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Profitability Leaks

I created this one-page diagram to illustrate how project profitability ties together from the sales process through delivery, and where to look for “profitability leaks” along the way.


TEXT VERSION

Sales Pipeline

Sales pipeline ideally fills resourcing capacity for the next 3 months (including current month). At minimum, pipeline fills 100% of current month, 80-90% of the next month, and 50-70% of third month, depending on sales cycle and closing rate.

Team Resourcing

Team resourcing needs to be at or above 100% across the team to yield billable hours of at least 70% of total capacity.

Capacity Utilization

Utilization invariably falls shy of resource planning for reasons both intended (time off, internal work) and unintended (wasted capacity).

Effective Rate

If there are project hours that can’t be invoiced, the effective rate is the amount of money invoiced to the client divided by total project hours.

Profitability

If utilization is 70% of total capacity and the effective rate is 80% of the full billing rate, revenue dips to 56% of potential income.

Repair Leaks

Unused Capacity

  • Soft sales pipeline
  • Sales & delivery misalignment
  • Inefficient processes
  • Resourcing gaps
  • Unbalanced team composition

Effective Rate

  • Budget overruns
  • Write-offs
  • Pro-bono time

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