Project gross profit = project revenue – loaded labour cost – subcontractors – direct expenses. Project gross margin = gross profit / project revenue.
Cash collected is not profit, invoices issued are not delivery progress, and hours logged are not cost until each person’s loaded rate is applied. A project can look busy and still lose money.
The four numbers
| Number | What belongs in it |
|---|---|
| Revenue | Earned client fees and approved reimbursables |
| Loaded labour | Delivery hours multiplied by salary or contractor cost plus employment and delivery overhead |
| External cost | Subcontractors, materials, travel and project-specific tools |
| Cost to complete | Best current estimate of labour and external cost still required |
A worked project
A client project sells for 30,000. Delivery uses 180 hours at an average loaded cost of 70, plus 3,500 subcontractor cost and 900 direct expenses.
- Loaded labour: 180 x 70 = 12,600.
- Total direct cost: 12,600 + 3,500 + 900 = 17,000.
- Gross profit: 30,000 – 17,000 = 13,000.
- Gross margin: 13,000 / 30,000 = 43.3 percent.
If 24,000 has been invoiced but only 70 percent of the project is genuinely complete, billing is ahead of delivery. That is good for cash but not extra profit. The remaining work still has to be funded and delivered.
Three ratios that reveal the problem
Realization
Realization = invoiced value / value of billable work at standard rates. Low realization can indicate write-offs, unapproved time or fixed fees priced below the effort required.
Utilization
Utilization = billable hours / available delivery hours. It explains capacity, not project margin. High utilization on underpriced work can increase losses.
Estimate at completion
Estimated final cost = cost to date + cost to complete. Compare it with the project price every week. Waiting until the last invoice turns forecasting into a post-mortem.
A weekly review cadence
- Approve time logs and supplier costs.
- Update completion and remaining effort.
- Compare actual cost with the budget by workstream.
- Review unbilled approved work and upcoming milestones.
- Identify scope changes and assign a commercial action.
- Forecast final revenue, cost, profit and cash.
Common ways margin disappears
- Senior people perform work priced for junior delivery.
- Meetings, revisions and project management are excluded from the estimate.
- Subcontractor bills arrive after the client invoice.
- Pass-through costs are billed at cost while coordination is unpaid.
- Fixed-fee scope grows without a change order.
- Unapproved time never reaches the invoice.
- Payment fees and foreign-exchange losses sit outside the project view.
Using Invoice Crowd
Use Projects as the client-work container, time tracking for approved effort, and vendor bills for external cost. A project budget should be compared with actual and committed cost, not only invoiced revenue.
When a time log has been invoiced, it is locked from editing. That preserves the connection between delivered work and the invoice. Review logs before invoicing and correct the source rather than manipulating the final margin report.
Frequently asked questions
How do I calculate project profitability?
Subtract loaded labour, subcontractors and direct project expenses from project revenue. Divide the resulting gross profit by project revenue to get gross margin.
What is loaded labour cost?
Pay or contractor cost plus employment costs and a reasonable allocation of delivery overhead, divided into an hourly rate. Using billing rate as cost overstates expense and hides pricing performance.
Is cash collected the same as project revenue?
No. Cash timing, invoicing and earned revenue can differ. Deposits may arrive before work is earned, and completed work may remain unbilled. Measure margin on earned project activity.
What gross margin should a project target?
It depends on the service, risk and overhead structure. Set a policy from the margin needed to cover non-delivery overhead and profit, then compare like projects consistently.
How often should project margin be reviewed?
Weekly for active material projects. Update approved time, supplier costs, completion and cost to complete so there is time to change scope, staffing or pricing.
Does high utilization mean high profit?
No. Utilization measures how much available time is billable. People can be fully utilized on underpriced or overserviced projects, which increases activity while reducing margin.
