Client P&L
What is the Client P&L and How is it Used?
The Client P&L Report is a great place to start your analysis. The report builds upon a traditional profit and loss report and provides additional calculations that show a more in-depth view of key indicators for your business.
Companies want to break down their profit goals into two areas:
1. Maximize the profitability from clients.
2. Make sure overhead is spent efficiently.
MSPCFO focuses on the first part of the profit analysis, client profitability. The report only calculates to the gross margin or what MSPCFO calls contribution.
The Client P&L has a lot of crucial and helpful information which makes it one of the most utilized reports. Therefore, there are a few places you can access the P&L throughout MSPCFO. The easiest way to access it is through the sidebar on the Dashboard. The report can also be accessed for a specific client in the Segments Report by clicking on the client name.
Filters on the Client P&L
Filters 1-2 allow you to filter on an individual client, or a group of clients or all clients and to select a date range:
1. Client - Select any individual client, an aggregate client, a client subset, or all clients.
2. Date Range/Quick Select - The Quick Select allows you to select a predefined Date Range. You can also select a customized date range by selecting a start month and an end month.
Filters 3-5 provide additional information (examples of these three filters are included in the respective sections):
3. Separate Recurring Products - Recurring product revenue and costs are found in both FFA agreements (labor and products) and L&S agreements (product only). The P&L combines both types of products in one line as the default. Select 'Separate Recurring Products' to divide this information into two sparate lines in the P&L for both FFA agreements and L&S agreements.
4. Include Non-Billable Hours in FFA Total Hours - In calculating the agreement information in the fifth section of the report, only agreement billable hours are included. Other types of agreement hours that are non-billable are not included. With this filter set, a sixth section is added with the total FFA hours (billable and non-billable) and a recalculated effective rate and hourly cost using both billable and non-billable hours. The efficiency stays the same because efficiency only looks at billable hours.
Note: To be billable, the time in the PSA must be marked billable, covered by a managed services agreement and assigned a non-zero billable rate.
5. Include Year-Over-Year Growth - The filter allows you to track the % change for the current date range and the same date range 12 months before. For example, if the date range is trailing 12 months, the filter will compare the totals to the 12 months before and show the % change in revenue, cost, contribution, hours, and shadow billable. If the date range is the trailing 3 months, the filter will compare the trailing 3 months of the year to the same period a year before..(Note: Complete data for the prior year's time period must be available.)
Icons in the upper right of the filters (yellow shading below):
You can make the report a 'favorite';
Save the report profile for a delivery package
Download to a report basket with other reports to be delivered at a later time.
Download in PDF format or Excel/CSV spreadsheet for use outside of the MSPCFO system.
Hide the filters to give you more screen space for the report.
Once you change the selection, don't forget to apply the changes by clicking on the Filter box. If you want to Reset all of the filters to the default setting, click on the Reset.
Client P&L Layout
The layout of the screen includes the selected months across the top and specific metrics along the left side. These metrics include: Revenue, COGS, Contribution and some additional key metrics on the bottom. Let's examine each section of the report.
Revenue is first divided between Labor (I) and Product (II). Within each section there are several subcategories. Before we go into each of these sections and subcategories, it is important to understand how labor and product revenue relate to each other.
Total Direct Revenue less Product Revenue = Labor Revenue.
Sales tax and expense reimbursement are not counted toward revenue.
These two categories are then broken down into subcategories:
I. Labor
- FFA (Fixed Fee Agreements) - monthly recurring labor revenue.
- Projects - Project specific revenue, spread out over the life of the project.
- T&M: (Time and Materials) - Hourly ticket work that needs to be invoiced after the work is done.
II. Product
-
Recurring Products - In one line or two (The option is set in the filters). If one line, L&S and FFA Additions are combined. If two lines:
Licenses and Subscriptions (L&S) - monthly recurring product revenue that exists on its own invoice.
FFA Additions - The product value on a FFA agreement or products on a child agreement under a parent labor agreement. For example, a monitoring/help desk agreement might also include antivirus, anti-spam, Office 365 licenses, etc. We pull this number from the agreement amount and put it on the additions line. The labor line is the agreement amount less these additions. FFA additions are product line items on a FFA invoice. - Project - Product sales that are associated with projects.
- T&M - product sales not associated with a project or an agreement.
All component rows are totaled in the last column and monthly columns are totaled for total revenue by month (yellow).
If Separate Recurring Products is checked, the Recurring Products are divided into Licenses and Subscriptions and FFA Additions.
In the Client P&L Report:
The hours which are reported in a given month are the actual hours spent to service the client. It reflects the month that the work was actually done.
The revenue which is reported in a given month shows when the work is recognized:
* FFA - the agreement month (including BT Recurring)
* Actual Rate revenue is recognized when the work is invoiced (including BT one time and BT recurring with rollover)
* FF Project revenue is spread over the life of the project. There are a number of ways to allocate revenue on a monthly basis for Fixed Fee Projects. For more in depth information view the video Fixed Fee Project Webinar.
Like Revenue, COGS is separated between Labor and Product with similar subcategories.
All component rows are totaled in the last column and monthly columns are totaled for total costs by month (yellow).
Note that the labor portion of costs is assigned based on actual hours worked (vs. billed hours). The labor rate can be based either on the wage rates in your PSA or based on a salary or wages entered directly into MSPCFO. See Payroll Reports for more information about adding salaries into MSPCFO.
If Separate Recurring Products is checked, the Recurring Products are divided into Licenses and Subscriptions and FFA Additions.
MSPCFO builds up the Labor COGS based on the actual hours in your PSA. Only client hours are reflected on this worksheet. Product COGS is based on the costs that come from your PSA. MSPCFO allows in the Lookup/Products table for a margin to be set by product category for items that have a zero cost.
Note: There can be a labor component for L&S in the COGS. Revenue only considers this type of agreement as product, but when product is backed out of the COGS, there may be a labor component. This may be a sign that there is really some labor being delivered with the products but not included with the price.
Contribution is the same as gross profit or gross margin. Contribution is separated by labor and product. You back out your COGS from your revenue and you have your contribution month by month.
(1) Labor ($) - Labor Revenue - Labor COGS
(2) Labor (%) Labor Contribution/Labor Revenue (%)
(3) Product ($) - Product Revenue - Product COGS
(4) Product (%) - Product Contribution/Product Revenue (%)
(5) Total ($) - Labor Contribution + Product Contribution
(6) Total (%) - Total Contribution/Total Revenue (%)
The hours section gives you (1) the total hours spent on client work for each month and (2) the amount of money you make per hour (contribution/hours). The shading for Contribution/hour represents where the month stands relative to the previous six months. If it is red, it is 15% below that average. If it is green, it is 15% above that average. If it is between 15% above or below, there is no shading.
Your goal is to sell as many hours as you can but in doing so you want to make money for these hours. This is a nice metric because it does not care how you make your money. You can make it by servicing an agreement efficiently by selling product whether it be cloud or physical, or you can make it by selling transactional labor, project or ticket.
Agreement Pricing Metrics are as follows:
(1) FFA Hours - FFA portion of client hours billed. If the filter Only Show Billable FFA Hours is set, the hours will not contain the un-billable hours and the E/R = FFA Labor Revenue/Billable FFA Hours. If the filter is set to Show all FFA Hours the E/R will change because the denominator will have more hours. The Efficiency will not be affected with this filter.
(2) FFA E/R - Effective rate. FFA E/R = FFA Labor Revenue /FFA Hours Worked. The shading for FFA E/R represents where the month stands relative to the previous six months. If it is red, it is 15% below that average. If it is green, it is 15% above that average. If it is between 15% above or below, there is no shading.
(3) FFA Shadow Billable - This number takes into consideration the hourly rates for members working on FFAs. This is a simulated number where MSPCFO determines what the value is of the FFA hours. Every time entry has an hourly rate associated with it so MSPCFO calculates what the hours would have been billed at if they were straight T&M hours.
(4) FFA Efficiency - This is the ratio of invoiced labor to shadow billable. For example, if we invoiced $3,000 as shown on the FFA labor line and shadow billable was $4,000 then the MSP invoiced 75% of the value of the services delivered and efficiency would be 0.75. This is underpricing or over-delivering. It is a very good measure of the price charged vs. the value of the services delivered. Efficiency is a bit more robust than E/R because E/R compares dollars to hours. All hours are treated the same. If one client utilizes higher value resources than another, the effective hourly rate would not highlight that, but the efficiency would. FFA Efficiency = FFA Labor Revenue/ FFA Shadow Billable.
The shading for FFA Efficiency represents where the month stands relative to the previous six months. If it is red, it is 15% below that average. If it is green, it is 15% above that average. If it is between 15% above or below, there is no shading.
(5) FFA Cost/Hour - The overall hourly expense for labor for the FFAs. FFA Cost/Hour = FFA COGS Labor/FFA Hours.
The shading for contribution/hour, FFA E/R and FFA Efficiency shows trending of the client. In general, a client should be going from red to green --- trending up. For a new client, extra hours and some underpriced work may lead to a better long term relationship. This type of client should be watched to see that even if the statistics start out red, at some point they trend up to green.
Using the filter to display the total hours (billable and non-billable)
In using the filter option to include non-billable hours in the FFA total hours, another section of data is added below the default FFA Pricing Metric section. The table below shows the additional section which includes agreement billable and non-billable hours. The addition of non-billable hours also changes the FFA Effective rate and the FFA Cost/hr. Efficiency is not altered because efficiency is only bases on billable hours.
Using the year-over-year growth filter
Example - Compare the trailing 12 months with 12 months prior at year end. Filter by All Clients. This shows the YOY Growth at end of year 2024 (compares total for the 12 months of 2023 to the totals of 2024). You can also look back 12 months at any time during the year.
Example - Look at first quarter last year compared to first quarter of this year.
For a detailed description of the Client P&L watch the Video on Profit & Loss Report.
0 Comments
Add your comment