You are Losing Money – Part III – How much do I make per project?

In our last article we talked about how to calculate cost rates and billable rates. The next set of important questions to answer is:

  • How much do I make per project?
  • How do I ensure I do not run over budget?

The best way to keep an eye on your revenues and profits is by tracking in real-time what your employees are working on. When they work on billable projects and the billable rate is above the cost rate, then you make a profit. The cost can go up when your team members are booking on internal projects which normally have a cost component only. These could be either billable units such as programmers working on a product that one day can turn into a commercial success, or non-billable units such as HR and admin staff.

When you run a sizeable business, using Excel spreadsheets quickly becomes a NO GO. This is why we developed Cronforce – it gives you real-time overview of how your budget is being spent. But also provides insights into your profitability per project and resource type.

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A valuable function of real time tracking of your budgets is that you can immediately spot when you start spending more on a project than intended. This is especially up-to-date nowadays because business is dealing with increasingly thin margins and budgets require particularly strong scrutiny.

The Cronforce.com Team

You are Losing Money – Part II – Calculating cost rates and billable rates

When it comes to budget control management software, you want answers to the following questions:

  • What is my fully loaded cost per resource?
  • What should be my billable rate?
  • How much do I make per project?
  • How do I ensure I do not run over budget?

We have already provided the components forming your fully loaded cost (FLC). Now find here few tips how to connect all these parameters and calculate your FLC.

  • You want to ultimately come to the cost per hour or day for your resources. To achieve this you need to get the cost per month divided by workdays.
  • Workdays vary by country and industry so get the right number. If you do not know it there are plenty of such calendars in the internet so ask Google.
  • Extract vacations and sick days and you will come to the actual workdays of your employees. Then divide this number by 12 to get the actual workdays per month.
  • Normally salaries vary based on seniority. If possible organize your resources in tiers based on seniority in order to have few lines of FLC for your resources. Otherwise could become a very long list of people, and believe me, this will be a nightmare to make any sense of.
  • Get the average amount per month considering total pay for the year including bonus.
  • Take into account social and health insurance per resource.
  • Consider any release costs and add it to the estimated amount per month.
  • Do not forget to estimate recruitment costs for your employees, especially if you use external provider that charges you a flat fee. Alternatively count the time that your employees spend to interview candidates until you select one e.g. one out five candidates make it and it takes you two hours each, then consider 10 hours of cost (if non-billable) or billable rate for this person.
  • Same for HR and admin services – consider the time spent on payroll, evaluations etc.
  • Take your rent and divide it by the people. If your employee number changes, just calculate your cost per sq.m and consider that on average you need to have around 5 sq.m. per person.
  • Extract training costs per resource. Normally this is budgeted per unit so should be easy to plug into your formula.
  • Account for equipment and furniture – laptops, monitors, adapters, desks, chairs.

Once you have extracted all costs and know the actual workdays, a simple division will give you the cost per day, and a further division by working hours e.g. 8 h a day, the FLC hourly rate.

Now, how to calculate the billable rate?

Well, obviously you cannot bill less than FLC but there are actually more costs to consider like management salaries, marketing, cost of sales etc. This is then cost plus pricing. But this is a truly complex topic and it should be defined based on your company strategy, target industry, product etc. In any case, it is generally not a good idea to price under your cost. 🙂

Stay tuned – in our next article next week we will address the last set of questions and namely:

  • How much do I make per project?
  • How do I ensure I do not run over budget?

The Cronforce.com Team

You are Losing Money – Part I – Components building your cost rates

When it comes to budget control management software, you may question, “Why should my company implement a budgeting and cost control tool when my accounting team can perform the same tasks?”

Well, you may have heard that there is difference between financial accounting and business accounting. So let us look at the difference first and then we will delve into what can go wrong.

Financial accounting

Financial accounting is required by regulation or law and follows a strict set of accounting standards that all accountants must apply to the financial records of the organization. In the U.S., accountants adhere to the rules of the accounting principles (GAAP). The rest of the world uses the International Financial Reporting Standards (IFRS) for financial accounting. With the use of established accounting standards regulators, tax authorities and investors have a straightforward basis for comparison in understanding and benchmarking company financial records.

Business accounting (also called managerial accounting) is focused on the needs of the business rather than aligning with external accounting standards. Business managers usually use it to produce a significant amount of projections and models, and is used to help management in decision-making and performance evaluation. Business accounting is not a must and rarely used in smaller organisations but always present in larger ones.

One of the major tasks in business accounting is understanding your cost structure in order to be able to price your good or services.

Fully loaded cost

So, how much does an hour of work in your company cost? Not an easy question to answer as you have different salaries, benefits etc. By definition fully loaded cost should comprise from variable and fixed costs, distributed fairly across resources.

In order to be able to calculate with your financial model you need to gather following information:

  • Employee salary – be it weekly, monthly or yearly
  • Bonus
  • Release costs
  • Social security
  • Health insurance
  • Office costs – mainly rent, office food
  • Equipment costs – lapop, monitor, adapters, desk, chair
  • HR costs – supervesion, evaluations
  • Recruitment costs – how much time it cost to recruit a person e.g. how many hours or fees to recruitment agencies
  • Incidental costs – company events etc.
  • Vacation days
  • Approximate sick days per year for the company

Once you got all this information we can move to calculating your fully loaded cost rate. This is a topic we address in our second article.

The Cronforce.com Team

UIX improvements in Timesheets

We are relentless in releasing improvements to our current timesheets interface and adding new features for our clients. After adding tasks with commentscopying of projects, Jira add-on and many more, so now comes the next improvement. Not surprisingly it is in Submit Timesheet in Timesheets section where we now show the weekly total hours per project, per day and altogether. Here is an example how it looks:

Submit timesheet in Timesheets - now with total hours per week, per project and per day

Hope you like it! But you probably wonder what comes next? Well, it will be something you have asked us already and related to Timeoffs. Please feel free to contact us at support@cronforce.com if you need any help.

The Cronforce.com Team

Why We Like Kanban Boards So Much (And You Should Too)

If there’s something we need to recommend as a complete must in any business, it would be Kanban boards. Make it twice as important in the context of doing digital-based business (we’re looking at you, startups, eCommerce ventures and other new types of small business). Let’s just say that for us, Kanban is a true organizational gift to every horizontal of a business. Business owners, supervisors, project managers, employees – all draw benefits from the Kanban method.

Kanban boards are so awesome due to 5 simple reasons:

  • The Kanban concept rests upon a clean, easy-to-understand layout. No clutter.
  • They visualize all those workflows that might have your head spinning otherwise.
  • They boost team communication and improve the delegation of employee responsibilities. No employee overload. Clearly identified areas to be improved. A steady, balanced pace of work that ensures smooth advance to a project’s goals.
  • They help you identify challenges/impediments and tackle them in an early stage.
  • They make your team’s productivity skyrocket.

Going further, let’s dig into what is a Kanban board actually.

The Extremely Lean Concept of Kanban Boards

A Kanban board is a simple means to visualize the workflow of your business. It helps you oversee every single step involved in this workflow and segment your operations properly. Have you ever used sticky notes? There’s a high chance you have. Well, think of the Kanban board as an intelligent way to organize your sticky notes on a whiteboard…something you can now do online too. Here’s the basic “skeleton” of a Kanban board:

Kanban boards and their functional simplicity.

In other words, these are a) the tasks awaiting production, b) the tasks in progress and c) the already completed tasks related to your business’s operations.

Seems like a simple concept, right? Maybe it is, but after all, genius is often found in simplicity. The Kanban method was inspired by Taiichi Ohno who is the brain behind the infamous Toyota Production System. Ohno utilized the Kanban method for Toyota’s sake with great success and we can count the Just In Time concept and Lean Manufacturing amongst his groundbreaking creations. Which means you can do the same for your small business or startup too, drawing from what he found works flawlessly.

So Where Does a Kanban Board’s Secret Lie?

We already mentioned that, but Kanban is extremely clean. No clutter means you can focus on the important things. And focusing on the important things is way easier when you’ve got everything visualized. Both physical Kanban boards and Kanban-based software frequently use specific colors suited to a certain workflow for additional visual cues.

So for example, you can use a green colored visualization for the work in progress across all your divisions while the completed tasks are yellow. Or you can “reserve” a color for the whole workflow of a department (e.g. Software developers get red and digital marketers get purple).

Kanban boards’ simplicity is more than crucial as we’ve seen way too many people who overburden themselves by using too much or too complex tools. As you can guess, such a situation actually does more harm than benefits.

But isn’t Kanban too limited, you might ask.

Not at all. The beauty of Kanban’s simplicity is that it’s incredibly flexible and expandable. If you think about it, the “Awaiting production”, “In progress” and “Completed” graphs can be applied to every single compartment of any business. They can be fitted to your business’s operational narrative like these two Trello-based examples show:

Kanban Board layout type 1

Kanban board in small business and startups.

On Kanban software and Cronforce

We’re mentioning Trello for two reasons. First, it’s one of the best tools utilizing the Kanban method and doing so with extreme finesse. Second, because we’re actually in the finishing stages of integrating it into Cronforce’s rich portfolio of 3rd party integrations. Combining Trello’s lean approach to workflows and project management with our abundance of features will provide any business of any scale with a powerful tool to tackle organization.

In addition to everything mentioned beforehand, the Kanban method is especially valuable for remote teams. It facilitates better delegation of responsibilities and improves the flow of communiacation among teams (and especially between supervisors and the employees they oversee). A trend that’s becoming more and more common, remote-based companies are the ones who benefit the most from organizational tools like Trello or Cronforce. There’s a reason most of the digital-era businesses you’ll encounter utilize Kanban boards and improve the concept’s benefits with an intelligent software tool.

A piece of advice from us if you haven’t tried out Kanban boards yet: grab a whiteboard and some sticky notes or a Kanban-type software. Give our free trial a shot to complement the Kanban way of doing things. It will be a completely free testing period to check out how much more organized your business and team, could be. We know Kanban boards definitely made a change to our workflow – and how productive we were. There’s a high chance the same will hold true for you too.

The Cronforce.com team.