You're tracking the wrong profitability

I had a conversation recently with a founder who runs a marketing agency. About 6 people, mix of employees and contractors, decent client list. She's smart, she's experienced, she's been doing this for years.

When I asked about profitability she said something I hear almost every single time.

"I meet with my accountant once a month and we do big picture stuff."

And she's right. She does. Her accountant is good. They look at the numbers, they talk about cash flow, they plan ahead.

But that's financial profitability. And it's only half the picture.

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Two types of profitability. Most people only track one.

Financial profitability is what your accountant tracks. Cash flow. P&L. Tax. Year end numbers. It tells you whether the business made money overall. Important stuff. But it tells you what happened. Past tense.

Operational profitability is what's happening inside your projects right now. What did it actually cost us to deliver that piece of work, with those people, in that time frame? Are we making money on this client or just making revenue?

Most businesses I work with can tell me their annual profit.

Very few can tell me the profit on the project they finished last Tuesday.

The gap is where the money quietly disappears.

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Why this matters more now than it used to

If you're running a consultancy or agency with a small team, especially if you've moved to the model I'm seeing everywhere right now (a mix of core staff and freelancers), your cost base is more complex than it looks.

You've got salaried people. Day rate contractors. Outsourcers charging per deliverable. And your own time, which you're probably not costing at all. Every project has a different mix. Every client has a different margin.

But if you're only looking at the big picture once a month with your accountant, you can't see which projects are healthy and which ones are quietly eating your margins. Not until it's too late to do anything about it.

For the founder I was speaking to, one team member went on sick leave and suddenly almost every client was off track. Not because the work was bad. Because the knowledge of what was working and what wasn't lived in that person's head, not in any system. There was no way to see which projects were already losing money before the crisis hit.

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So what do you actually need to see?

When I work with clients on this I always start at the end and work backwards. Not "what data can we collect" but "what do I actually need to see to make good decisions?"

And it comes down to three things.

Project profitability. Not just "did we have a good year" but "did we make money on that brand strategy for Client X?" That means attributing the cost of your people's time to the projects they work on. It doesn't have to be to the minute. But you need enough to see whether a project is healthy or heading over while you can still do something about it.

Client profitability. This is the one that catches people out. A project can be profitable on paper but the client can still be costing you money. The extra calls. The rounds of revisions that never made it onto a brief. The hand holding. The scope creep that's too small to flag but adds up over six months. That's cost to serve. And most businesses have no idea what it actually looks like per client until they sit down and work it out.

Capacity. Not just utilisation. It's who's doing what, is there room, and are the right people on the right things. Most agencies have a rate card for charging out their people or a rule of thumb of double the rate they charge or add x%. It works. But without knowing what your team's actually spending their time on, you're guessing at whether you can take on the next project or whether someone's already underwater.

That's it. Three things. If you can see those three things clearly you can make good decisions. If you can't, you're flying blind between accountant meetings.

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This doesn't need to be complicated

Here's where people usually go wrong. They hear "I need better data" and immediately think they need a new tool or they need to overhaul everything.

Please don't.

The founder I was talking to had been through that. Her team created long and detailed process documents. The whole "this is how we do things" bible. Nobody followed them. People got obsessed with the system instead of focusing on the client. And when things changed (which they do, constantly) the documents were out of date within months.

What actually works is much simpler.

Work out what you need to see. Those three things above. Then figure out the absolute minimum you need to capture to get there. Not the maximum. The minimum.

If your team already tracks time in Harvest, great. You don't need a new time tracking tool. You need to pull that data somewhere that shows you cost per project. If you're managing work in Monday or Asana, you don't need to redesign the whole board. You just need a few checkpoints that tell you whether a project is on track.

And the data should come to you. You shouldn't be spending Friday afternoon pulling numbers out of four different places and putting them in a spreadsheet. Tools like Make.com can connect everything and land a simple report in your inbox every week. No one has to do anything extra.

Most of the founders I work with don't want a big fancy dashboard. They want a Google Sheet that tells them what they need to know. And honestly that's usually the right answer.

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Your accountant is great. This isn't their job.

I want to be clear about this. I'm not saying your accountant isn't doing a good job. They almost certainly are. But what they're tracking and what you need to see operationally are two different things.

Your accountant tells you whether the business made money.

Operational profitability tells you where it went. Which projects are worth your time. Which clients are actually costing you more than you think. Where you're losing margin without realising it.

One is the scoreboard at the end of the game. The other is what's happening on the pitch while you can still change the result.

If you can't look at a project that's halfway through and tell me whether it's making you money or costing you money, that's the gap. And it's a very fixable one.

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If this sounds like your business, I run free 90 minute strategic sessions where we dig into exactly this. Your projects, your clients, your margins. No pitch, no obligation. Just a proper look under the bonnet. Schedule a fit call using the button at the top of this page to get started.