Definition of terms we use in the Executive Briefing Service
Revenue – What you charged your clients, but omits sales tax.
Contribution Margin – Contribution Margin is your revenue less direct 3rd party costs. Contribution Margin shows you the incremental “net operating profit” available to cover your fixed costs. Contribution Margin is calculated BEFORE you have allocated the cost of your engineering team.
Net of W2 – Shows the dollars that you have remaining after you have paid your 3rd party providers AND allocated the W-2 cost of labor for your engineers based on each engineers hourly W-2 cost and the amount of actual time they spent working for each client.
W-2 Cost – Shows the costs of your engineers, allocated to each client based on:
- Hourly cost of that engineer (from ConnectWise Member screen)
- Number of hours spent by that engineer working for that client
Hours Actual – Hours report by each engineer BEFORE they are ’rounded’ for billing purposes.
Effective Hourly Rate (EHR) – A metric showing what you ‘earn’ for each hour that your engineers work. In most cases this is labeled ‘Net of W2 per Hour’ which indicates the amount you make for each hour worked after you account for ‘all’ related costs (including the cost of internal labor hours).
W-2 Cost per Hr – Shows the average hourly cost of the engineers that did work for this client. This is calculated on an engineer-by-engineer hour-by-hour and client-by-client basis, so if you see a higher ‘W2 Cost per Hour’ figure for some clients, that indicates that you have ‘more senior’ (i.e. higher paid) engineers working on tasks for that client.
LINES OF BUSINESS
Fully Managed – Monthly contracts that ‘include time’ and that time is ‘unlimited’. Any products or services included on the monthly invoice are included in ‘Fully Manged’ revenue. Subtracting the fees you pay external 3rd parties for products/services you bundle results in the ‘Fully Managed’ Contribution Margin. Subtracting the W-2 cost of labor for every hour your team spent working on that contract that month results in the ‘Fully Managed Net of W2’. (Note: The cost of ALL hours spent on a Fully Managed contract are included [even if they are marked as non-billable] since you accrue the cost of that employee in either case and no additional revenue is generated).
Block Recurring– Monthly contracts that ‘include time’ but the amount of time in any given month is capped at a predefined limit. Any products or services included on the monthly invoice are included in the Revenue, Contribution Margin and Net of W2 calculations (just like Fully Managed).
Agreement No Time – Monthly contracts provide products or services but do NOT include any time from your internal staff.
Time and Materials HOURLY – Time that is NOT covered under an agreement (including time that has been ‘excluded’ from a contract based on work role/type exclusion in the contract). This time is billed at as ‘time spent’ multiplied by ‘hourly rate’. Any related employee ‘expenses’ reported are reflected as 3rd party costs (and used to calculate Contribution Margin).
Time and Materials FIXED – It is possible to create tickets in ConnectWise that are NOT associated with an agreement or project that are ‘fixed fee’ (i.e. customer pays you an agreed upon amount no matter how much time you spend on the ticket). Any related employee ‘expenses’ reported are reflected as 3rd party costs (and used to calculate Contribution Margin).
Project HOURLY – Project time billed at ‘time spent’ multiplied by ‘hourly rate’. Any related employee ‘expenses’ reported are reflected as 3rd party costs (and used to calculate Contribution Margin).
Project FIXED – Time against a ‘fixed fee’ project (i.e. customer pays you an agreed upon amount no matter how much time you spend on the project). Any related employee ‘expenses’ reported are reflected as 3rd party costs (and used to calculate Contribution Margin).
Block One-Time – A non-recurring (i.e. one-time) agreement purchase that ‘includes time’ but that time is capped at a defined number of hours for the life of the contract.
Product – Stand-alone sales of hardware/software and 3rd party services. Product/services that are on monthly Fully Managed or Block Recurring invoices do NOT appear in this category (they appear in their respective Fully Managed or Block Recurring line of business). Product sales on PROJECT invoices DO appear in this category.