Where Profits Hide, Part I

“What items are we most profitable in?” 

Scott asked me that question a few weeks ago which set off a discussion about our primary project categories and the income derived from each: hosting related work (13%), ticketing software and customizations (13%), software development (43%) and website design (25%).  Then we looked at development time for processes required for the projects within each category.

For website design, we have created many scripts representing many, many hours of development that enable us to streamline our work.  For example, an image gallery used to take several hours, but a script that took the time, testing, and refinement of four people in this office reduced that task to a half hour.  Our editing software, PmWiki, once had an install process that took several hours.  Now, the task is five minutes. 

In addition to eliminating some of the tedium of required tasks, these helper scripts expedite delivery of websites, and the return is worth the effort it takes to produce them.  With all the extra time these scripts afford, we should be awash in extra profits, right?

When Scott asked the question about profitability, I thought a moment, and told him that these scripts enabled us to be more profitable because we still charged the full price for installation on these items, yet the labor was a fraction of the invoiced charge.  Then I had a jarring realization.

Websites are among our least profitable items for many reasons some of which I will save for another post.  Whatever the reason, we often find ourselves in a position where the clients want “just a little more” to be fully satisfied, and we often acquiesce.  Since Stacy handles most website sales, she is the one who hears these “final requests” and shares them with me.  Often, her justification for making the additions starts with, “Well, Dawn, remember they paid full price for the gallery, so we won’t lose money if we spend the extra time.” 

But what the client didn’t pay for was the time it took for us to create the scripts, and in cases where we extend the design or functionality of the site, the profits fly out the window.  Stacy has been notorious for this kind of no-cost upgrade request, and after years of this behavior, none of us realized we might actually be losing money! 

I am actually surprised that it took us so long to figure out this basic metric.  Over the last couple of years, we have really grown as a company, and we continuously strive to exceed performance goals set at the end of each year.  So, realizations such as this one are important milestones that help us achieve loftier heights. 

So, Scott’s question was an enlightening one, and our policy has changed.  We’ll be on the lookout for other profit-swallowing development costs as we prepare for yet another banner year as we strive to elevate performance and profits in 2008.