiply it by the hours your employees worked on this project. Add a new “custom calculation field”. Name it (e.g., “Profits”), pick the currency type, and enter the following formula:
(Custom values: external hourly rate – Custom values: internal hourly rate) * (Timesheets:Time/60)
The final thing to do is to sum your employee’s profits in the total row. Click on it and enter:
Your final table should look like this:
Of course, you can further customize it by filtering information or adding new columns. Teamdeck’s reports are very powerful, so you should be able to tailor them to your organization’s needs.
Would you like to chat about adding Teamdeck to your company’s project management stack? Schedule a call with Joanna, our customer success expert. She’ll walk you through the app and help you set it up for your team.