Profitability 101: What We've Learned Along The Way
October 8, 2019
If you’ve succeeded in growing revenue but aren’t seeing profitability keep pace, you aren’t alone. That was the position we were in for years, and it’s an issue for many companies today. In our case, we learned that relying on the typical, single-focus firm management systems for project tracking, resource scheduling, and other tasks wasn’t giving us the holistic perspective we needed to run our business effectively, grow profitability, and increase firm valuation.
So, what did we do? We developed our own solution — what we like to call our “firm profitability tool.” Factor gave us all the features we needed to manage our company, but in a way that no existing product did. Every functional area in the system was designed with a metrics-first approach. Very quickly we discovered that this KPI focus was what we needed to achieve our growth objectives.
The story might have ended there, as we created Factor for our use and not as a product we intended to market. But, as it turns out, we discovered in conversations with our clients and our industry peers that there is a serious need for this type of system. Deciding that we would help fill that void, we made some additional refinements to Factor and brought it to market to help other project-based companies move beyond the firm management status quo and get a new perspective on profitability.
"Factor gave us all the features we needed to manage our company, but in a way that no existing product did."
How is Factor Different?
When we talk with companies that have used other software packages but are looking for something better, the first question they ask is, of course, “How is Factor different?” The long answer is outside the scope of this post, so we’ll summarize. Factor provides a wide range of functionality, but it is designed to assist you in four key areas in particular.
First, Factor helps you focus on metrics that matter. To increase profitability, you have to pay careful attention to certain critical numbers. It’s too easy to get lost in a blizzard of stats. Factor provides metrics you can use to guide decisions on hiring and pay levels, project pricing, and much more. The 20+ KPIs the system tracks give your team members visibility into the impact that decisions are having on profitability so managers can make course corrections if needed. For example, increasing realized rate and utilization can drive better financial performance.
Next, Factor enables you to align team capacities and expenses. Are you decreasing your profit potential by allowing expenses to increase faster than earnings? There was definitely a period in our history when we did! You need to keep the earning capacity of your team at a predetermined level above expenses. Better yet, you should exceed that goal. Factor clearly and immediately shows you how things like pay increases, additional non-billable staff, and other costs are affecting profitability so you can make smart expense- and capacity-related decisions.
Factor also helps you keep your scheduled resources close to capacity. If you hire too many or too few employees, or if you don’t keep employees busy and productive, it’s going to be hard to hit your business goals. One of the keys to maximizing profitability is minimizing scheduling gaps and worker downtime. Factor’s resource scheduling capability provides visibility into current and upcoming availability of resources. When you compare capacity to the dollar amount of scheduled work, you can see where to make positive scheduling adjustments. Plus, the resource schedule aligns the value of the time scheduled with the actual dollar amount for the project.
Finally, Factor makes it easier to manage projects effectively and maximize revenue. Write offs and low utilization rates can kill profitability. Factor’s project management features help you capture the time being spent on projects and understand how costs incurred align to the amount of revenue that can be recognized. Time entry reports can be viewed by project managers and firm owners to ensure projects are completed on time and on budget. At the end of each pay period, all logged time is automatically funneled into appropriate invoices for you within the tool to make your invoicing and client billing as efficient as possible.
Firm Management Software Reimagined
Our early mistakes in how we managed our company were actually a blessing in disguise. The lost profit and missed growth opportunities prompted us to look for, and ultimately design, a better solution. Today, you can capitalize on Factor to ensure your profitability graph shows a smooth and steady upward trend.
Get on the Path to Higher Profitability
The first step in streamlining your operations and achieving your business goals is learning to look at profitability differently. Get started today!