Ask the owner of a small forwarding company what the company earned last year. The accountant can tell you, a few months later. Now ask which customers made that money, and which jobs lost it. The room goes quiet.
The company's total profit does not answer that question. A good total can hide a customer who has lost you money on every box for a year. You can only see that one job at a time.
Why it is hard
The money for one shipment comes in pieces, over weeks, from different people. The quotation is in one file. The line's invoice comes after the vessel has sailed. The transporter's bill comes at month end. The detention comes when everyone has forgotten the job.
Each of these is entered correctly in the accounts. But they are usually entered by party, not by job. So the books know what you owe the line. They do not know which shipment it was for.
Rule 1: every bill carries the job number
This is the whole method. Every sales invoice and every purchase bill must say which job it belongs to. Add the job number when you enter the bill, because nobody will remember it later. Once every bill has the number, the profit of a job is a simple sum.
Rule 2: keep reimbursements apart
Sometimes you pay something for the customer and recover the same amount, such as customs duty. This money is not your income, and it is not your cost. It only passes through you.
If you mix it in, your figures look bigger than they are. And if you forget to recover it, you will not notice. Keep it on its own line. Check that what you paid is what you recovered.
Rule 3: work before tax
GST you charge is not your income. GST you can claim back is not your cost. So compare the amounts before tax. If you don't, a job's profit will change only because of the tax on its charges.
Rule 4: one currency, at the rate you used
Ocean freight is often bought and sold in dollars, and local charges in rupees. Bring every line to rupees at the rate you really used, and keep that rate with the job. If you don't, you will not be able to explain the figure in six months.
An example
The figures here are made up, to show the method.
- Income: ocean freight sold ₹1,50,000, local charges ₹35,000. Total ₹1,85,000.
- Cost: ocean freight bought ₹1,30,000, CFS ₹20,000, transport ₹8,000. Total ₹1,58,000.
- Profit: ₹27,000.
- Kept apart: ₹25,000 paid on the customer's behalf, and ₹25,000 recovered.
Now suppose the ₹25,000 went into income by mistake, and its payment was entered somewhere else. The job would then show a profit of ₹52,000. That is nearly double the true figure. Next time, you might quote this customer lower, thinking you have room.
Costs that come late
A job is not finished when its sales invoice goes out. A late bill from the line, a detention charge or a repair can come after that. So a job's profit is only what you know today. Look again before you close the job.
Late costs are also why you should compare the quoted margin with the final profit. Some jobs are quoted well but still earn badly. That is an operations problem. Other jobs were quoted badly from the start. That is a pricing problem.
What to do with the figure
Once you can see profit by job, you can easily answer three questions:
- which customers earn you the most, after every cost
- which routes you keep quoting too low
- which jobs lost money, and why
A few minutes each week is enough to check the answers.
In Shipment 360
In Shipment 360, a job makes its invoices and bills from the quotation. Each one carries the job's number. The job page adds up income and cost from the issued documents, before tax. It shows what you paid on the customer's behalf separately. The tutorial See what a job earned shows each step.