Identifying the profit margin is complex job for any business. If you are a product-oriented company then it is easy to quantify your output and sales. Hence it is difficult for the service companies to ascertain the profit margins. To know whether the business is getting good ROI a correct evaluation of profit is required taking into account both tangible and intangible expenses.
- Allocate the true time and resources spent on the project
It is significant to ascertain the correct amount of time and resources put to a particular project. Several tracking apps can help you identify the cost associated with the job. You need the information like how long time is needed to complete a job and the productivity level of your staff. Thus you can plan your output accordingly.
- Consider the contribution of all service providers
Every individual is different. There is a difference in skill, creativity, and efficiency of every individual. Even the time required to finish a particular job may differ from person to person. So it is advisable to consider the varied efficiency of the staffs to ascertain the correct cost involved in the process. There may be staffs who are experienced and efficient who take less time to finish a job at the same time there are novices who consume more time on the same job. So irrespective of their salary their contribution may fluctuate. While calculating overhead cost the cost accountant should consider those difference in efficiency to land up to a close to the real cost.
- Identify the direct and indirect cost
Not only the hourly wage of the personnel but the total direct and indirect cost should be considered to reach the correct cost of production. Gross profit is not the profit which a business gets. There are hell lots of operating costs like rent of factory building, technology cost, stationary cost, utilities and so on. Other than these there is a certain cost associated with employee welfare like health insurance, training, and other employee benefit plans. You can also count HR and recruitment cost as a part of it. Thus to land up to a correct profit figure you should keep all these expenses in mind.
- Treat administration and marketing costs
The indirect cost is all about the production cost but not directly associated with the production process. Hence there is some further cost called administrative and marketing cost. The example of these costs is the rent for the office building, stationary cost, electricity cost for running air conditions, office fan and lighting cost including marketing cost like advertisement expenses, commission to marketers, etc. these costs should be allocated properly to ascertain the correct profit.
- Focusing on referral programs
We always focus on how much it costs to gain a new client or how to keep the client remain in the business. But do we ever think on the other way round? How much revenue does the client generate to the business? Some clients have good contacts and give you more clients. These clients have to be dealt with care. They can give you more business. The aforesaid factors should be taken into account in future projects. This cost can be treated as expenses on referral programs. It improves the sales and ultimate profit of the organization.
All these activities need managerial time. If a business spends all its quality time in routine day to day work then the business will be left with no time to think strategically. We the outsourced bookkeeping company can free you by taking your accounting and bookkeeping services. We have a team of trained and skilled accounting personnel who can deal with all your financial management.
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