Practice Performance Reporting with Xero Practice Manager: Monthly Reporting Rhythms

This article is an extract from the book 'Everything you need to know about Xero Practice Manager'
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Practice reporting rhythms

In our practice we want to implement regular reporting rhythms so we can run a successful and profitable practice that our team loves to be a part of. There are key metrics we want to keep an eye on weekly, others monthly, and some we review on a biannual basis. We must ensure the information we are looking at is accurate and relevant to the decisions we need to make.

All the data we need to make good decisions is in XPM. In some cases the reports are available within XPM, but many of the metrics we want to track such as productivity and write-offs are just not readily available. XPM is also unable to produce key metrics such as average hourly rate on staff, jobs or even at a practice level. For this we need Link Reporting.

In this section we will look at the reports available in Link Reporting, when they should be viewed, and what decisions we want to make with the information. Here are the reports available in Link Reporting:

• Job
  • Open Job
• Client
  • Client Performance
  • Client Profitability
• Team
  • Team Performance
  • Individual Performance
• Practice
  • WIP Performance
  • WIP Comparison
  • Practice Performance
  • Service Profitability.

Let’s look at what reports we run and on what frequency.

Monthly

Monthly performance reporting must be done once invoicing has been completed for the month. This is because we want to compare monthly performance, which is not possible when last month is incomplete.

There are six reports that are used when reviewing monthly performance. These are:

• WIP Performance
• WIP Comparison
• Practice Performance
• Service Profitability
• Team Performance
• Client Profitability.

Let’s look at these reports in a bit more detail.

WIP Performance

We start our monthly performance review by looking at our WIP Performance report. We start with this report because it gives us the highest level perspective for our practice. The WIP Performance report shows us all the movements that occurred in the past month, and how they compared to the previous 11 periods.

The WIP equation is your opening WIP for the month, plus the time and cost entered within the period, less what was invoiced, plus write-ups, less write-offs for the period, which gives you your closing WIP for the month. This equation captures every single movement in the month so we can get a great perspective on what has happened.

When reviewing the WIP Performance report, we are looking to spot anomalies in the data. For example, has our invoicing for the month dropped significantly compared to previous months? Have we had more write-offs than usual? Is our closing WIP balance increasing from month to month? These are the types of outliers we are looking for and investigating if we spot them.

To assist with the analysis of the WIP Performance report, there are two metrics that consider the movements in our WIP. These metrics are:

• WIP Multiple
• Practice Write-up %.

Your WIP multiple is your closing WIP balance divided by the time and cost entered in that month. A WIP multiple of 1.0 suggests you have exactly one month of WIP sitting in your closing WIP balance. You ideally want to keep your WIP multiple for your billable WIP under 1.0 to ensure you are billing your work shortly after it has been done. If your WIP multiple is creeping up from month to month, it suggests that you should review your WIP balances to see what WIP can either be billed or written off.

Your practice write-up percentage is your net write-ups divided by the time and cost entered in the month. A write-up is represented as a positive number, whereas a write-off is represented as a negative number. We want to keep an eye on a write-up percentage as it provides an indication of how efficient we are at completing work relative to our prescribed billable rates. If your write-off percentage is increasing over time, this indicates that there are inefficiencies in the practice that need to be addressed. Implementing weekly stand-up meetings is the best way to reduce write-offs as they are identified and resolved sooner rather than later.

WIP Comparison

The WIP Performance report is the helicopter view of our practice as we can see an entire year's transactions in one report. The WIP Comparison report on the other hand is the MRI scan. It allows us to dive deep into a period and review individual WIP balances by comparing them against others in their groups.

The WIP Comparison report should also be run as part of our monthly reporting, as well as our weekly reporting.

Practice Performance

Once you have reviewed your WIP for the practice, you want to review your overall practice performance. This looks at your productivity, write-offs and average hourly rate at a practice level. This is our macro view before we start drilling down to the micro. It is the micro where we make decisions on actions that need to be taken, but starting with macro allows us to first see the big picture.

Service Profitability

Our service profitability allows us to see which services our staff are performing well on, and those where they are not. We are looking for high write-offs at a service level, as this indicates there is a training gap that we need to address. For example, we might be averaging a 25% write-off on cash‑flow forecasts, which would indicate our staff need additional training on the forecasting software we use.

Reviewing our service profitability gives us a different lens to view performance. Rather than looking at which staff are performing well, or which clients are profitable, we are able to see which services our practice is good at delivering. This information allows us to focus on the areas we are good at, and support our team in the areas where we are struggling.

Team Performance

Team Performance is the next report to view after we have looked at our service profitability. This report shows us how our teams, and the staff within those teams, have performed for the previous month. Our practice performance is mostly driven by how productive and efficient our team is, so we want to keep an eye on this to ensure our teams are hitting their performance goals. If they succeed, we succeed.

When reviewing team performance we are looking for patterns and outliners in the data. If we see a pattern, it indicates the staff member is the cause of the pattern. If we spot an outlier, it indicates a job or other situation has caused the outlier. For example, if we have a staff member who consistently writes off $1,000–$2,000 each month, this is the pattern of the staff member. To improve this, we need to work with the staff member to help them become more efficient. If we see a $12,000 write-off for a month, we may find that there was a particular job that caused the write‑off. We therefore need to review that client's fee for next year.

Reviewing our team’s performance is therefore a case of reviewing the data to identify patterns and outliers, then having the necessary conversations to improve the areas of concern. There are four key metrics to keep an eye on in the Team Performance report:

• Productivity
• Write-offs
• ROI
• Average Hourly Rate.

These metrics (along with many more) are all presented at a team level and can be expanded to show the staff that make up each team. Our objective with this report is to identify any major outliers in the data and drill into them to get a better understanding. To support our staff to hit their performance targets, it is important to recognise when they are struggling so we can provide the help they need. There is no better report for doing this than the Team Performance report.

Client Profitability

Having a productive and efficient team will only get you so far if your jobs are underpriced. This is why we need to review our client profitability, so we can identify jobs that did not perform well and ensure we don’t make the same mistake next year.

The best report to use is the Client Profitability report, which looks at all the jobs completed within a specific period, eg. all jobs completed last month. This allows us to focus on the jobs recently completed and look for outliers in the data so we can understand where problems are occurring. The best three metrics to look at are:

• Write-offs
• Job Profit
• Average Hourly Rate.

Use the sort heading in the table to review each of these metrics from low to high, and from high to low. This will give you a good understanding of what patterns are occurring in the practice, eg. we may discover that we are consistently having large write-offs on our cash-flow forecast. Once we discover this, we can speak with our team to find out why. It may be that they are are struggling on forecasts which involve stock on hand. We therefore need to provide training to our team on perpetual inventory management and how this affects stock movements in a cash-flow forecast.

Sorting the Client Profitability report by average hourly rate allows us to easily identify the work we are making a good margin on, and the work we are struggling with. Focus your attention on the top few average hourly rates and find out why these jobs were so successful, and plan to find more of that work. Also focus your attention on the bottom few average hourly rates and find out why they were so unsuccessful. Perhaps you have underpriced the jobs, your team needs training on a type of work, or there is a particular staff member who is really struggling.

The Client Profitability report is particularly useful when reviewing clients’ fees for the upcoming financial year. Sort the report from low to high in the average hourly rate column. This allows you to easily see which client groups were least profitable, so you can contact them to lift their fee for the upcoming year.

The Client Profitability report is your key to understanding the past, so you can take action in the present, which will improve the performance for the future. You can help your team succeed by providing them the information they need at www.linkreporting.com

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