Job Profitability: More than just Profit & Loss
Job Profitability is one of the most important mathematical equations when it comes to service-based business accounting. Job Profiting calculations are based on all of your Job Costing data including labor, materials, and overhead – for each individual job or client. Job Profitability reports will tell you whether each specific job is profitable – or at a loss – and by what exact percent. This is a much more accurate report than your simple P&L, which could show that you are in the black when a deeper dive can be quite eye-opening, and highly beneficial to your bottom line. Job Profiting reports help you summarize and determine which services you need to take a closer look at, and which are your top earners, percentage-wise. Job Profitability doesn’t equal highest sales. Some of your largest jobs might be on the bottom end of your profitability table, that’s why this number is so important.
The 80/20 rule states that your top 20% of clients provide 80% of your profit. By looking at your Job Profitability, you will know down to the 1.00% which clients are in your top 20%. You might also find that giving your friends and family all those discounts is really creating less profitability, even though the volume is high. You might learn that raising your rates on one specific service (or cutting out that service altogether) can have a positive influence on your entire profit margin.
In order to calculate Job Profitability, you must start with detailed and accurate data for labor, materials, and overhead. Take a look at our previous blog post to learn more about Job Costing.
The calculation is as follows:
Job Profitability = Job Profit / Job Revenue
What if I don’t have all the data?
At Moose Creek, we are asked that all the time. If you are reading this, you likely have a successful business and are ready to take the next step into the world of accounting, congratulations! Does that sound a little scary as well? We realize that our clients specialize in all aspects of craft, skill, and engaging with the community (sales!), but accounting is often their least favorite part of being a business owner. (Not everyone LOVES math like we do.) Job Costing is the first step to creating accurate reports, including Job Profitability. Moose Creek Bookkeeping specializes in service-based accounting and is eager to help you start tracking all your job costs properly so that you are ready to run more accurate reports as your business grows. Once that is done, running reports for Job Profitability and other highly-detailed reports can happen easily! That way, you are able to focus on your craft, sales, and your most profitable clients.
