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Measuring Profit Margin
Here at Timesheets MTS software, we do not just sell our software, we also use it daily to track our activity. One of the key benefits of this is that not only do we Eat Our Own Dog Food, but we also have an excellent idea of the Real Project Profit Margin of each programming contract we carry out. Generally we conduct our projects on a Fixed Price Basis so using Timesheets MTS makes this fairly trivial to do.
Firstly, a word on why you'd want to do this. Fixed price projects transfer the majority of the risk back to you, the service provider. While we'd all love to have all our projects be Time and Materials type projects, where the risk is carried largely by the customer, this often is not the case. So, when quoting on, and then executing fixed budget projects you want to make sure that:
- Your initial quote was accurate
- Your project runs at or under budget
- What the real profit margin was
- If there are budget over-runs in any part of the project you want to know where these were to allow you to modify your quoting process in the future
If you do have a fixed price project you want to determine the profit margin just set it up as described on the Fixed Price Project Project page. Then using the Charge Rates tab of the project maintenance page change the user charge rates for the project to your Cost per Hour for each user type. Then make use of the Productivity Report and the Invoicing Report to get a true measure of value of time/expense/travel spent versus invoice value.
If you have a time and materials project you want to determine profit margin for you will need to make use of the project budget fields on the project maintenance page. Then again, you can make use of the Productivity Report and the Invoicing Report to get an easy measure of project profit margin.