Project Profitability Analysis

Project gross profit = Project revenue − Project direct costs

Project direct costs include:

• Labour cost: hours spent × blended internal cost rate (salary + NI + pension + benefits ÷ available hours)
• Subcontractor / freelancer fees
• Direct project expenses (software, travel, printing)
• Technology or platform costs attributable to the project

Not included in direct costs:

• Overheads (office, management, non-project software) — these are allocated separately

Project gross margin = Project gross profit ÷ Project revenue × 100.

A healthy project gross margin for agencies is typically 40–60%.

To calculate the true cost of your team's time, you need a blended internal cost rate per hour:

1. Take each team member's total employment cost (salary + NI + pension + benefits)

2. Divide by their annual available billable hours (typically 1,600–1,800 hours for full-time)

3. This gives you their internal cost rate per hour

Example: a team member with £45,000 total employment cost and 1,700 available hours has an internal rate of £26.47/hour.

If you charge the client £85/hour for this person, your gross margin on their time is (£85 − £26.47) ÷ £85 = 68.9%.

Upload your team cost data to AskBiz and ask: *'What is the blended internal cost rate across my team and what is my average gross margin on client hours?'*

After each project closes:

1. Pull all time logged against the project from your time tracker

2. Calculate the labour cost: hours × internal rate by team member

3. Add direct project expenses

4. Compare to the project fee invoiced

5. Calculate gross profit and margin

Ask AskBiz (after uploading project time and cost data): *'What was the gross margin on Project X vs my budgeted margin when we quoted it?'*

Review this data for every project over £5,000 in fee. Patterns to look for:

• Are certain project types consistently unprofitable?
• Do certain clients consistently generate scope creep that erodes margin?
• Does your team's quoted vs actual hours ratio vary by person or project type?

Historical project profitability data is your most valuable quoting asset. Before each new quote:

1. Find the most similar past project in your data

2. Look at actual hours vs quoted hours — what was the ratio?

3. Apply that ratio as a contingency to your new quote

4. Identify any project-specific risks that could inflate hours (complex stakeholder environment, unclear brief, new technology)

5. Price these risks explicitly — either as a higher rate, a contingency line, or a tighter scope

Over time, this compounds: your quotes become more accurate, your margins improve, and you stop being surprised by unprofitable projects.