How to Compare Multi-Location Performance and Contribution for Professional Services Firms

How to Compare Office Performance and Assess Geographic Profitability

Opening a new office marks a significant milestone. The initial excitement of planting a flag in a new city, winning local clients, and building a regional team is a powerful motivator. But once the launch party ends, the hard questions begin. Is the new location pulling its weight? How does its performance truly compare to the home office or other branches? For many professional services firms, the answers are buried in a consolidated P&L where revenue, direct costs, and shared overheads are tangled together. This lack of clarity makes it nearly impossible to determine true office location profitability.

Without a clear framework for regional office comparison, deciding whether to invest more in one market or pull back from another becomes a gut-feel exercise. This risks significant mis-investment in your market expansion analysis. The challenge is not just an accounting puzzle; it is about making sound strategic decisions with limited data. The key is to build a simple framework for evaluating each location that gives you clear, actionable insights without requiring a dedicated finance team or complex enterprise-level software.

Foundational Goal: A Directional P&L for Decision-Making

The first step in any multi-site business evaluation is to accept a critical distinction: you are building a 'Decision P&L', not a perfectly auditable financial statement. The goal is to create a model that is directionally correct and consistent across all locations, allowing for fair and informed comparisons. This management tool is fundamentally different from the statutory P&L you would generate for tax purposes under US GAAP or FRS 102 in the UK.

Statutory accounts are designed for external stakeholders like tax authorities and investors, requiring adherence to strict accounting principles. A Decision P&L, however, is an internal tool designed for leadership. Its purpose is to guide strategy, resource allocation, and performance management. The reality for most scaling firms is more pragmatic: you need good enough data to make good enough decisions about where to allocate precious capital and talent.

Chasing perfect allocation of every last penny is often a waste of time and sparks more internal debate than it is worth. Your objective is to establish a simple, logical system that everyone understands and agrees upon, then apply it consistently to every location. This consistency is the foundation of a fair comparison.

Step 1: Assigning Direct Revenue and Costs

Before you can tackle shared expenses, you must answer the first key question: What revenue and costs belong entirely to one location? These are your direct, or attributable, items. For a professional services firm, identifying these is relatively straightforward and forms the first layer of your branch performance metrics.

Direct Revenue

Direct Revenue is income generated from projects primarily delivered by a specific office. If a team in the London office services a client, that revenue belongs to London. The most effective way to manage this is by using the location-tracking features within your accounting software from day one. In QuickBooks Online Plus or Advanced, you can use the 'Locations' feature. In Xero, you would use 'Tracking Categories'. The key is to create a non-negotiable process where every invoice and bill is tagged to a specific office the moment it is created.

Direct Costs

Direct Costs are expenses incurred wholly and exclusively by one office. These are costs that would disappear if the location were closed. The most significant direct costs typically include:

• Salaries and Benefits: Compensation for all employees whose permanent work location is that office.
• Office Rent and Utilities: The lease, energy bills, and internet for that specific physical space.
• Local Marketing and Business Development: Advertising spend, event sponsorships, or other costs that are specific to that geographic market.
• Travel and Entertainment: Expenses for client meetings, local team events, or other travel originating from that location.
• Office-Specific Subscriptions: Any software or service licenses used only by the team in that location.

Properly tagging these direct items provides your first layer of insight: a Location Gross Profit (Direct Revenue minus Direct Costs). This is a good start, but it does not tell the whole story of profitability, as it ignores the central resources that support the location.

Step 2: Allocating Shared Costs Without Starting a War

This is where most attempts at measuring office location profitability break down. How do you fairly allocate central overheads like the CEO's salary, your central marketing team, shared software subscriptions (like your company-wide CRM), and corporate legal fees? Attempting to create a perfect, usage-based system is often too complex and leads to endless arguments about fairness.

The most effective and defensible method for most professional services firms is the Headcount Allocation method. It operates on a simple premise: a location's share of the central overhead is proportional to its share of the total company headcount. It is not perfect, but it is logical, easy to calculate, and difficult to argue with. The logic is that people are the primary drivers of central support needs, from HR and IT to finance and leadership.

Here’s how it works:

1. Sum Your Shared Costs: Add up all corporate expenses that are not attributable to a single location for the period (e.g., a month or quarter). This forms your central cost pool.
2. Count Total Headcount: Get a total employee count for the entire company. For consistency, you may want to use full-time equivalents (FTEs).
3. Count Location Headcount: Get the employee or FTE count for each specific location.
4. Calculate Allocation Percentage: For each office, divide its headcount by the total company headcount.
5. Apply the Percentage: Multiply the total shared cost pool by each location's allocation percentage to get its share of the overhead.

Consider a firm with 50 employees and $100,000 in monthly shared costs. The calculation provides a consistent basis for location-based revenue analysis:

• HQ (New York): 25 employees / 50 total employees = 50%. Allocated Cost = $100,000 * 50% = $50,000.
• Office 2 (Chicago): 15 employees / 50 total employees = 30%. Allocated Cost = $100,000 * 30% = $30,000.
• Office 3 (Austin): 10 employees / 50 total employees = 20%. Allocated Cost = $100,000 * 20% = $20,000.

While you could use usage-based allocation for certain high-cost items like specific software seats, starting with headcount for general overhead keeps the process manageable and focused. For more background, you can review this overview of overhead allocation approaches.

Step 3: Calculating the Location Contribution Margin

With direct and allocated costs sorted, you can now calculate the single most useful metric for comparing office performance: the Location Contribution Margin. This metric answers the critical question: is this location generating enough profit on its own activities to cover its direct costs and its fair share of the central support infrastructure?

This is not the same as a fully-loaded 'Net Profit' per office, which can be misleading because it often includes corporate-level items that a local manager cannot influence, such as corporate taxes or interest on company-wide debt. The Location Contribution Margin tells you if an office is financially healthy on an operational basis. This is the true measure of its operational effectiveness.

The calculation is simple:

Location Contribution Margin = Direct Revenue - Direct Costs - Allocated Shared Costs

Here is an example of a 'Decision P&L' for a single location, putting all the pieces together:

• Direct Revenue: $500,000 (Revenue from projects run by this office)
• Less: Direct Costs
  • Salaries & Benefits: ($250,000)
  • Rent & Utilities: ($30,000)
  • Local Marketing: ($20,000)
• Location Gross Profit: $200,000
• Less: Allocated Shared Costs
  • HQ & Admin (via Headcount): ($75,000)
• Location Contribution Margin: $125,000 (The key performance indicator)
• Contribution Margin %: 25% ($125,000 / $500,000)

This margin is the best apples-to-apples figure for any regional office comparison. It strips out the noise and shows which locations are effectively turning revenue into operational profit. For a deeper dive into project-level finances, see our guide on Project Margin Analysis.

Step 4: Supplementing Financials with Strategic KPIs

What if an office is not profitable yet but is strategically important? Relying solely on the Location Contribution Margin can lead you to shut down a new location just as it is about to turn a corner. This is especially true when you consider that a new office might be unprofitable by design for the first 12-24 months. It is an investment in future growth.

To get a complete picture of how to compare office performance across locations, you must supplement your financial analysis with strategic, non-financial Key Performance Indicators (KPIs). These metrics help you understand the long-term potential of a market and justify initial unprofitability. Key KPIs for a professional services firm include:

• Market Penetration: Are you winning new clients in the region? Track the number of new logos acquired each quarter. Is your brand recognition growing? You can monitor this through local web traffic, social media engagement, and inquiries from the target area.
• Talent Acquisition and Retention: Is the office attracting top-tier talent that you could not access from your HQ? A new location can be a strategic hub for recruiting. Monitor metrics like applications per role, offer acceptance rates, and employee retention rates for that office.
• Sales Funnel Velocity: Are leads in this new market moving through your sales process faster or slower than in established regions? This can indicate product-market fit and the effectiveness of your local business development efforts.
• Customer Satisfaction (NPS): Are clients in the new location as happy as your core customers? High satisfaction is a powerful leading indicator of future referrals, case studies, and sustainable growth.

Tracking these KPIs provides crucial context. A negative contribution margin is less concerning if you are rapidly winning prestigious marquee clients, building a strong sales pipeline, and hiring sought-after local experts.

Practical Takeaways: From Analysis to Action

Combining the Location Contribution Margin with strategic KPIs gives you a powerful and balanced framework for your multi-site business evaluation. It moves you from gut feel to data-informed decision-making. The process boils down to these clear steps:

1. Tag Everything Rigorously: Implement a strict process using your accounting software's location tracking features for all direct revenue and costs. Consistency is non-negotiable.
2. Allocate Fairly and Consistently: Adopt the headcount method for shared costs. Document the policy, ensure leadership buys in, and stick to it to avoid disputes.
3. Calculate the Contribution Margin: Make this your North Star financial metric for each location's operational health. Review it on a monthly or quarterly basis.
4. Track Strategic KPIs: Monitor your agreed-upon non-financial metrics to understand a location's long-term potential and strategic value beyond its current profitability.

With this complete dataset, you can make smarter strategic calls. An office with a high contribution margin and strong KPIs is a clear candidate for further investment. An office with a low margin but excellent strategic KPIs might need more time or a different resourcing strategy. An office with a consistently negative contribution margin and weak KPIs after 24 months requires a serious strategic review. This balanced approach ensures you support promising new markets without subsidizing underperformance indefinitely. To connect these decisions with staffing, see our guide on Capacity Planning for Growing Agencies.

If you want to expand this analysis into broader commercial metrics and dashboards, start at our hub on commercial performance.

Frequently Asked Questions

Q: How should we handle projects where staff from multiple offices collaborate?A: Establish a simple, predetermined rule. For example, you could split the revenue and direct salary costs based on the proportion of hours worked by staff from each location. The key is to agree on the rule in advance and apply it consistently to avoid project-by-project negotiations.

Q: Is the headcount method for shared costs fair if one office uses more central resources?A: While no method is perfect, headcount is the most practical and defensible proxy for the consumption of shared resources like HR, IT, and finance in a professional services firm. Attempting a more granular, usage-based allocation often creates more complexity and disputes than it is worth for a Decision P&L.

Q: How long should we give a new office to become profitable?A: This depends on your strategy and market, but a 12-24 month period is a common timeframe to expect unprofitability. During this phase, you should focus on leading strategic KPIs, such as new client acquisition, talent attraction, and pipeline growth, to validate that the investment is on track.

Q: What is the difference between Location Contribution Margin and Net Profit per office?A: Location Contribution Margin measures an office's operational profitability by including direct revenues, direct costs, and a fair share of central overheads. Net Profit would go further to allocate corporate-level items like interest and taxes, which the local office leadership cannot control, making it less useful for performance evaluation.