1. Regularly check the profit on each job
Profit is the lifeblood of any business. Are you regularly checking that the profit on each job you’ve completed is what you planned?
To do this you need to compare your original quote to the customer with the actual costs for the job.
It’s all too easy to forget to include all costs in a quote before the customer signs the contract. By checking quotes against actuals each month you will learn from your mistakes and prepare more profitable quotes in future.
2. How to get all the information together
You could keep records on Excel, but if you can use a project costing module integrated with your accounting software you’ll cut down on the amount of work to keep everything up to date.
Xero has a project costing module. It’s very basic, but may be all you need to ensure your quote will make you a profit. You set up a project for each job, and enter the expected and actual cost of materials and cost of hours worked. You can link your sales invoice to that project.
You can print out a report showing you all the information you’ve input and comparing costs in your quote with actual costs. The report will help you track all projects to make sure you get things done.
3. Ask Why? and become more profitable
At the end of every month when all your bookkeeping is up to date, check how well you did with your quotes and examine the reasons for the differences.
- The actual price for materials may have been more than your quote. Why was that? Perhaps there was a price rise that you didn’t know was coming when you did your quote. Or perhaps you needed more materials than you quoted for. Why?
- The hours worked may have differed from your quote. Why? Was the person who did the work slower than you anticipated – or faster?
- The hourly rate may been more than your quote. Why? Did you have to use a different person who was more expensive than you’d allowed for in your quote?
The more questions you ask the better you’ll understand how to make better quotes in future. And the faster your profits will grow.
Once you’ve got into the habit of checking your quotes against actual expenses you’ll wonder if there are any other ways of keeping your costs down and your profits up.
Management accounts are the best way of checking overall business income and expenses.
If you’d like help with project costing or management accounts, click here for more details or call me on 01737 559211.