Revenue tells you who pays the most. It does not tell you who costs the most to serve. This article covers how to bring time and software costs together in XPM, what the ranking usually shows, and what to do about the clients that come out thinner than expected.
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How to Find Out Which Clients Are Actually Profitable in XPM
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Ask most firms who their best clients are and they will name the biggest billers. It is a fair guess, and it is often wrong.
The client who pays the most can also cost the most to serve. Once you count the time and the software behind the work, the ranking can look very different from the one in your head. A firm can grow its revenue every year and still not be more profitable, because each new client brings cost the fee never fully accounted for.
Revenue is not profit
A large fee tells you what a client pays. It tells you nothing about what they cost. Two clients on the same fee can sit at opposite ends of your profitability once you factor in the hours their work takes and the tools you run for them.
Until you compare the fee against the full cost to serve, you are ranking clients on revenue and calling it profit. They are different numbers, and the gap between them is where firms lose money on the clients they assume are carrying the practice.
Why the gap stays hidden
Most firms track time carefully. They know how long a job takes. What they often do not know is what the job actually costs, because the software sitting underneath it never gets counted against the client.
Bring in only part of your costs and the profitability figure is wrong. If you capture 70% of the cost, you cannot say whether a job is really making money. A number that looks complete is worse than none, because you act on it. A job can look fine on time alone and still run at a loss once the subscriptions underneath it are counted.
How to see the real number in XPM
Two inputs decide it: time and cost.
Time comes from timesheets. They matter even on fixed fees, because they tell you how long a client actually takes rather than how long you assume. If you want profitability down to the person who did the work, the $0 invoicing method of washing up WIP gets you to employee level, where a quick wash-up only reaches the job. For most clients the quick method is enough. Save the slower one for the clients where you need to see who the time went to.
Cost is the half most firms leave out, and software is the largest part of it. For many firms it runs to 10% to 20% of total income, and much of it never gets tied back to the client it was bought for. Bring every software dollar in against the right client and you often see, for the first time, what each job really costs to deliver. It is frequently more than expected.
XPM has the reports to pull this together. A job profitability report shows which completed work made money. A client group financial position report brings a whole retainer group into one view, including the periods where the work is done but the billing has not caught up. A job cost disbursement report is worth building too, because it lists every cost sitting against a job, including the software and disbursements that time-based reporting misses.
Keep tracking categories simple. Four is usually enough: compliance, advisory, bookkeeping, and company secretarial. It is easier to merge them later than to split them once you have scaled. If your categories mirror your profit and loss and stay consistent across the firm, you can read the same picture by service line as well as by client.
XPM also has standard dashboards worth turning on: a KPI dashboard, a productivity dashboard, and a staff time summary. They only work if the timesheets behind them are accurate. The numbers are only ever as honest as the time going in.
