A wrong way to measure profitability of your “dedicated” employee
Measuring the profitability can be tricky if you are a “Fixed cost project” based service provider and you have established a team over here to execute these projects which is billed as per ”Dedicated Hiring” Model.
Here is the basic problem:
The fee that you pay for dedicated hiring service is based on “Time” i.e. you have pay monthly whereas, the money that you get from your customers is based on “Project Delivery” or “Fixed Fees”.
These two are measured in different units and thus comparing them is faulty.
Why do people make this mistake?
Well, the root of the problem is when you start measuring the ROI of this service on a project to project basis.
A project might seem unprofitable if you quote only $100 for it and the programmer took 3 days to do. There is so much that could have gone wrong. The most obvious thing can be that, it was complex or involved something with which the programmer had no prior experience. So it took more time.
So, the question is how exactly should you measure the profitability?
Actually, it’s pretty simple -
Take the sum total of payments that you have received from your clients in the current month. Now, subtract this amount with the amount of money that you have to pay for the programmer’s services. This figure determines the overall profitability of the service!
This measure is more effective because, the programmer is working on multiple projects there will be cycles of before-time or delayed deliveries which will cancel out each other at the end of the month.
Besides, this service is all about looking at a bigger picture which you simply cannot see in project-to-project based relationships.
