8 Tips to Maximize & Increase Project Profits
At least 90% of agency leaders don’t think their projects are as profitable as they could be. This is often for a variety of reasons; maybe you quoted a client a low rate just to win the project, or perhaps your team has taken on too many projects just to guarantee cash flow.
It doesn’t have to be this way though; there’s no need to sacrifice project quality for profitability. When you ensure every project has a solid profit margin before taking it on, you won’t need to stretch your team too thin just to make ends meet.
But if boosting your project profitability were easy, everyone would do it. That’s why we’ve compiled 8 tips to maximize and increase your project profitability to help you out.
Project profitability explained
Project profitability measures whether your projects will yield a positive financial return for your organization. If the cost of completing your project exceeds the amount of money that your team will make for the project, then it’s not profitable.
While profit is by no means the only metric used to determine project success, turning a profit is an important part of guaranteeing that your business will remain viable long-term. A healthy profit margin is also crucial in growing your operations beyond their existing size, should you be interested in taking on more clients or projects.
How to measure the profitability of projects
Your profit margins can be measured in a couple of different ways, including your gross profit margin, net profit margin, and operating profit margin. Each calculation will leave you with unique insights into the health of your business.
On a more basic level though, project profitability can be found using the following formula:
8 tips to increase project profits
Every business owner wants profitable projects — the question is how. Simply charging your clients more for your services isn’t always the best way to make sure you’re bringing home a profit. Instead, you’ll need to take a closer look at a variety of factors.
Here are 8 tips to maximize your project profits. Let’s dive in:
1. Start with a realistic project estimate
You might be wondering how a project estimate factors into your project profitability. Well, for starters, anticipating your costs allows you to properly mark up your project so you’re able to make money on it.
Let’s say you build a project estimate only to realize your profit margins will be too thin. Knowing this ahead of time allows you to adjust your markup accordingly or it could potentially dictate whether you even take the project on at all. Learning how to say no to projects that don’t benefit your business is a valuable skill that has numerous benefits for the profitability of your firm as a whole.
2. Examine your pricing
While simply raising your project rates is not a surefire way to improve project profitability, you should certainly do so if you’re undercharging relative to the rates of competitors.
Pricing projects right is a challenge, and conducting a competitor analysis is the best way to determine where your pricing stands within the market. This will involve determining what your closest competitors are charging for their services, their typical client profile, the number of clients they’re able to manage, and whether their online reviews are positive.
If it appears as though they’re charging more for the same services you provide while still leaving customers satisfied and delivering value, then it might be time to increase your rates. At a minimum though, you should be reevaluating your rates every couple of years to account for inflation.
3. Cut down on your overhead costs
Overhead costs are expenses that are crucial for company success but are not directly related to a project. Think of overhead costs as the cost of your office space, utilities, supplies, or employee perks.
Every dollar spent on overhead costs directly takes away from your profits, as your overhead expenses aren’t related to your firm’s ability to make more on a project.
For example, with so many organizations switching to a hybrid work model as a result of the pandemic, you might be able to downsize your office space to save. Cutting back on your number of desks is a small change that might have huge benefits for profitability.
Switching to a project management tool with all-in-one capabilities is another way to save. BAIT Studio was able to significantly reduce spending with the help of Rodeo: "We have managed to cut back significantly, at least 50% on costs for project management software, even with far more users than before,” said Managing Director Peter Rogers.
4. Pick the right metrics to monitor
In order to even measure your project profitability, you need to gather the right metrics.
Given that expenses are a critical part of the profit margin formula, it’s incredibly important to have a cost and expense tracking process in place. After all, unless you have a system for recording your spending, you won’t know if your budget estimate was accurate.
However, in terms of maximizing your project profitability, you’ll want to monitor a wider range of metrics. Common KPIs in the professional services industry often include the following:
Project overrun describes the amount by which a project goes over budget. For projects on retainer, an overrun has the potential to significantly eat away at your profitability. Tracking your budget numbers in real-time can help you mitigate overruns.
Annual revenue per billable consultant
This is a common metric for professional services companies to determine how the project team size is having an impact on revenue generated — and ultimately — profit. The calculation for this metric is simple, as you just divide an organization’s total revenue by the total number of “consultants” employed.
5. Prevent scope creep by declining late-stage client requests
Scope creep occurs when the client adds additional project requirements or asks for additional work to be completed after the project is already underway. Sometimes scope creep is unavoidable, especially because you want to keep your client satisfied throughout the entire project process, and sometimes you’ll need to cave to their demands.
However, having to complete work you didn’t initially anticipate can cut down on your project profit margin, especially when you’re not billing the client for minor additions. Whenever possible, try to avoid agreeing to additional client requests by communicating and reminding them of the goals and deliverables of the ongoing project. They might not realize that adding more to it will also interfere with the deadline and delay the completion of the project.
6. Keep tabs on your team utilization
If your team is salaried, maximizing their billable hours and making the most of their work time is a great way to improve project profitability. Your team’s utilization rate can be calculated by dividing your billable hours recorded by the number of total hours your team has available.
A low utilization rate might suggest that your team is wasting too much time on behind-the-scenes tasks that are unrelated to client work. That said, it’s unrealistic to expect your team to have a 100% utilization rate, as at least some of their work will probably be internal.
Instead, your goal with tracking your team utilization rate should be to identify and eliminate the time-consuming and unnecessary work that doesn’t play a role in improving project profitability.
Project management tools like Rodeo can help you easily understand how your team is spending their time — in other words — whether they’re taking full advantage of their available hours or if they’re spending too much time away.
7. Take advantage of automations
Implementing the right automations is one of the best things you can do to save your team time and cut down on routine manual tasks. Automations can take many forms, such as generating real-time reports and automatically turning project budgets into invoices.
Research suggests that knowledge workers lose 62% of their day on mundane tasks — also known as work about work — that don’t contribute to team productivity. Instead of wasting time creating and sending out client invoices, a tool with automated recurring invoicing can save you time instead, for example.
8. Leverage a project management tool
While project management tools result in an extra project cost, they’re well worth it when you weigh the benefits of staying organized and saving time. Some project management tools allow you to build and monitor a budget, track time, and assign tasks in one centralized place.
Having a tool stay on top of the financial side of projects for you is huge, particularly for creatives who aren’t well-versed in project administration. With the right software, you’ll have an at-a-glance understanding of whether your projects are running over budget, allowing you to quickly course correctly.
For instance, digital agency JaxX was able to boost its project profitability by 30% with the help of Rodeo. Before using the project management tool, JaxX couldn’t be sure whether it was billing clients for the right number of hours spent on projects. Implementing a project management tool like Rodeo with robust time tracking and budgeting capabilities was all the organization needed to increase its profits.
A smarter way to measure and monitor project profitability
Rodeo is an all-in-one project management platform with robust features to support your projects at every stage in their lifecycle. Because all of Rodeo’s features are interconnected, we’re able to bring you detailed reporting insights to keep you up to date on your spending and profitability at all times.
Effortless time tracking
Correctly tracking your team’s time is key in ensuring you’re getting paid for every hour you spend working on a project. That’s why Rodeo makes time tracking easy.
To record hours worked, either start the stopwatch on your dashboard when you begin a task or add a timecard later on if you forget. Rodeo will then use your rate card to automatically update your budget numbers to account for the cost of your time.
Invoicing made easy
Why manually send an invoice when Rodeo can do that for you? Users are able to bill clients for project work directly from the Rodeo platform. You can even customize your invoices with your own branding, terms and conditions, and discounts to give them a more personalized feel.
Plus, you can also set up recurring invoices to ensure you’re always paid on time. And if an invoice is overdue, Rodeo will alert you so you’re able to take the necessary steps to resolve the issue.
Unlock insights with Rodeo’s automatically generated reports
Rodeo offers four different types of automatically generated reports based on your usage of the platform: time registration, work in progress, employee productivity, and closed projects report.
Using these reports you’ll be able to better understand how each team member spent their time, how your budgeted spending compared to your actual spending, and whether your project is profitable. Not to mention, you can also download your data should you need to curate additional reports outside of the platform.
If you’ve been trying to boost your project profitability — give Rodeo a shot. Sign up for our 14-day free trial today.