Now that busy season’s almost behind us, February could be a great opportunity to reflect and see which clients may be eating into your profit margins. Some clients will always be more profitable than others. Identifying which clients are draining or fuelling your firm can help you make better-informed decisions around cashflow, strategy, and much more.
Use a time-tracking tool for data-driven insights
Depending on which tool you end up using, you can use data-driven insights to track how much time you spend working on each client. Where’s the best place to start? Well, we think that one of the handiest ways to gather such data is to use a time tracking tool.
With a time tracking tool, you can see exactly how much time is being spent on each task – whether it’s a phone call, email or a specific task. Just whip up some timesheets and weigh up the time spent on chargeable versus non-chargeable work.
For example, in Bright’s practice management software for accountants, BrightManager, all you have to do is click on the time icon at the bottom left of the screen and start a new time log. You can select the client you’re working on, the type of time (so, it could be admin, a call, meeting, work, etc.), the hourly rate and any other information you want to track. The timer then just ticks away in the background while you get on with your work.
You may discover that some clients take longer to get through than others, even if they’re in similar industries or require similar services. You may even find that one particular client always has more time posted to their job compared to other clients who are at a similar fee level. Identifying trends seen in the most time-consuming clients, like how they operate, the way they handle paperwork, how tech savvy they are, and even how they communicate, can help you to make better business decisions.
If you’re struggling to deal with how best to approach these clients going forward, and how to improve their profitability going forward, here are some tips.
1. Use technology and leverage automation
Use technology to cut down on contact with clients. Whether it’s technology that automates client communications, or one that can help put more responsibility on the client, the technology you choose for your practice will be a key component of getting your profitability right. For example, if you have a client or clients who call you over every little problem with their employees’ payslips, you could introduce a payroll tool that lets them approve a summary of their employees’ payroll information before the payroll is finalised. That way, it puts the onus on those more time-consuming clients to ensure their payroll is accurate before payslips are distributed to employees. This saves you both of you time and cuts down on incessant emails from those clients.
2. Set penalties for late responses
Procrastination is just part of life, but you can’t let other’s lack of efficiency make you less efficient. So, for those more last-minute clients, let them know when they need to provide records to you by, and the consequences of delayed and last-minute responses. You could implement a higher fee if they send you records too close to deadlines, or a reduced fee if they send them in good time.
3. Account for lost time
Make sure all of the extra work (whether it’s phone calls or paperwork) is tracked on your time logs. That way, you’ll have a true representation of how much time you’re spending on each client, rather than just accounting for the time spent on one part of the work. Be aware of the profit margins for each client too. Some clients may generate a lot of revenue but have low profit margins due to the amount of time and resources required to complete work for them. On the other hand, some clients may generate less revenue but have much higher profit margins. It’s important to take both revenue and profit margins into account when determining your most profitable clients.
4. Cut ties as a last resort
Unfortunately, you may have to face a tough reality when it comes to the true cost-effectiveness of certain clients. Some clients just might not be worth the effort you put into them, and may have to result in ties being severed for the greater good of your firm. Now obviously, this decision shouldn’t be taken lightly and only be undertaken as a last resort. And while we get that you don’t want to sour relationships that span over years, there comes a point where you may be unable to carry out essential work because you’re so tied up with these unprofitable clients. So, sit down, have those uncomfortable conversations with senior management, and see what options best suit your firm.
In BrightManager, through its timesheets feature, you can see time logged and filter by each client, and from there, identify your most and least profitable clients. We have a profitability tool, where the system weighs up the revenue generated against the cost of labour to get your actual profit figure. You can filter between chargeable and non-chargeable work, and it’s a great way to get an idea of the profitability of your practice.
Book a demo today to learn more about Bright’s practice management software.