Bookkeeping Services and Tips for Determining Your Profit Per Client
August 9, 2021at12:00 PM
As a leading provider of bookkeeping services in the greater Denver, CO area, KRD Tax & Consulting has worked with many small and medium-sized businesses to identify their accurate average profit per client and improve it wherever possible.
This is one of the most important steps to take toward making sure your company is profitable and growing. It’s particularly essential for new businesses given that the vast majority do not survive their first 10 years; a lack of profitability is a common and obvious reason for this.
Half of calculating your profit per client involves calculating your cost per client, which is best achieved through a process called job costing. We’ve previously written about it on our blog. Job costing tells you the overall cost of a project, which you can subtract from the revenue generated through the project to determine your profit margin. You could do this for each individual client, for each category of client your company works with, for each type of service your company provides, or in other ways which can provide your business with valuable information about its profitability.
Costs to Consider
When calculating your business’ average profit per client, there are many different types of costs to consider. The most relevant ones are the costs associated with each project your company works on for a client, including:
The cost of all materials expended to complete the project.
The amount of money spent to pay workers for the project.
Any costs for the period of the project not directly related to the work performed.
Any of these categories may be more or less relevant depending on your type of business, but this is a simplified version of which costs are generally used to calculate a project’s overall cost. There are also more specific costs worth considering if you’re trying to determine your average profit per client. These include:
Marketing cost per project/client
Customer service cost per project/client
Average return rate
Average shipping cost
Using the Data
Having all this information is, of course, only as useful as the actions you take based upon it. The best way to use this customer profitability analysis is to organize your business strategy around it. Understanding your average profit per each client will give you a clearer picture of which clients are worth your business’ time and which aren’t. This will inform the way you allocate resources, how you market your business, and the products or services you choose to focus on most.
Low-profit clients are not the only issue to watch out for. You may also discover that your business is devoting the majority of its time and resources to one or very few big clients. Although a consistent, long-term client can be an excellent thing to have, it places your business in a fairly risky position when its success currently depends on that client; it gives them a lot of leverage over your rates and deadlines. You may take a situation like this as a sign that you need to diversify your base of clients to ensure your business’ long-term viability.
When to Hire An Accountant
Many of the costs and calculations referenced in this article are typically handled by a bookkeeping services firm like us. This level of analysis can be very time-consuming to perform, especially when the majority of your time is taken up by managing your business and providing whichever products or services you offer. Hiring an accountant gives you the time to do that while providing you with accurate data that’ll allow you to manage your business better.
The bookkeeping services experts at KRD Tax & Consulting can help you identify your most valuable clients and maximize your business’ profitability. Book an appointment now for a no-obligation consultation.