8 metrics for creative service companies

METRICSFOR CREATIVE SERVICE COMPANIESJODY GRUNDEN & JAMIE NAU, SUMMIT CPA

Owners Camp • Seat t le• May 2016

METRICSFOR CREATIVE SERVICE COMPANIESJODY GRUNDEN & JAMIE NAU, SUMMIT CPA

Owners Camp • Seat t le • May 2016

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Introduction

**This presentation will be available for download**

Jody Grunden, CPASummit CPA Group

JAMIE NAU, CPASummit CPA Group

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43%More effective by knowing and understanding their metrics.

Why You’re Here

High performing companies are

Source: "Predictive Business Analytics: Forward Looking Capabilities to Improve Business Performance,” Lawrence Maisel, Gary Cokins

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Revenue & Net Income Per Producer

What is the Story?

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Revenue & Net Income Per Producer

What is the Story?

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Cash

4321

Effective Rate

NetIncome

Capacity to Contract

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4321

Cash

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How Much Cash Should I Keep on Hand?

Cash Reserve

Minimum of 10-30%of Revenue

Tax Reserve

40% of Forecast Net Income

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Cash Reserve


Tax Reserve


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Profit & Loss

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Profit & Loss

3,744,000 x 10%

374,400

3,744,000 x 30%

1,123,200

Cash Reserve

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Cash Reserve


Tax Reserve


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Profit & Loss

647,712x 40%

259,084

Tax Reserve

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Is This Company Adequately Funded?

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Assets

Operating Cash 200,000 217,800 149,600 177,400 205,200 143,000 223,600 251,400 205,200 293,000 320,800 348,600 Cash Reserve 36,800 36,800 92,800 92,800 92,800 92,800 100,000 100,000 100,000 100,000 100,000 100,000 Total Cash 236,800 254,600 242,400 270,200 298,000 235,800 323,600 351,400 305,200 393,000 420,800 448,600

Tax Reserve - 20,000 40,000 - 20,000 40,000 - 20,000 40,000 - 20,000 40,000 Accounts Receivable 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 Net Fixed Assets 50,000 49,000 48,000 47,000 46,000 45,000 44,000 43,000 42,000 41,000 40,000 39,000

Total AssetsTotal Assets 436,800 473,600 480,400 467,200 514,000 470,800 517,600 564,400 537,200 584,000 630,800 677,600

Liabilities & Equity

Accounts Payable 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 Line of Credit 50,000 40,000 - - - - - - - - - -

Total Liabilities 90,000 80,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000

Equity

Partners Equity 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 Net Income 46,800 93,600 140,400 187,200 234,000 280,800 327,600 374,400 421,200 468,000 514,800 561,600 Distributions - - - (60,000) (60,000) (150,000) (150,000) (150,000) (224,000) (224,000) (224,000) (224,000)

Total Equity 346,800 393,600 440,400 427,200 474,000 430,800 477,600 524,400 497,200 544,000 590,800 637,600

Liabilies and Equity 436,800 473,600 480,400 467,200 514,000 470,800 517,600 564,400 537,200 584,000 630,800 677,600

Balance Sheet

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Assets







Equity


Total Equity 346,800 393,600 440,400 427,200 474,000 430,800 477,600 524,400 497,200 544,000 590,800 637,600


448,600÷ 3,744,000

12.9% of Revenue

Cash Reserve

Balance Sheet

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Assets







Equity


Total Equity 346,800 393,600 440,400 427,200 474,000 430,800 477,600 524,400 497,200 544,000 590,800 637,600


Tax Reserve

40,000+ 224,000

264,00040% of Net Income

Balance Sheet

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4321

Effective Rate

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What is Weekly Expectation and Utilization Rate?

Weekly Expectation

# of Weekly Billable Hours

Utilization Rate

Total Available Hours per week

# of Weekly Billable Hours

Total Hours Paid

(Annual expectation less company culture)

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28 30 32 34 36 Billble Hours per Week

2,080 2,080 2,080 2,080 2,080 Total Hours Paid

Company Culture

(72) (72) (72) (72) (72) Holidays 9 days

(120) (120) (120) (120) (120) Vacation 3 weeks

(40) (40) (40) (40) (40) Bureau Events 1 week

(40) (40) (40) (40) (40) Company Retreat 1 week

(272) (272) (272) (272) (272) Hours Not Worked

1,808 1,808 1,808 1,808 1,808 Net Available Hours

70.0% 75.0% 80.0% 85.0% 90.0% Weekly Expectation

1,266 1,356 1,446 1,537 1,627 Chargeable Hour per Year

60.8% 65.2% 69.5% 73.9% 78.2% Target Utilization

What is Weekly Expectation and Utilization Rate?

1,356÷ 2,080

65.2% Utilization

Utilization Rate Target

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What is Standard Rate, Average Billable Rate and Effective Rate?

Standard Rate

$ Per Hour

Avg. Billable Rate

Total Revenue

Effective Rate

That You Charge for your Service # Billable

Hours

Total Revenue

# Hours Paid

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28 30 32 34 36 Billable Hours per Week

2,000 2,000 2,000 2,000 2,000 Monthly Billable Hours

175.00 175.00 175.00 175.00 175.00 Standard Billable Rate

350,000 350,000 350,000 350,000 350,000 Gross Revenue

(50,000) (50,000) (50,000) (50,000) (50,000) Write-downs

300,000 300,000 300,000 300,000 300,000 Monthly Revenue


150.00 150.00 150.00 150.00 150.00 Average Billable Rate

60.8% 65.2% 69.5% 73.9% 78.2% Target Utilization Rate

91.20 97.80 104.25 110.85 117.30 Effective Billable Rate


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175.00 175.00 175.00 175.00 175.00 Standard Billable Rate

350,000 350,000 350,000 350,000 350,000 Gross Revenue

(50,000) (50,000) (50,000) (50,000) (50,000) Write-downs

300,000 300,000 300,000 300,000 300,000 Monthly Revenue


150.00 150.00 150.00 150.00 150.00 Average Billable Rate

60.8% 65.2% 69.5% 73.9% 78.2% Target Utilization Rate

91.20 97.80 104.25 110.85 117.30 Effective Billable Rate


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28 30 32 34 36 Biillable Hours per Week

300,000 300,000 300,000 300,000 300,000 Monthly Revenue

3,289 3,067 2,878 2,710 2,558 Monthly Tota l Hours

91.20 97.80 104.25 110.70 117.30 Effecti ve Bi l lable Rate

173.20 173.20 173.20 173.20 173.20 Monthly Hours per FTE

18.99 17.71 16.61 15.65 14.77 FTE

7,500 7,500 7,500 7,500 7,500 Monthly FTE Cost ($90K/yr)

142,443 132,830 124,612 117,351 110,748 Monthly Cost

157,557 167,170 175,388 182,649 189,252 Gross Profi t

52.52% 55.72% 58.46% 60.88% 63.08% Gross Profi t %


Monthly Total Hours

2,000÷ 65.2%

3,067Monthly Total Hours

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300,000 300,000 300,000 300,000 300,000 Monthly Revenue


91.20 97.80 104.25 110.70 117.30 Effective Bi l lable Rate


18.99 17.71 16.61 15.65 14.77 FTE


142,443 132,830 124,612 117,351 110,748 Monthly Cost

157,557 167,170 175,388 182,649 189,252 Gross Profi t

52.52% 55.72% 58.46% 60.88% 63.08% Gross Profi t %

Full-Time Equivalent

3,067÷ 173.20

17.71FTE

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300,000 300,000 300,000 300,000 300,000 Monthly Revenue


91.20 97.80 104.25 110.70 117.30 Effecti ve Bi l lable Rate


18.99 17.71 16.61 15.65 14.77 FTE


142,443 132,830 124,612 117,351 110,748 Monthly Cost

157,557 167,170 175,388 182,649 189,252 Gross Profi t

52.52% 55.72% 58.46% 60.88% 63.08% Gross Profi t %

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4321

Net Income

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What should YOUR Net Income be?

10-15%of Revenue

Answer:

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How Do We Determine Burden Rate?

Burden Rate

Avg. Employee Burden

Avg. Salary

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Food for ThoughtHow Much Does 2 Hours Effect Cash?

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Food for Thought: How Much Does 2 Hours Effect Cash?

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2,080 2,080 2,080 2,080 Total Hours Paid

28 30 32 34 Billable Hours per Week52 52 52 52 Week in Year

1,456 1,560 1,664 1,768 Billable Hour per Year

70.0% 75.0% 80.0% 85.0% Weekly Expectation

Company Culture

(72) (72) (72) (72) Holidays 9 days

(120) (120) (120) (120) Vacation 3 weeks

(40) (40) (40) (40) Bureau Events 1 week

(40) (40) (40) (40) Company Retreat 1 week

(272) (272) (272) (272) Hours Not Worked

1,184 1,288 1,392 1,496 Net Billable Hours

56.9% 61.9% 66.9% 71.9% Utilization Rate Target


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Food for ThoughtHow Much Does an Additional $10 effect CASH?

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Food for Thought: How Much Does an Additional $10 effect CASH?

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Food for Thought: How Much Does an Additional $10 effect CASH?

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4321


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Contracted Work

Revenue Capacity

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Percentage of your Revenue Capacity Committed to Contract Work


January February March Total

Under Contract 275,000 220,000 100,000 595,000

Not Under Contract 37,000 92,000 212,000 341,000

Revenue based on Forecast 312,000 312,000 312,000 936,000

% under Contract 88% 71% 32% 64%

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Under Contract 275,000 220,000 100,000 595,000




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Under Contract 275,000 220,000 100,000 595,000




100% - 64%36%

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What’s the Story Here? – 3 Month Average


Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Aug; 68%

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10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Aug; 68%

68% + 36%104%

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10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Aug; 68%

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10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Dec; 85%

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10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Dec; 85%

85% + 36%121%

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10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Aug; 68%

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10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Dec; 52%

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10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Dec; 52% 52% + 36%88%

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Bonus Metrics

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Recurring Monthly Revenue

Security: Increases

Recurring Monthly Revenue

Capacity to Contract: Decreases

Cash Reserve: Less Required

Effective Rate: Less Reliant

Emphasis on these KPIs decreases

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Gross Revenue per Producer

Gross Revenue & Net Income Per Producer

Benchmarked Against Forecast

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Forecasted Revenue & Net Income Per Producer

Revenue per Producer

187,200 187,200

15.0% 15.0%

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

21.0%

180,000

182,000

184,000

186,000

188,000

190,000

192,000

194,000

January February March April May June July August September October November December

Goal - Rev/Producer Act - Rev/Producer Act - NI/Producer Goal - NI/Producer

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Forecasted Revenue & Net Income Per Producer

Revenue per Producer

192,000

185,070 16.7%

17.0%

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

21.0%

180,000

182,000

184,000

186,000

188,000

190,000

192,000

194,000

January February March April May June July August September October November December

Goal - Rev/Producer Act - Rev/Producer Act - NI/Producer Goal - NI/Producer

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Producer Job Type Billing Type

Types of Profit

• Utilization Rate• Profit per Producer

• Design• Engineering• Product

• Flat Fee• Retainer• Hourly• Value Billing

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In Summary

Cash Net Income


Effective Rate

Questions? Need more info?Feel free to get in touch!

Summit CPA Group

Jody Grunden, [email protected]

Jamie Nau, [email protected]

www.summitcpa.net