Understanding and setting up margins
Your foundU platform allows you to choose between a fixed or calculated method for margin calculation.
Fixed margin is a margin configuration option that allows you to set a specific margin value for an operation, either as a percentage or a dollar amount.
Once set, this margin value remains fixed and does not change based on the cost or price of the operation. This can be useful if you have a standard profit margin that you want to maintain across all operations, or if you want to simplify your pricing calculations and avoid fluctuations in margins.
Calculated margin is a margin configuration option that allows you to calculate the margin value based on the total charge cost of the operation. With a calculated margin, the margin value ($ or %) is not fixed and will change based on the total charge cost of the operation.
In this article, we will cover:
- Margin default settings for new Operations
- Configuring Operation on-costs
- Using a fixed margin for an Operation and choosing whether it is %-based or $-based
- Different examples of how margins are calculated
If you would like to generate a report on sales and invoice data, including profit margin, then please check out our help guide here.
Margin configuration options
To save time when adding new Operations, it's helpful to decide in advance whether your new Operation's default margin type should be calculated or fixed or what your Public Liability % should be set as.
You can update these settings in your Operation Default Settings instead of manually inputting the settings each time you add a new Operation.
To see how to apply Operation Default Settings, please see our help guide here.
When creating a new Operation, it is important to consider certain settings for calculating your on-costs in your margin calculations.
The settings mentioned below can be found in the "Card > Financial" section of your Operation.
- Payroll Tax % - The payroll tax in your state or territory is calculated based on the total wages paid each month.
- Public Liability % - A specific type of legal liability that could result from injury to a member of the public while on company premises.
- Superannuation % - The default superannuation percentage.
- Add Variable - Other additional costs that need to be included in your margin costs. e.g. A PPE variable that you may want to pass along to clients as an on-cost.
- Work Cover % - Work Cover percentage amount. This comes from your Rates Book.
For steps on how to set your Financial details for an Operation, please see our Add a new Operation help guide here.
If you have decided to use a fixed margin configuration on an Operation you will need to do the following:
- Turn on fixed margin in your operation settings. This is if you haven't already decided in advance and enabled this with your Operation Default Settings.
- Choose whether you want to use %-based or $-based in your Operation Rates Book.
Enabling fixed margin in an Operation
If you didn't first set up the default settings for your Operation, you will need to enable the use of fixed margin.
To enable the fixed margin setting in an Operation:
- Navigate to Operations > Approved Operations and select the relevant operation that you will update the settings for.
- Within the Operation, open the Details tab then expand the Details section, scroll to the bottom of the section and update the Fixed Margin setting from Off to On.
- Your changes will update automatically and you will see a green 'Settings Updated' pop-up. The pop-up will let you know that the fixed margin setting is updating.
Choosing whether an Operation is %-based or $-based in the Rates Book
Once you have enabled the fixed margin setting in your relevant Operation, you will need to then choose whether the Rates Book is %-based or $-based.
Tip: This would also be a good opportunity to review your margin figures and ensure they are accurate.
To choose whether your Operation Rates Book is %-based or $-based:
- Navigate to Operations > Approved Operations and select the relevant operation that you will update the settings for.
- Within the Operation, open the Card tab then expand the Rates Book section and select Edit to edit the Rates Book.
- Under the Margin field, select the drop-down field then choose whether you want the margin to be %-based or $-based. This will need to be updated for each rate label within the Rates Book.
- At this point, you can update the Margin field to make changes to the Operations margin figures for the relevant rate labels.
- Once you have updated the relevant rate label margins within the Rates Book, select Save to update your changes.
How margins are calculated
If your business calculates a margin based on your Total Charge amount, you can use the below example which highlights how to calculate it.
Tip: To highlight the calculation, the pay and on-cost data will remain the same in all scenarios.
SCENARIO
We'll use the following example to look at how to calculate our Margin based on our Total Charge amount of $50.
The following equation can be used.
- Total Charge amount ($50) - Total On-Costs ($6.39) - Total Pay ($29.04) = our $ margin of $14.57 or % margin of 41.11%.
If your business uses a fixed margin, you can use the below examples of how to calculate a fixed margin cost. There are 2 options as detailed below:
-
Fixed Margin ($ amount)- In this scenario, you will have 2 predetermined variables (total pay amount, and dollar margin amount).
- For example, Our total pay is $29.04 and we know we want to make a $10 margin on each hour paid. The system will ensure all charge rates pay a $10 margin once your configuration is set up.
- In the images below, you'll see the 2 predetermined variables highlighted in purple.
-
Fixed Margin (% amount)- In this scenario, you will have 2 predetermined variables (total pay amount, and percentage margin amount).
- For example, Our total pay is $29.04 and we know we want to make a 20% margin on each hour paid. The system will ensure all charge rates pay a 20% margin once your configuration is set up.
- In the images below, you'll see the 2 predetermined variables highlighted in purple.
Tip: To highlight the calculation, the pay and on-cost data will remain the same in all scenarios.
Dollar example
SCENARIO
We'll use the following example to look at how to calculate our Total Charge amount based on our $ Margin cost of $10.
The following equation can be used.
- Total Pay ($29.04) + Total On-Cost ($6.39) + $ Margin ($10) = our Total Charge amount of $45.43.
Percentage example
SCENARIO
We'll use the following example to look at how to calculate our Total Charge amount based on our % Margin cost of 20%.
The following equation can be used.
- Total Pay ($29.04) + Total On-Cost ($6.39) + % Margin (20%) = our Total Charge amount of $42.52.