Best practises in calculating Profitability using Jamku

[adarshmadrecha]

This discussion is about ways to calculate profitability using data generated in Jamku.
There is no "right" way to do this. It is more of an art than science (maths 😉). Feel free to add your thoughts 💭 and how do you calculate the same in your office.

Other places where it was discussed

1. Task profitability to find the actual profit earned #778

[adarshmadrecha]

There are multiple levels at which profitability can be calculated.

1. Task
2. Bill
3. Client
4. Client Group
5. Client/Client Group and Year
6. Department of the office (Example - Direct Tax, Indirect Tax, Litigation)
7. Person (Depending upon the firm size and maturity at Manager/Director/Partner level)

Concepts:

1. The field Task Expected Cost in Task View > Billing Tab is used to store the "Estimated Revenue from task".
   
   

1. Task Level Profitability

Example:
Estimated Revenue for a task - Rs. 500
Actual Cost incurred (Based on time sheet aka work done) - Rs. 480
Actual Billing made for the task - Rs. 600
Task profit basis estimated revenue - Rs. 20
Task profit basis actual revenue - Rs. 120

When to use:

1. One time task (Example: Tax Assessment, Income tax scrutiny)
2. Special Tasks (Example: Trademark application, Forensic Audit, Litigation)
3. Client is charged on per hour basis

Basically, where the team members will have no confusion as to which task to be used to enter work done. In case of recurring tasks like GSTR3B, GSTR1, Accounting, IT Return team members often use any of these tasks to enter work done as it's difficult to exactly ascertain the effort belongs to which task. Hence, in this case it's better to calculate the profitability at Department or at Client level.

i) By using estimated revenue

Benefits: Super simple to use. Amount is calculated in Jamku itself (in Task Billing).
Pitfalls: Does not take into consideration the actual billing amount, which may vary. However, if you update the estimated revenue at task level at the time of billing, this is the best approach. Due to this reason, have made it very easy to update Task Expected Cost in Bill edit page.

ii) By using actual revenue

Benefits: More accurate profitability. However, it only works when a bill contains only ONE task.
Pitfalls: If there is more than one task in a bill, this method will require apportioning the bill amount between tasks to arrive at the profit. If a task is billed in more than one bill, it requires SUM of all the bill amount.

How

Use Task Costing

2. Bill Level Profitability

Example:
Task A - Actual Cost --> 200
Task B - Actual Cost --> 300
Bill amount (Task A and B both billed in same bill) --> 900
Profit at bill level --> 400

When to use

1. Client is charged on retainership basis (i.e. for multiple tasks, there will be single bill on periodic basis)
2. Engagement requires creating multiple tasks (Example: GST Return filling requires creating separate tasks for GSTR3B, GSTR1, GSTR9)

Basically, where total revenue cannot be allocated to individual Tasks, it's better to calculate profitability at Bill level.

How

There is no report in Jamku to calculate this. You can create a custom report using Excel Integration.