This article is relevant if you are seeking to use NetSuite to drive and report project-based profitability.
Background
My firm often works with clients that constitute projects for managing their client commitments in sales-driven organizations that focus on order logistics coordination. For example, for companies that may be supplying lighting equipment to contractors for construction projects, the coordination required to get the right parts may take multiple conversations and can span long time horizons with many change orders. This coordination is often called a project because it lives longer than a typical customer order.
A common request, which is not easy to fulfill out-of-the-box (yes, new customers to NetSuite are often surprised), is measuring project profitability. The reason it is not necessarily easy to answer in NetSuite is due to the way that NetSuite organizes its concept of a project and how transactions are tagged with the project attribute. In addition, there are accrual challenges that are not obvious — I speak about many of these in my 2018 article, Learn how to Reliably Measure NetSuite Gross Profit and Margin.
NetSuite’s Project Concept
If you have standard NetSuite without the Services Resources Planning (aka Advanced Projects Module or SRP), the concept of a project is a subcustomer record. You won’t find much there about margin — it’s the same as you will get with customer-related margin. With the SRP module, the concept of a project is a “job” record that sits under a customer and acts very much like a subcustomer. Here, a concept of project margin is offered but most find that it’s not close to measuring what they care about if they are driving product-based sales with some services.
A NetSuite project demands that you constitute a subcustomer structure to track transactions. At first glance, this will appear reasonable to most analysts. This structure will give you a natural roll-up of project information at the customer level.
Yet, the setup of a project record may require advanced thinking and planning. This often is cumbersome in day-to-day use and you may not realize you need a project until you are well into an effort. Furthermore, NetSuite’s concept of the project record is going to make the Customer/Project lookup cumbersome especially if you have customers with many projects.
Custom Project Record to Measure Margin
An alternative approach to NetSuite’s project concept is to create your own custom project record structure. This record can be also constituted with a custom segment to tap into built-in financial reporting. The beauty of this approach is that you can intelligently bring the record into existence and decorate the record to link related transactions at the header or line level; as you do this, you can also include references to other information elements, such as files, or messages, which may naturally be connected to other business records. Under the approach, you can connect multiple sales orders, related purchase orders, stand-alone vendor bills, checks, and journal entries — really, it’s up to you to describe the flexibility and constraints.
However, what’s most interesting is to be able to measure margin on a project at different time intervals. This allows for powerful assessments of the performance of efforts to drive project economics as it evolves over its lifetime.
In my 2018 article, Learn how to Reliably Measure NetSuite Gross Profit and Margin, I bring forth the concept of the following three margin measurement opportunities:
- Estimated: what does the profit look like when estimated (using NetSuite estimates/quotes/sales orders) or when the first sales order is approved
- Planned: what’s the expected profit given our commitment to deliver product and services. This generally is measured at the sales order level which may evolve naturally in coordination with customers.
- Actual: what really matters is what makes it to the general ledger with the assumption that anything financial, is earned. We call this actual because it has economic substance.
For one client, we went even further. They wanted to see how much cash was actually collected on the project which became the basis for commission payouts which were earned upon cash receipt. Consider my 2019 article, Fundamentals for Driving NetSuite Commissions and Royalties.
Click on the related image to get a feel for what is possible.
Powerfully Leverage NetSuite Platform
The project margin pattern is available to all NetSuite customers who understand how to use the customization platform to drive innovation. We assembled this pattern in a license-free bundle available to all of our customers to help kickstart an implementation. The good news is that the basic pattern is very scalable. Readers may be interested in my 2107 article, Project Task Coordination for NetSuite Driven Sales Organizations, which highlights how to intelligently drive project creation and related task management into the process.
If you found this article meaningful, I invite you to receive notifications as I publish new ones. My ethics are to not solicit you. Because I have devoted my career to the NetSuite driven industry, it’s important to see all of us succeed so that we produce a better future. Let’s get the most of the NetSuite platform. If you have a project related margin challenge, let’s have a conversation.