What indicators are used to calculate profitability in service companies?

Written on April 3, 2024.

Calculating profitability is an important exercise for all companies, and service businesses are no exception. In fact, it enables us to measure the company's ability to generate profits and sustain its business over the long term.

However, calculating the profitability of service companies can be more complex than for industrial or commercial companies. This is because service companies do not produce tangible goods, which can complicate the evaluation of their production and costs. How are these calculations made? What indicators should be used? How to optimize profitability?

Key profitability indicators for service companies

Fortunately, there are several key indicators that enable service companies to measure their profitability. Among the most important are :

Sales: This is the total amount of sales of goods or services made by the company over a given period.
Gross margin: This is the difference between sales and the direct production costs of goods or services sold.
Net margin: This is the difference between gross margin and the company's fixed and variable costs.
Break-even point: This is the level of production at which the company begins to be profitable.
Economic profitability: This is a company's ability to generate profit, taking into account all its resources, including equity and debt.

Issues and solutions for calculating profitability

Calculating the profitability of service companies can face several problems:

The difficulty of measuring production: It can be difficult to quantify a service company's production. It does not consist in the manufacture of tangible goods.
Cost variability: Service companies' costs can be highly variable. This can complicate the calculation of gross and net margins.
Taking fixed costs into account: Fixed costs, such as rent and salaries, can have a major impact on the profitability of service companies, even in the absence of production.

To overcome these difficulties, service companies can implement several solutions:

Set up a cost accounting system: A cost accounting system makes it possible to track costs more accurately and identify sources of profitability.
Use production management tools: These allow you to monitor production and identify inefficiencies.
Regularly analyze profitability indicators: It's important to monitor profitability indicators on a regular basis, so that you can identify trends and take any necessary corrective action.

SENEF ERP software publisher: an ally for the profitability of service companies

SENEF, an ERP software publisher specializing in the management of service companies, offers solutions to help companies improve their profitability.

By adopting Progisap for personal services companies, Progiclean for cleaning companies and Seenet Sécurité for security and guarding, you benefit from a global vision. But also a 360-degree view of your entire business...

Our solutions enable service companies to :

Monitor costs and production accurately
Improve inventory and purchasing management
Optimize sales management and customer relations
Obtain comprehensive reports on their business and profitability

With Progisap, Progiclean and Seenet Sécurité, you have the tools you need to steer your service business towards success.

In conclusion, calculating profitability is essential for service companies. Service companies can improve their profitability and ensure their long-term survival by relying on the right indicators. But also by implementing appropriate solutions and equipping themselves with high-performance tools.

For more information, please contact us.