Struggle for profitability, or How to maintain a stable profit at the level of 20% of turnover

Struggle for profitability, or How to maintain a stable profit at the level of 20% of turnover

Hello everybody! I am Dmytro Lastovkin, Deputy COO of AGIMA. Today I’ll tell you how we tame profitability and what tools we use to do it. We wrote this article together with Serhiy Kozhemyakin, COO at AGIMA. The material will be useful for heads of agencies and everyone involved in financial planning.

Why we pay so much attention to profitability

Profitability is the ratio of profit to shipments. We call shipment the amount of revenue covered by acts. Profitability is the easiest way to measure a company’s efficiency. This is how we see the profit literally from each “shipped” ruble.

We have been keeping AGIMA’s profitability index at the level of 20% for several years. For ease of understanding, this means that from a turnover of 100 rubles, we earn 20 rubles of net profit.

It is important for us that all employees know and think about profitability. Back in the day, we introduced the practice of summing up the week. It’s a weekly company-wide online meeting where we talk about successes and failures. But in the first block we always talk about profitability.

We show the dynamics of the company in terms of the current month and the next two.

Also based on the profitability indicator, we accept management decisions:

  • Investments in new directions. We decide whether we have the margin of safety for investments in directions that may be unprofitable at the beginning. For example, launch educational courses.

  • Resource strategy It’s about hiring, firing and promotion.

  • Strategy for changing indirect costs. Whether we buy something extra or vice versa, it is worth cutting indirect costs – for example, the purchase of equipment. This includes various improvements and team building.

Why should profitability be chosen?

Everyone wants to do interesting projects and get cool customers, but if it doesn’t bring profit, you won’t go far. Each step must be evaluated with a calculator in hand, and this approach must become a system. Especially when the company is growing. Therefore, at AGIMA, we have developed a set of ongoing processes that help manage profitability.

1. Forecasting

We calculate the profitability of the project at the presale stage

The basis of the calculation is the hourly rates of specialists. They depend on salaries, indirect costs of the city enterprise and on the risks associated with the type of contract. We collected the bids of all specialists and made a universal estimate template: here we enter tasks, specialists and their hours, get a final estimate, and based on it we sell a project with an already established rate of return.

We predict the profitability of employees

We first “drive away” each new production employee or contractor with special calculators: we determine whether the specialist will be profitable on a specific project, and then we make a decision – hire/not hire/negotiate.

We predict the profitability of teams

We also predict the profitability of the entire team on the project in terms of each month or stage even before the start of work. It is interesting here that based on the profitability of the team, we choose channels for finding new specialists: for example, we can afford recruitment agencies and a referral program only on projects with a good margin in terms of profitability.

2. Constant control

Any process, if not controlled, will break down sooner or later. That’s why we have a set of tools and actions that help keep your finger on the pulse.

  • Workshop dashboards. A workshop in our terminology is a production department: development, analytics, design, etc. Each shop floor manager has a dashboard where he can assess the operational situation in terms of profitability.

  • Meetings regarding shop profitability + resource strategy. On the basis of shop dashboards, together with the managers, we understand why there is a shortage of the target indicator in a certain month: we look for shortcomings and try to correct them. If everything is fine, we question it and check again.

  • We control indirect costs. We calculate quotas for the year: we determine how many non-production costs can be allocated to PR, HR, sales, etc. Here we are guided by the actual costs of the past year, data on inflation and our growth, as well as strategic objectives for the coming year.

During the year, we regularly update the planned indirect costs within the quotas for the current and future periods. For this, we use our main management accounting tool – FinPlan: we open FinPlan, see what costs are allocated, and whether we have a target profitability for the company in two months. If it is not there, we reduce quotas, very rarely expand them.

  • Meetings regarding the profitability of the company. This is one of the most important weekly meetings where top managers gather: heads of project offices, workshops and company management. Together, based on the company’s profitability dashboard (screenshot below), we discuss what changed during the week (which costs increased, which shipments shifted, etc.) and analyze how this affected profitability. Based on financial changes, we identify possible risks in projects and eliminate gaps in planning.

This is what the company’s profitability dashboard looks like.

3. System of responsibility

We follow a simple formula: the profitability of the entire company depends on the profitability of each project.

With the help of profitability dashboards, which we wrote about above, managers and team leaders monitor the economics of each project and make management decisions. The amount of bonuses is always tied to profitability, so managers and team leaders try very hard to reach the target indicator.

Such a system is the basis of the AGIMA economy. Not only top management and the founder of the company think about profit, but the vast majority — the motivation of approximately 60% of employees is related to profitability:

4. Closing the quarter

The main actors in closing the quarter are managers and team leaders. To receive bonuses, they need to calculate the profitability of their projects. This results in a retrospective assessment of all production fragments.

Previously, closing a block was like hell and took the entire next block, or even more. Everyone manually reconciled hours, costs, and shipments, and then we verified it. If one of the employees “cheated”, it was necessary to find this cheat. And the human factor also got in the way: someone could be charged unfair bonuses, because we only have about 40 managers.

It turned out to be a very expensive, inefficient and inaccurate process. Somehow we got tired of all this, and we decided to create an “autorent”.

Project of the decade – “author rent”

We called the tool for automating the calculation of profitability for managers and team leaders “Autorent”. The goals and objectives of the “authorent” grew out of the problems listed above:

  1. Speeding up the process.

    Closing the quarter was too long, and therefore expensive. RP and the finance department spent a lot of time in particular. We wanted to reduce these costs.

  2. Real time control.

    Each project office should monitor profitability at least once a week. This way you can react to changes and adjust the plan faster.

  3. Reducing the human factor and eliminating crutches and cheats.

    We wanted to ensure that the result was not affected or almost not affected by mistakes, cheats, forgetfulness, and we received consistent information about the profitability of all projects.

We design “author rent”

At first glance, there is nothing to do: in order to calculate profitability, it is necessary to take internal costs (For full-time employees), shipment (acts that were signed to us) and external costs (contractors, purchases) and perform simple mathematical operations.

Then some “Magic Cosmolite” will receive this data, process it and give us a profitability indicator in real time.

But life, as always, turned out to be more difficult than the plan.

Difficulties we faced

  1. Technical solution.

    Various options were considered: from writing everything from scratch to ready-made solutions, such as 1C or Bitrix. As a result, they chose Google Sheets. We were already building several tools on top of them, and we had ready integrations with internal systems such as FinPlan and task tracker.

  2. Data sensitivity.

    For example, to calculate the profitability of a particular employee, his salary must be known. Such data cannot be stored publicly. The grade system helped us here: everyone sees the employee’s grade and salary fork, but there are no specific numbers.

  3. Track discipline.

    We record the time spent on the task in the task tracker, or as we say “track time”. But at that time, employees did not always rattle, and some did not rattle at all. Accurate data on each was difficult to obtain.

  4. Accounting of managers.

    Managers don’t track time, but their costs for projects should also be taken into account.

The current profitability automation scheme in AGIMA

It looks like this:

What is here:

  • Handbook for authors. Relatively static data lies here: rates, roles, binding of FinPlan users and the task tracker, and other information that we need to store somewhere.

  • Task tracker with the clock counting.

  • Finplan, in which shipments and costs are stored.

  • Harvester. This is the same “Cosmolyte” that unites and conducts the first calculations.

  • Dashboards of team leaders and RP. These are, in fact, the fronts of the entire system. Team leaders and RPs use dashboards almost every day:

Dashboard example.

  • spreader. This is an official Google document that contains data on all dashboards for team leaders and managers. Its main task is to allocate internal costs between projects.

In order for managers to pay more attention to internal costs, and shop managers to monitor the correct time track of their specialists, we have included one interesting feature in the system. For example, if a developer has not tracked his hours this month, they are automatically distributed among all managers and team leads he has worked with during that time. Moreover, each of the managers will have the full cost, rather than the arithmetic average.

This automatically allocated clock can then be deleted. But first you need to prove that this is an undamaged watch by a specific specialist. Therefore, through pain and suffering, we taught everyone to spend time properly.

The dashboard is idle

After learning to work with all the data and changing the processes, we realized that now it became easier to control the downtime of all production units and count the amount of “lost” money. We put together a dashboard with filters by month, year and department, and now we can see who didn’t complete production tasks and how much money we lost because of it.

Dashboard example.

The results

  • The speed and accuracy of one of the most expensive processes has been increased many times over: previously we spent up to 3 months to close the quarter, now – on average 1

  • We save hundreds of hours of RP, team leaders and finance department employees on the calculation of profitability.

  • We have summary data on the profitability of all projects (and as a result – the effectiveness of RP and team leads) in real time.

  • Many cheats, bugs and shortcomings were discovered management systems.

  • A useful side project has appeared – The dashboard is idle.

  • The system has taken root. We are developing it and releasing updates. At the time of writing this article, we have released the next, more advanced version of the system.

More useful and interesting for product owners, CEOs and COOs of companies can be found at to our Telegram channel for agencies.

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