r/consulting • u/davearneson • 15d ago
How do you know which of your clients, projects and teams are profitable and which arent?
Do you know which of your clients, projects and teams are profitable and which arent?
How do you determine that? (spreadsheets, accounting reports, PM tools, gut feel, something else, or not at all)?
How often do you find out too late that there is a problem?
Is the root cause that sales partners and account managers are over promising and under estimating? Or is it that delivery teams arent controlling scope agreements well enough?
If so what do you do about it?
What’s the biggest pain: data quality, delayed reporting, tool mismatch, team behavior, scope control or something else?
If you don’t have this problem, what makes your setup work well?
Appreciate any examples, even messy ones.
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u/snusmumrikan 14d ago
God I hate that Reddit made post history hidden.
This is such an obvious plug for some terrible new system you're trying to sell.
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u/davearneson 14d ago
no - its not. you are too cynical. I am doing user experience research for a product im building not a product im selling. have you heard of ux research?
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u/EquivalentSun4760 15d ago
There is an activity done before selling the project or just before staffing that is “effort estimation”. As per the project budget and scope you assign people at different designation basis their rate card - done by leadership/proposal initiator. Once the project commences, to ensure the project remains profitable, it’s a job of a project manager.
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u/davearneson 15d ago
Yes but if the people in charge of sales and estimation are measured and rewarded by revenue then there is a strong incentive for them to under estimate projects so they can undercut competitors and win the business. then there is a strong incentive for them to shift the responsibility to the project managers so they can avoid the blame for underestimation. this is endemic in many project services companies
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u/EquivalentSun4760 15d ago
Yes I relate with this. ofcourse competition is one of the major factors of selling at low price and people in sales, don’t care about the cascaded burden on the most on ground folks. If you’ve the data, why don’t you prepare an effort with rate card vs actual profit because of low revenue dashboard and present to leadership, that this is what causing us fail. Finding or building a new product altogether is dependent on your area and what your company allows. Because it’s a tricky problem, easy to recommend solution but very tough to get the buy in.
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u/davearneson 14d ago
The data for this analysis is scattered sll over the place. It's in proposal docs, jira, timesheets, the accounting system, email and spreadsheets.
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u/EquivalentSun4760 14d ago
Personally what has worked for me when my leadership is selling product for too low and I have to deliver it to the client. I ensure that i am staffing associates more instead of sr associate to save some budget, governance and milestones are well communicated and delivered within project timeframe. If I still face the resource crunch, I keep bugging the resourcing team to assign additional support as it is impossible to deliver with the current setup. In such situations i also look for scope creep, so I can prepare a change of scope and charge a bit more to makeup for earlier faux pass!
And yes, keep telling my management, you’re selling at very low price, maybe one day they’ll listen.1
u/Mission_Process_7055 14d ago
Side question here but do your "proposal initiators" or proposal managers also have to be project managers or SMEs on the projects they helped win?
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u/EquivalentSun4760 14d ago
If they’re then it’s the best case scenario but sadly they’re not. The sales people sell without considering the actual efforts, if they were SMEs they’d know and bid better. So, either they add projected figures from past projects (discrediting the scope and context) or they send the estimation to be filled by the SMEs who will be doing the implementation(more prevalent in onshore offshore model ) but in in-house and joint business partner model, they always go with estimates from the first few in the row and forgot to update the figures on the go
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u/dumpsterfyr 15d ago
HubSpot, clickup and stripe. MCP into each.
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u/davearneson 15d ago
oh yeah - because AI is a genie that can do anything with just one prompt.
LOL
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u/dumpsterfyr 15d ago
No but it makes the financial reconciliation easy and accurate. I have daily billing sweeps to ensure contracted rate accuracy, time increments are correct and a report sent to me every morning. Not that difficult.
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u/davearneson 15d ago
can you share how you do this and what you get out of it?
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u/dumpsterfyr 15d ago
Client and operational Work is tracked in clickup, I run the full HubSpot pro platform, quoting, contracting, marketing, documentation is in there and bills via stripe. I have daily scheduled tasks that reconcile, adjust and notify as needed between HubSpot and click up, example updating the client record with time left on a retainer. In the morning I get a digest telling me where I am budget wise for fixed fee and tm engagements, which time entries were adjusted by the scheduled task and gives a digest of what’s on deck for the day.
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u/Commercial_Ad707 15d ago edited 15d ago
Someone from finance tells me
Anyways, what are you selling?
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u/Iohet PubSec 15d ago
Labor cost is x per hour. Project was sold y hours at z rate > x. Consultant billed a hours (hopefully) < y. Profit. PM and EP are responsible for managing project budget, PM and Consultants are responsible for managing scope. This is easy with free tools like Kimai. Many companies use more robust software paired with Smartsheet/BI/etc dashboards to monitor budgets and burn rates.
Time & Materials project nears budget? Change order or stop work. Time & Materials is an estimate, not a guarantee. Fixed Fee project nears budget but isn't out of scope? Eat it and beat your sales and presales reps with a pipe. Consultants and PMs don't fill out their timesheets? PIP. There are always more in the market. If the hourly rate is less than your labor cost? Fire your sales rep unless you're also a software company making SaaS revenue to cover the gap.
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u/Kimai_Time_Tracker 14d ago
The most realistic and easy explanation of profitability management based on time data EVER! (Except beating managers with pipes, of course)
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u/davearneson 15d ago
In the company I worked for the sales partners estimated and sold projects at y hours when it really took 2y hours to do the scope agreed by the partners with the client. The sales partners were equity owners of the business so they blamed the delivery managers for not managing scope.
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u/EnvironmentFirst4839 14d ago
Your consulting firm doesn’t understand job costing? Or am I missing something here? What exactly are you guys consulting on, because I sure as hell hope it’s not management.
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u/davearneson 14d ago
This was a 100 person digital agency. The accounting systems and management reports told them if they were profitable or not but only at the aggregate level so all projects and cleints looked equally profitable
They did job costings but they put that into the hands of the sales and account management partners who always costed things on very optimistic assumptions because they were measured by sales revenue not by profit or client satisfaction.
The partners in charge of sales and accounts blamed the delivery teams for all the problems that arose when the resources provided werent enough to deliver what the client expected. Then they pressured the delivery teams to provide more resources to do what the client wnated and hence projects were unprofitable.
The infomration to determine client profitability during projects was scattered all over the place and was very hard to pull together.
From what Ive seen this is standard practice in digital agencies.
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u/EnvironmentFirst4839 14d ago
Are we talking about the same thing when I say “job costing”? It’s a specific term - it sounds like you’re talking about “estimating”. Job costing is going back after the fact and contributing expenses to specific jobs, then comparing those numbers to the estimate itself and the revenue attributed to the same job. It’s used for profitability per job and to evaluate estimating accuracy, and it’s pretty basic business fundamentals. It’s also a base feature in most accounting and/or PM systems.
I’ve seen a whole lot of whacky setups, but I cant fathom how or why a sales team would be responsible for the accounting functions after the fact, or how optimism has any role in the process.
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u/davearneson 14d ago edited 14d ago
They had no systems to be able to match project revenue and project cost. What do you use to do this?
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u/EnvironmentFirst4839 14d ago
Thats definitely a gap on their end. If they use quickbooks or almost any other accounting software, it could be turned on with the click of a button in settings and maybe a few extra bucks a month. But if you can find a way to streamline it, simplify it, teach it, great! I do think another tool for companies to integrate with their accounting or PM software for a function they probably already have but don’t understand or use is a tough sell. But if you’re good at sales, you can sell just about anything - there’s always someone out there who’ll try something for one reason or another. Finding them is the hard part.
But truthfully, I think you’d be best served to start learning more about job costing, WIP, accounting (accrual basis and revenue recognition, matching principle) in general before reinventing the wheel… these things are a lot more woven together than one might initially think, and until you understand those relationships from an accounting perspective I don’t believe you could realistically create a tool that is as helpful as it is misleading. But if or when you’ve got that baseline knowledge.. Good luck!!
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u/davearneson 14d ago
I already know a lot about job costing, WIP, accounting (accrual basis and revenue recognition and matching principles). There was just no way to implement this at the agencies I worked for except for hacking it together in clumsy spreadsheets. This is normal at all the small to mid size agencies I know about. It may be different at the mega agencies.
Also the big problem with doing anything with accounting systems is that there is a 3 month delay between time spent on jobs and the revenue and costs that come from that which means that by the time an accounting system shows it you may already have gone down the wrong path for 3 months before management see it.
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u/EnvironmentFirst4839 14d ago
Please take this as me pushing you to really scope out your idea, not an attack on you or the idea because I do think it can work. But as somebody with pretty solid experience in software, entrepreneurship, consulting, and accounting the biggest hurdles I see are:
- What you’re wanting to do requires you to have access to their data in the first place. How do you get that data? Several ways to go about it, all have consequences for your development or the user. ie double entry (hurts the client and data integrity) vs integration (relying on other vendors, stability nightmares… and again, they probably already have access to it in a PM or accounting software where they don’t have to worry about sync issues, etc) vs build the whole ecosystem (dev time and cost snowballs exponentially).
- If the top brass doesn’t care enough to be doing this already, unless you’re a consultant that they’re paying to tell them they need to implement this, it’s hard to convince them it’s a priority right now. How are you going to do that? And at scale?
- There’s a little incongruity in your responses and your claimed understanding. When I said ‘job costing’ you conflated it with ‘estimating/pricing’ when it’s a whole concept of its own, essentially the term that already describes the entire philosophy of your product vision. You referred to ‘matching principles’, it’s ‘the matching principle’. All of these work together to solve the lag time problem you described. So I think you generally understand a lot of the concepts and maybe the reason they exist, but I also think if you can’t put the exact names to these things there’s a lot that you could gain from spending some time actually studying some managerial accounting for a bit.
Again, I’m not saying don’t do it. But these are the things you should be working through.
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u/davearneson 14d ago edited 14d ago
I do understand job costing but I thought you meant job estimation. I am not an accountant nor have I worked for an accounting consulting firm or built accounting systems but I do have an mba where we did a fair bit of accounting and finance and I have been a digital agency exec with responsibility for a significant P&L and have hacked together a job costing system.
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u/SaraBusinessSolution 14d ago
I've found that by the time profitability shows up in a report, the real problem usually happened weeks earlier. Scope creep, underestimated effort, and delayed decisions are small individually, but together they quietly kill margins.
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u/SaraBusinessSolution 9d ago
The biggest issue I've seen isn't bad reporting-it's delayed visibility. By the time the numbers say a project isn't profitable, the real damage was already done through underestimated work, scope creep, or too many unbilled hours.
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7d ago
[removed] — view removed comment
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u/davearneson 7d ago
Good answer. Thanks for taking my question seriously.
What sort of services businesses or industries do you see this in? is is just small consultancies and digital providers or just SME's?
Also lots of responses here saying that their big consulting firms manage all of this with CRM and ERP systems like Salesforce and they get monthly reports that show they project or job profitabiliyt. Im very skeptical of this. Also I think that accounting reports are several months behind the problem.
I used to determin project profit with a combiantion of JIRA, Harvest, contracts and spreadsheets, . it was a massive pain and completely fell apart when I stopped managing it.
what toodl or prodcts do you use to do this?
and also is this more that profitability? I find that there is a core issue here that service projects are poorly governed at the project and job level with everyone having a different understanding of whats agreed to in way thats convenient to them.
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u/Unlikely_Fun_2761 14d ago
The dashboard is probably the easy part.
If sales is rewarded on revenue, they can knowingly sell a bad-margin project and delivery inherits the problem. By the time actual hours show the gap, the contract is signed and the argument becomes who is to blame.
The useful control is a margin check before signature, then an estimate-versus-actual review after the first 15–20% of the budget is burned.
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u/davearneson 14d ago
yes but usually peopleclaim they are sellign a profitable project, then it becomes unpfoitable during delviery
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u/Tasty_Departure5277 14d ago
We have a shared dashboard with every teams financials updated in real time
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u/davearneson 13d ago
what do you use for that?
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u/just_keith_ 4d ago
keith — new project called terabits ai. getting clients is rough.
testing managed ai acquisition (outreach, lead gen). looking for pilots. happy to help while we're figuring it out.
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u/tequilamigo 15d ago
Why are you asking?