This article is an extract from the book 'Everything you need to know about Xero Practice Manager'
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Client (and job) profit is a great metric for understanding if our clients and jobs are profitable or not, but it is open to a lot of subjectivity around the cost rates. For this reason write-offs tend to be a preferred method of understanding which jobs have performed better. Write-offs are a great way to analyse job performance because you are viewing ‘expectations’ vs ‘reality’.
A write-off is the difference between what is billable on the job and what we actually invoiced. If we have $2,500 billable time on the job but we fix-priced the job at $2,000, it means we can only bill $2,000. We therefore recognise a write-off on this job of $500. This is because we wrote off $500 of time on the invoice. We had $2,500 of billable time, we invoiced $2,000, therefore a $500 write‑off.
A write-off is expressed as a negative number. The opposite to a write-off is a write-up. This occurs when we invoice more than the billable time on the job, eg. if we fix-price a job at $2,000 and only put $1,800 of billable time on the job. In this situation when we bill $2,000 we recognise a $200 write-up. This is expressed as a positive number.
In both XPM and Link Reporting reports, we don’t ever see the heading ‘write-off’. We instead see ‘write-up’. This is because we show our write-offs as a negative number. So if the heading was ‘write-off’ and we saw a negative number, it would become very confusing. Therefore the term ‘write-up’ is used in all reports.
Like job profit, the job write-ups do not tell the full story because we don’t know what the write-up is relative to. Is a $200 write-up good? Well, that depends on what the billable amount was. ‘Write‑up %’ gives us insight into the size of the write-up relative to the billable amount. It is calculated by taking the write-off amount and dividing it by the billable value. The write-off percentage gives us insight into the size of the write-off.
To view write-offs, you can use the same report in XPM that you set up to view job profit and job profit percentage, but include the field ‘Invoice – Billable’. To get this as a percentage, export the data to Excel and divide this value by the billable value. ‘Write-up’ and ‘Write-up %’ are standard fields available in the Client Profitability report in Link Reporting. The benefit of Link Reporting is the fields are readily available, and you expand the job to view the write-offs on the tasks and costs on the job, then drill down further to view the underlying time sheets. In XPM, this is not possible. You can help your team succeed by providing them the information they need at www.linkreporting.com
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