Understanding Profit in Design Manager
What is Profit?
Profit is the amount of money your business earns after all related costs and expenses have been accounted for. In an accrual accounting system, profit is measured based on when revenue is earned and expenses are incurred, not when cash is received or paid.
For example, if you invoice a client in June, that revenue is recognized in June, even if the client doesn't pay until July. Likewise, if you receive a vendor invoice in June for goods or services used on that project, the expense is also recognized in June, regardless of when you pay the vendor.
Matching revenue with the expenses incurred to generate that revenue provides a more accurate picture of your business's financial performance during a specific accounting period. A profitable business consistently generates more revenue than the costs required to produce that revenue.
Understanding profit allows you to:
Evaluate the financial health of your business.
Make informed pricing decisions.
Identify opportunities to improve profit margins.
Monitor project performance.
Support long-term financial planning and sustainable growth.
Estimating and Understanding Profit
Estimating profit before a project begins helps determine whether the work will be financially worthwhile. By comparing your expected sales against your estimated costs, you can forecast your anticipated profit and profit margin before committing to the project.
Accurate estimates also help you:
Set pricing that aligns with your desired profit margins.
Identify projects that may not be financially viable.
Establish realistic financial goals.
Create more accurate budgets and forecasts.
As actual costs and revenue are recorded throughout the project, comparing them to your original estimates allows you to identify cost overruns, evaluate the accuracy of your estimates, and make adjustments before profitability is significantly impacted.
Consistently estimating and monitoring profit leads to better pricing decisions, healthier profit margins, and more predictable financial performance.
Profit Analysis in Design Manager
As you create project specifications in Design Manager, you'll enter an Estimated Cost and an Estimated Price for each item. These values form the basis of your projected profitability.
The Profit Analysis Report summarizes this information and allows you to analyze estimated profitability for an entire project. Additional filters can be used to review profitability by proposal, invoice, project, location, sales category, and other item attributes.
As vendor invoices and client invoices are entered throughout the project, the report automatically compares your estimated values with the actual financial results, helping you measure the project's overall profitability.
Estimated values are taken from the costs and selling prices entered in the project specifications, while actual values are generated from vendor invoices and client invoices recorded during the project. The report definitions below go into more detail about how each value is calculated.
Report Definitions
Estimated Cost | The estimated vendor cost entered on the Component window while creating the specification. This is the amount that prints on the Purchase Order. |
Actual Cost | The actual cost recorded from the vendor invoice. Vendor deposits are not included until the final vendor invoice has been entered. For example, if a chair was estimated to cost $850, but the vendor ultimately billed $800, the Estimated Cost would remain $850, while the Actual Cost would become $800. |
Estimated Price | The selling price entered in the project specification that appears on the client Proposal. Using the example above, if the estimated cost is $850 with a 30% markup, the Estimated Price would be $1,105. |
Actual Price | The amount ultimately invoiced to the client. This may match the estimated price or differ if discounts or additional charges were applied. If Invoice Pricing is set to Always Proposal (Estimate), the client would be invoiced $1,105. If the savings were passed along to the client, the Actual Price would instead be $1,040. |
Estimated Profit | The selling price entered in the project specification that appears on the client Proposal. Using the example above, if the estimated cost is $850 with a 30% markup, the Estimated Price would be $1,105. |
Actual Profit | The difference between the Actual Price and the Actual Cost. If the vendor's final cost was $800 while the client was still invoiced $1,105, the Actual Profit would increase to $305. |
Gross Profit Percentage | Gross Profit Percentage measures profit as a percentage of the selling price.
Formula: Gross Profit % = (Price − Cost) ÷ Price Using the example above: $255 ÷ $1,105 = 23.1% Gross Profit |
Markup Percentage | Markup measures how much the selling price exceeds the cost.
Formula: Markup % = (Price − Cost) ÷ Cost
In the example above, a $255 profit on an $850 cost results in a 30% markup. |
Leveraging Estimated Profit
Estimated profit serves as a financial benchmark throughout the life of a project. As actual purchasing and invoicing activity occurs, comparing estimated and actual profit helps determine whether the project is performing as expected.
Regularly reviewing estimated profit allows you to:
Set pricing that supports your desired profit margins.
Identify high- and low-margin projects before committing to them.
Detect cost overruns early.
Improve future estimating accuracy.
Forecast profitability across multiple projects.
Make better business and budgeting decisions.
Monitoring estimated profit alongside actual project results helps improve pricing accuracy and increase overall business profitability.
Ensuring Your Projects Are Truly Profitable (Project Cash Allocation Report)
While the Profit Analysis Report measures profitability using accrual accounting, it does not tell you whether cash is actually flowing into the business at the right pace.
Because Design Manager is an accrual accounting system, revenue and Cost of Goods Sold (COGS) are recognized when vendor invoices and client invoices are posted, not when payments are made.
A project may appear profitable on paper while still experiencing cash flow problems if vendor payments are due before client payments are received.
To monitor both profitability and cash movement, Design Manager provides the
Project Cash Allocation Report.
This report combines estimated project costs with actual cash received from clients and payments made to vendors, providing a more complete financial picture.
Project Cash Allocation Report
The Project Cash Allocation Report displays four primary sections:
1) Estimate
PO Cost- The total estimated vendor cost entered for all project components.
Price- The total estimated selling price entered for all project components.
Sales Tax- The estimated sales tax calculated from the project's default sales tax settings.
2) Cash Received
This section displays money collected from the client.
It includes:
Deposits allocated to project items
Payments received on client invoices
Note: Unapplied retainers are not included because they have not yet been assigned to individual items.
3) Current Allocation
This section displays actual amounts already paid out.
It includes:
Vendor deposits and vendor invoice payments
Sales tax collected on client invoices
4) Estimated Future Allocation
This section estimates what still needs to be paid based on remaining project costs.
It includes:
Remaining vendor costs
Remaining sales tax obligations
Cash +/-
This value compares total cash received against both current and future project obligations.
A positive balance indicates you have collected more cash than you expect to spend.
A negative balance indicates you may need to collect additional funds before all project expenses are covered.
This provides an excellent snapshot of the project's current cash position.
Monitoring Project Cash Flow
In addition to the Profit Analysis Report and Project Cash Allocation Report, Design Manager provides the Project/Order Cash Flow Report.
This report tracks the movement of cash into and out of your business throughout the project by displaying:
Client Retainers and Deposits
Client Invoices and Payments
Vendor Deposits
Vendor Invoices and Payments
While a project may ultimately be profitable, poor cash flow can create financial strain if vendor obligations must be paid before client payments are received.
Regularly reviewing project cash flow helps you:
Ensure client payments keep pace with project expenses.
Identify overdue invoices and outstanding deposits.
Plan for upcoming vendor payments.
Avoid cash shortages that could delay project work.
Gain greater visibility into the financial health of each project.
Maintaining healthy cash flow is just as important as maintaining healthy profit margins. By reviewing both profitability and cash flow throughout a project, you can better manage working capital, reduce financial risk, and keep projects moving forward with confidence.
Profit and Loss (Income Statement)
Throughout the life of a project, Design Manager provides several reports that help you estimate profitability, monitor cash flow, and evaluate financial performance. Ultimately, however, all of this financial activity is reflected in your Income Statement.
The Income Statement is one of the most important financial reports for any business. It summarizes your revenues, cost of goods sold (COGS), operating expenses, gains, and losses over a specific accounting period, allowing you to determine your company's net income, commonly referred to as your "bottom line." This report provides a clear picture of whether your business generated a profit or incurred a loss during the selected period.
Design Manager offers several versions of the Income Statement depending on the level of analysis you need.
Company Income Statements
To evaluate your company's overall financial performance, Design Manager provides both a Monthly Income Statement and a Yearly Income Statement.
The Monthly Income Statement displays the revenue, expenses, and net income generated during a single fiscal month.
The Yearly Income Statement summarizes financial activity across an entire fiscal year and offers several reporting formats:
Year – Displays year-to-date account balances.
Year, Budgets and Variances – Displays year-to-date balances alongside budgeted amounts and variances.
Year, Prior Year, Budgets and Variances – Compares current year-to-date balances against the prior year while also displaying budget variances.
Comparative – Compares the selected fiscal year to the previous year, showing both the dollar and percentage increase or decrease for each account.
These reports provide valuable insight into your company's financial performance, helping you monitor profitability, compare results over time, and evaluate progress against your financial goals.
Project Profit and Loss Report
In addition to company-wide Income Statements, Design Manager also provides a Project Profit and Loss Report. This report focuses on the financial performance of an individual project by displaying its revenue, cost of goods sold (COGS), and operating expenses for any selected fiscal date range.
The Project Profit and Loss Report is an excellent tool for evaluating the profitability of specific projects and understanding how each project contributes to your company's overall financial performance.
Important Note: Because journal entries and general company expenses are not assigned to individual projects, they are not included in the Project Profit and Loss Report. As a result, the project's net income may differ from the company's overall Income Statement.
Conclusion
Successfully managing a profitable project requires more than simply comparing revenue to costs. Throughout the life of a project, you'll need to estimate profitability, monitor actual costs, track incoming and outgoing cash, and review your financial results. By regularly using the Profit Analysis Report, Project Cash Allocation Report, Project/Order Cash Flow Report, and Income Statement together, you can make informed business decisions, improve estimating accuracy, maintain healthy cash flow, and build a more profitable business over time.
If you have any questions about the information presented in this article or need assistance interpreting your financial reports in Design Manager, our Support team is happy to help. You can reach us at support@designmanager.com, Monday through Friday, 9:00 AM – 5:00 PM EST.