By now, you might have seen these figures appear on your job page: the planned profit margin and projected profit margin.
As you know, we're always trying to improve the product to give you better insights into your projects, team, and business as a whole. The introduction of planned and projected profit margins is part of these overall philosophy: focusing on foresight rather than hindsight.
With that in mind, they're designed to give you a sense check on just how well you're going: are you running close to what you planned? Did you plan for enough profit? Will you finish ahead of the game or are you running to catch up?
But how does it work exactly?
Planned Profit Margin
Based on your job plan, the planned profit margin shows what profit you have planned to make according to the total cost of all items and expenses vs the planned sell of all items and expenses. All expressed as a percentage of your planned profit against planned revenue. Simple, huh?
Some notes: if you've set a budget, anything between the Total Planned Sell of your job and the budget will be added or subtracted from your profit. For example, you've been given a $50,000 budget for a job by the client, but your Total Planned Sell is $40,000. Streamtime assumes that $10,000 is pure profit. Similarly, if your Total Planned Sell is more than your budget, we'll adjust your planned profit figure to match.
For some items (eg a fixed price item without any team members attached), we cannot estimate a cost. We disregard these from our calculations.
To keep the calculations accurate as possible, your planned profit margin will only appear if Streamtime is able to estimate a cost for 90% of your job.
Projected Profit Margin
We know things aren't always perfectly run to plan. Sometimes jobs run overtime! So our projected profit margin is designed to show how our system predicts your profit margin will end up at the end of the job.
It's calculated using a combination of the planned profit margin figures, with updates based on the Used Costs of items and expenses as your team tracks time, and item statuses.
When your team starts working on an item, they'll log hours. Once the item is marked complete, we update our calculation for the projected profit margin to assume that the figures for those items are locked in—it's complete, so we know the real cost and profit of that item. Otherwise, we work with your planned figures. Your expenses are also included in these figures. They're hard figures, so we assume they're locked in from the get go.
As you mark items as complete, the confidence of our algorithm increases. Once over 50% of your job is complete, our confidence moves from Low to Medium, and onwards.
Regardless of item status, if your team logs more hours than planned, we'll switch to tracking the used hours. This is so that your projected profit margin takes into account the fact that the item is now running over your planned hours. 🚨 Red alert!
Like the planned profit margin, if we can't calculate a cost for at least 90% of your job, we won't show this figure on your page.
Actual Profit Margin
Once all items on a job is marked complete, and you invoice the job, we'll surface the actual profit margin rather than the projected profit margin. That way you can compare what you planned to what you actually have in the bank.
How do I increase the accuracy of these figures?
You'll get the best out of these figures (and, incidentally, out of Streamtime) if you follow a few rules:
– Ensure that you've set up cost rates for all your team members and cost and sell rates for each expense on the job
– Be vigilant about marking items complete as you go so the accuracy of your projected profit margin is the best it can be
– Ensure all items and expenses on the job are captured and tracked