How often does an ordinary year lose money?
A renewal is not a number you estimate, it is a coin you do not own. Put a probability on each of five and the plan's $220,000 of profit becomes an average of $66,000, with a loss in about 29% of years.
Finance Intermediate Monte Carlo Pro engine
After you install, this is the model to open.
What If the Biggest Client Leaves?
- In your spreadsheet, click the Sortia icon in the strip of icons down the right-hand edge. No strip? Click the arrow at the bottom-right to open it. You can also use Extensions, then Sortia, then Open Sortia.
- Click Start from a template and put that name in the search box.
- Pick the card with that name and click Load this template. It arrives on a new tab with real numbers already in it.
This one runs on a Pro engine, and every free install includes five full-quality runs on your own numbers, shared across all five Pro engines rather than five for each. After that, Pro is $199/year.
The answer
The plan number, and what twenty thousand trials say about it:
- Chance of a loss
- 29% of years
- Average profit
- $66,000 plan says $220,000
- Average fee income
- $846,000 plan says $1,000,000
- P10
- -$226,000
Then ask the question in the title. Set the largest client to gone and rerun: fee income averages about $505,000, profit averages a loss of about $275,000, and the year loses money in every single trial, because even if all four remaining clients bill at the top of their range the fees do not reach the cost base. Losing that client is not a bad year, it is a structural loss, and the $340,000 between the two averages is what the concentration is worth as a number. What this cannot tell you is whether the five renewals are really independent: if three came through the same referral partner, the loss years bunch up worse than this shows.
The model
One row per client with a fee range from the engagement letter and a renewal draw beside it. Nothing in this model is a downturn, a bad debt or a missed deadline: it is five renewals with ordinary odds against a fixed cost base.
| Clients | 5, largest first |
| Fee ranges | from the engagement letters |
| Chance of not renewing | 10% to 18% |
| Fixed cost base | $780,000 |
| Fees, profit and loss years | simulated |
Once it is in your sheet
- The model arrives with real numbers in it and runs as it stands, so you can press the button first and understand it second.
- Change the numbers to yours. The sheet marks which cells are inputs and which hold formulas, and most labels carry a note explaining the row.
- Press the run button at the bottom of the panel. It is labeled for the tool you are in, and the result lands on its own tab, with a written reading of it beside the figures.
Never used Google Sheets? Start here goes the whole way, in seven steps, and assumes nothing.
Next question
- Did that payment land on the right client?Match the Invoices to the Client List
- What are the odds the carry is zero?What Does Carry Actually Look Like?
- Do overruns or write-offs cost you more?Will the Fee Book Cover the Practice?
- Which invoice should you check before it goes out?Which Invoices Do Not Look Right?
- What is your diversification rule costing you?Which Deals Can We Actually Fund?
- Which of your cost lines are really one risk?Which Two Costs Move Together?
Every model like this one, and the method behind them: Monte Carlo simulation.