As part of bit10’s evolution to the ‘next level’, we have been putting a lot of focus on the profitability of the business, where we make profit and what we make the most profit on (after all we are not doing this entirely for love!).
After 9 years of business bit10 prices are largely based on a combination of:
- Competitor analysis
- ‘Fag packet’ guestimations of cost
- Gut feeling
Never have we done any detailed analysis of acutal cost to the company.
We are making profit, why is an understanding of cost so important?
At a macro level the answer to this is pretty obvious, if you have no understanding of where the costs are on a particular service or project, how can you know what the profit is.
However the benefits on a micro level are more subtle.
It is really a question of empowering our people to do their jobs better, with less interaction with the people above them (and the subsequent delays), some examples:
1) Sales – I would regularly get calls/emails from sales with questions like ‘Can I discount this 10K project by 10% to get the sale?’, or even worse ‘How much can I discount this 10K project by to get the sale?’
2) Production – I would regularly get calls/emails from members of the production team with questions like ‘Can we buy software X to make project Y easier/faster/better?’, or ‘We need to do X days for work on project Y due to a problem, is that okay?’ – even worse than the latter question is hearing in hindsight that a project has overrun.
In all the cases above I would be in the position of using my gut instinct, based on years in the business, to make the decision on the question.
This is clearly no way to run a business, especially when in order to grow there is a need to empower your people and not unnecessarily burden yourself with questions you cannot actually answer.
Therefore it becomes obvious that having a method to accurately apply the real cost to projects is essential, and that the methods are accessible and understandable by all people involved, including sales and production.
The next step was about working out the real costs. I will be posting some followups to this blog with details of how we went about it.