In business, we all subscribe to making a profit otherwise we do not have an ongoing viable business.
The most basic understating of profitability is based on a simple calculation for each project, job, transaction, etc. and it is calculating the cost of the products to be used plus the labour involved, and then applying a mark-up so that a minimum level of profitability is achieved. In theory we now have what we want to achieve. The order is won and the products and services are delivered. The real test comes in monitoring and measuring what was the actual cost. Were the products purchased at the prices that were quoted from the suppliers? What was the amount of labour used? Were there any other hidden costs that were not accounted for when preparing the proposal?
These three questions are not only valuable in understanding the profitability of the job in question, but also learning from it so that future proposals are produced with a greater degree of accuracy if not realism, especially where labour is concerned, so that profitability is not only achieved but maintained.
Another scenario where profitability is affected, is when main products that are being offered rely upon mandatory or optional associated products. An example would be where a given product requires one hour of installation. The client requires a quantity of ten so the labour associated with it would be ten hours. There is no problem producing the proposal, but the client calls and asks for the quantity to be increased to twenty and needs the proposal in the next half hour. There is a strong possibility that the quantity will be increased, but the increase in labour could be missed. This is sometimes referred to as ‘leakage’. Whatever you want to call it, it affects the profitability of a job. The challenge is, should the client be approached and told that the proposal was wrong? Could this jeopardise the order? Or should the extra cost be written off this time?
In both cases what is needed is for products and services to have not only descriptive and monetary data characteristics, but also the ability for them to be used as part of time sheets so that labour can actually be measured. There should be the ability to associate mandatory and optional products/services to other products/services so that leakage is minimised if not eliminated. This will greatly help in measuring what actually happened to what was proposed, and so give you a better understanding in preparing a proposal for a similar situation in the future.
To make it easier this has to be in one system, otherwise using disparate systems for proposal generation, time sheets, etc. will add another layer of complexity to solving the problem, that is, managing the data.
You might not achieve the profitability you desire to begin with, but you can subsequently.
