Episode 54: Maximizing Profitability in Bookkeeping: Techniques for Financial Success
Heads up: I use affiliate links for my fave products. If you click and purchase, I may receive a small commission at no extra cost to you.
In this solo episode, Alyssa Lang covers key strategies and techniques for creating financial success in your bookkeeping and accounting firm. She breaks down how to analyze and increase your client profitability and optimizing your financials to reflect useful data to help you make key decisions.
In this episode you’ll hear:
How to calculate profitability per client
What journal entries to have in place on the books to help calculate profitability per client
How to increase your profitability per client by price increases
Why you should be more efficient in your business to raise your profit margin
Resources mentioned in this episode:
⚙️ QuickBooks Online for Accountants
⚙️ Clockify
⚙️ Asana
💻 Melissa Honan’s ‘How to Increase Client Prices’ mini program
⚙️ RightTool (use code WORKFLOWQUEEN for $10 off per month for 14 months)
💻 Breakthrough for Bookkeepers & Accountants
☎️ Book a FREE 15 minute consult call to chat about what programs & resources are right for you
💻 Kickoff with Asana for Bookkeepers & Accountants
Listen to the Full Episode here 👇🏼
🎧 Listen on iTunes ⇨ Click here
🎧 Listen on Spotify ⇨ Click here
🎧 Chose another listening platform ⇨ Click here
Ever found yourself deep in the numbers, trying to figure out just how to make your business not just survive, but truly thrive? Well, you're not alone. Today, I'm peeling back the curtain on a topic that's as crucial as it is daunting: maximizing profitability per client. It's the kind of chat we all love to dive into but often find ourselves hesitating to implement. So, let's get down to the nitty-gritty, shall we?
The Real Talk on Profitability
Let's face it, tracking the profitability per client sounds like a task that would send even the most number-savvy among us running for the hills. But, here's the kicker: without this data, we're basically navigating our businesses in the dark. Sure, knowing your overall firm's profitability is great and all, but as you scale, you'll need to zoom in a bit more. And that's exactly what we're tackling today.
First things first, are you tracking your profitability per client? If you can't immediately answer what your profit margin is per client, it's time to start. This data isn't just about seeing numbers in black and white; it's about understanding which clients are truly benefiting your bottom line and which might be costing you more than they're worth.
Why You Need to Start Tracking... Like, Yesterday
Through my own firms and from my programs, I've seen it all. Firms undercharging, overworking, and just plain struggling to find their footing in the profitability department. AND as a result, limiting their growth potential. If you're charging a baseline of $200 per month, for instance, it might be time to reconsider. At my firm, nothing goes below $400, with our average invoice value per client around $895. Setting a baseline ensures you're not undervaluing your services.
Crunching the Numbers: A How-To
Calculating and tracking profitability per client involves a bit of math (don't groan just yet, I promise it's not that bad). You'll want to subtract the direct costs (think software and labor) from what you're charging them. This formula gives you a clear picture of the true profit margin on a per-client basis. Sounds simple enough, right? But the magic happens when you start tracking this consistently. We use a combo of QuickBooks Online (QBO) and Clockify to keep tabs on everything, updating a spreadsheet monthly to see not just profitability but where we can tweak our processes or adjust our pricing.
Profitability per client isn't just about the fees you charge; it's about understanding the net value each client brings to your firm.
Setting Up Your Books for Success
One game-changer for us was setting up our QBO to track profitability by client. This involves some advanced journal entries that allocate salary, wages, and software costs directly to each client. By doing this, we can pull a Profit and Loss (P&L) report by client, showing us the profitability percentage. This data is invaluable for making informed decisions about pricing and client management!
Making Informed Decisions
With this data in hand, you're in a much better position to make decisions about your firm. Whether it's raising your rates or finding ways to work more efficiently, knowing your numbers takes the emotion out of these decisions. For example, if you discover a client is far less profitable than others, it might be time for a tough conversation about rate increases. On the other hand, you might find opportunities to streamline your processes, reducing the time and cost associated with serving each client.
Efficiency is Key
Efficiency plays a huge role in profitability. We've developed custom calculators for our e-commerce clients to drastically reduce the time spent on monthly journal entries. Tools like RightTool help us automate these entries in QBO, improving our profit margins. It's about working smarter, not harder, and sometimes that means investing time upfront to save countless hours down the line.
Action Steps to Maximize Client Profitability:
Implement Profitability Tracking for Each Client:
Set Up Detailed Journal Entries in Your Accounting Software:
Allocate Expenses Accurately: Create journal entries for each client to allocate direct costs properly.
Use Accounting Software Efficiently: Use features in software like QuickBooks Online to automate this process and make sure it’s accurate.
Reassess and Adjust Pricing Models:
Evaluate Client Profitability: Identify clients with lower profit margins and understand the reasons behind it.
Implement Price Adjustments: Based on your analysis, adjust pricing models to ensure each client is contributing positively to your firm's profitability.
Enhance Operational Efficiency:
Streamline Work Processes: Identify repetitive tasks and explore automation or software solutions to reduce time and costs.
Invest in Training: Provide your team with the necessary training to improve efficiency and reduce time spent on client work.
Regularly Review and Optimize Client Portfolio:
Conduct Portfolio Reviews: Schedule regular reviews of your client portfolio to assess profitability and identify areas for improvement.
Make Informed Decisions: Based on your reviews, decide whether to continue, adjust, or end client relationships to maximize overall firm profitability.
Communicate Transparently with Clients:
Set Clear Expectations: Communicate any changes in pricing or service delivery upfront to maintain trust and transparency.
Provide Value: Ensure clients understand the value your firm provides.
Leverage Data for Strategic Decision Making:
Utilize Profitability Data: Use the insights gained from tracking and analysis to make strategic decisions about taking on new clients, pricing, and service offerings.
Adapt and Evolve: Stay flexible and be willing to adapt your strategies based on ongoing data analysis and market conditions.
Wrapping It Up: Your Path to Increased Profitability
Maximizing profitability per client isn't just about charging more; it's about understanding the value you provide and ensuring that every client relationship is mutually beneficial. It's a continuous process of evaluation, adjustment, and improvement.
Feeling inspired but not sure where to start? Or maybe you're craving more juicy details on each step of the hiring process? If you're ready to take a deep dive into your firm's profitability and make the necessary changes to scale, consider joining a program like Breakthrough, where we cover these topics and much more. Click here to check out all the deets and to join a community of like-minded entrepreneurs on the same journey as you.
Thanks for listening. If this episode inspired you in some way, take a screenshot of you listening on your device and post it to your Instagram stories and tag me, @workflowqueen For more information about the Conquering Workflows & Systems for Bookkeepers & Accountants Podcast or interest in our programs or mentoring visit our resources below:
Visit our website: workflowqueen.com
Follow the Blog: workflowqueen.com/blog
Connect on LinkedIn: linkedin.com/in/alyssa-lang-wq
Connect on Instagram: instagram.com/workflowqueen
Connect on Facebook: facebook.com/workflowqueen
Podcast Publishing Tools we use:
Podcast Editing: Ian Gilliam: iangilliam.com
