Labor Profitability Reporting You Can Trust Using Autotask
Most MSPs are struggling to get profitability reporting they can trust. Though Advanced Global is the Autotask Service Delivery authority, the arena of financial reporting isn’t typically our strongest contribution to the MSP community. However, being the best group of Autotask Live Report writers on the planet, we feel obligated to provide a Labor Profitability Report (LPR) to the AGMSPC community.
We’ve had an advanced LPR for a while and are now working on an advanced Effective Labor Rate report (ELR). The challenge with the LPR is how to account for the cost of services, due to the fact that many MSPs don’t have the costs associated with services linked to the contracts in Autotask. Answering the labor profitability reporting question would be easy if every MSP used the Autotask software the exact same way.
But, alas, they don't. Nor are they expected to. And it’s not their fault.
As Aaron Kennedy from Cognition 360 says, "no PSA software comes pre-configured for profitability reporting." And there you have it. That’s why reliable profitability reporting is so hard to achieve
A quick note about LPR & ELR:
Before diving in further, I’d like to discuss the difference between LPR and ELR reporting. Labor profitability is looking for the margin between revenue (MRR and the T in T&M) and cost (Employee Burden). On the other hand, ELR is looking for the portion of profit that can be attributed to labor and further defines it as revenue per hour.
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What is Advanced Labor Profitability reporting?
As mentioned, labor profitability reporting is based on profit margins or revenue minus costs divided by revenue.
Two philosophies on Employee Burden complicate labor profitability reporting:
1. Compensation and benefits
2. Compensation, benefits, and a pro-rated portion of overhead
a. Techs are billable resources, and Available Billable Hours is the labor inventory of an MSP
In the second case, the billable resources are saddled with covering all the overhead, including the fulfillment costs. We at AGMSPC adhere to the second employee burden philosophy. When it comes to the advanced LPR, many MSPs don’t have internal costs listed in the HR module, and when they do, oftentimes it’s the compensation without burden. It’d be nice if all MSPs would talk with their CPA and apply a compensation plus burden number to the internal costs, but my hunch is that number would be the first philosophy of employee burden, not the second.
The Advanced LPR also considers Block Hours. You see, from our vantage point, Block Hours could be paid for in one reporting period and used in another. Most MSPs don’t roll over unused Block Hours, and most MSPs do monthly recurring Block Hour contracts, so the number of times we need to worry about rollovers is minuscule. In the advanced LPR, we call out the Block Hours and Retainer Draws, just in case the MSP would like to adjust the report to reflect their reality.
Why Advanced Global’s LPR is advanced
So then, what makes the Advanced Global MSP Coaching LPR so Advanced? Our name? Not quite. In the advanced LPR, we don’t just report on top-line revenue, we split out which portion is contractual revenue, and which is T&M. We further define the cost associated with services, hardware, and labor. The breakdown of where revenue is coming from and where costs are incurred is what makes the report advanced. We then determine which customers are below the average profit margin for the MSP to highlight which customers are pulling the margins down. We also point out which ones have significantly high margins as these are the ones the MSP is gouging and could be at-risk of losing.
Keep in mind: If an MSP is providing superior service, the customer is generally willing to pay a premium, which should be reflected in the margins. If you struggle in determining labor profitability, please let us know, as this is our specialty.
Effective Labor Rate reporting: An easier report to write
Why do we say an ELR report is much easier to write? It’s basically the revenue half of the advanced LPR, and rather than the last calculation subtracting costs, we divide by hours. In this final calculation, we subtract services and hardware from revenue and divide by total hours worked to get to the ELR.
Easy, right? Check back with us in a month or so. Once the report’s finished, we’ll know what the gotchas are. Right now, it looks very promising.
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Summary:
If you have any Autotask reporting needs, don't hesitate to contact us. As mentioned, we’re the best group of Autotask Live Report writers on the planet and are always looking for a challenge.
- Steve & Co