Profitability and Margin
What is it?
Current and accurate visibility into profitability is critical to understanding the performance of your business. Profitability provides valuable insight when measured in dollars your business earns after expenses (including different costs), and as a percentage of your total billable revenue.
What does it answer?
The most fundamental question answered by profitability is simple: how much money is my business actually making? However, financial data becomes a much more powerful tool when it lives in the same system as your ATS so that it can be calculated at the level of each individual contract or placement.
This allows you to answer a new set of important questions: How profitable is each line of my business? How does my margin differ by candidate source? What is my average profit per interview for a given team or segment?
This, in turn, enables you to understand how different costs impact profitability, which you can then use to inform strategic decisions. Relevant costs include: direct labor costs, VMS fees, rebates and discounts, background checks and drug screens, overhead costs, and more.
When you understand the successes (and failures) of each segment and activity of your business, you can then prioritize strategies and set goals to meaningfully improve growth and profitability.
How do you measure it?
Run a standard Gross Margin (GM) report for visibility into your business’ overall financial performance. Use ad-hoc reporting to segment your GM data to evaluate the profitability of each of your activities, prioritize resources, and proactively manage changing business conditions.
Consider combining with Recruiter and Sales activity metrics to draw conclusions about your most profitable activities. Perhaps your recruiter who brings in the most profit turns out to also schedule the most interviews with candidates and make the most calls. Alternatively, you could have a team who has done a huge volume of placements but the report shows that gross margin is lower than expected.
You can also dive deeper into profitability, in dollars or as a percent, by layering in different aspects of your business, including:
- By placement
- By recruiter
- By business line/industry
- By region
- By client
Hours Worked
What is it?
The number of hours your workers have clocked for their active placements.
What does it answer?
Analyzing the number of hours worked to help your business better understand trends and segmentation.
With visibility into how hours-worked are trending over time and making year-over-year comparisons, you can better understand growth areas or potential trouble with clients. You can get more targeted by segmenting this data by geography, client, role, and more. This can also uncover how many overtime hours are being clocked, which could inform additional decisions to hire more candidates or review the shifts. Lastly, understanding how hours-worked is trending can enable much more accurate operational and financial forecasting for weeks and months to come.
How do you measure it?
Use ad-hoc reporting to show timesheet details for your candidates currently on assignment. Organize the report by time (week, month, quarter) or by type of hours (regular, overtime, holiday).
Consider combining with profitability and margin metrics to better inform financial and efficiency goals for the team and to more accurately report on the financial progress of the business. Also consider combining with timesheet approvals; clients that regularly dispute timesheets may result in decreased jobs and hours-worked.
It is also as important to see who hasn’t submitted time and/or is no longer at the client. This analysis provides agencies a clear understanding of their available candidate pool and avoid missing redeployment opportunities.
Billing and Collections Effectiveness (DSO and Invoice Aging)
What is it?
Days Sales Outstanding (DSO) and Invoice Aging are two different metrics that combine to provide valuable insight around the effectiveness of billing and collections processes.
DSO measures the average collection period, by providing the average number of days it takes a company to collect payment after invoicing.
Invoice Aging shows the prevalence of invoices that have gone unpaid over a certain number of days, often in increments of 30 days.
What does it answer?
These metrics work well together as DSO provides a holistic view of how effective your billing and collections are, while Invoice Aging helps identify problem areas.
DSO answers the question, how long does it take for my invoices to get paid? With this insight, you can better understand how quickly your customers are paying their invoices and how well your billing and collection departments are working. A low number of days indicates that your company collects its outstanding receivables quickly, while a large number of days shows a potential area of improvement.
Invoice Aging helps you identify delinquent clients and enact corrective action, to avoid late payment and/or bad debt. By aggregating across your customers, it also allows you to evaluate the overall efficiency of collections within your business.
How do you measure it?
DSO: Divide the number of accounts receivable during a given period by the total value of credit sales during the same period, and multiply the result by the number of days in the period measured. This is often done on a monthly cadence.
Invoice Aging: In Bullhorn Canvas, pull the pre-built report for invoice aging, or create an ad-hoc report by pulling accounts receivable transaction by client and invoice paid status.
Consider combining with Pulse relationship insights like Account Engagement to help understand your firm’s history and relationship with a given account.
Invoice Accuracy
What is it?
The proportion of invoices that are rejected by clients and require adjustments before resubmittal.
What does it answer?
Invoice aging is an effective way to evaluate the efficiency and effectiveness of your invoicing process. The lower the percentage of invoice accuracy, the more time being spent on invoice creation and the greater the opportunity for improvement.
How do you measure it?
When an invoice is incorrect and must be adjusted, the invoice must be credited then rebilled (commonly referred to as credit & rebill).
Measure invoice accuracy by evaluating what percent of invoices required credit & rebill, and look for opportunities to decrease the percentage through improved accuracy.
Consider combining with Invoice Aging and DSO.
Agencies that struggle with invoice accuracy and must frequently credit & rebill often see higher invoice aging and DSO.
Timesheet Efficiency
What is it?
Timesheet efficiency refers to the ability to quickly and accurately collect timesheets and approvals from candidates and clients. It’s helpful to measure manual and late timesheets as weekly volume as well as a percentage of all timesheets.
What does it answer?
Evaluating timesheet efficiency is focused on the amount of manual work required to complete the task, such as following up with candidates to submit timesheets or client approvers for timesheet approvals. This provides useful information on the performance of your time capture processes, and by extension, your technology.
By establishing a performance baseline agency staff can identify and test potential changes to improve performance. It’s important to measure this across all time capture methods, including VMS.
How do you measure it?
Timesheet efficiency can be evaluated through ad hoc reporting around manual and late timesheets.
Manual Timesheets: manual timesheets can be identified and measured by the method of time capture.
It’s important to include an analysis of VMS placements, as they can be a significant source of manual processes. In Bullhorn, this can be measured by identifying timesheets processed through VMS Exchange, pulls timesheets from the VMS and does not require manual input after setup.
Late Timesheets: analyze the percentage of timesheets submitted after your payroll cutoff.
Consider combining with Billing and Collections Effectiveness.
Late timesheets can cause significant consequences to Invoice Aging and DSO, as clients commonly require all time to be billed for the period on an invoice, resulting in an inability to send invoices until the last timesheet is submitted and approved.
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