How to calculate project margin: a simple method and a template

“How much did we make on this project” sounds like a simple question, and in most small companies the answer sounds roughly like: “Well, we billed 400 thousand, seems all right.” That isn’t an answer. That’s revenue, with nothing subtracted yet.

Below is a method you can run in a spreadsheet in one evening, plus a template you can copy. The examples use project-based businesses: agencies, studios, software teams, consulting, contract work.

Three numbers people confuse

Start with the terms, because half of all errors live here.

• Revenue — the contract amount. Nothing has been earned yet.
• Gross margin — revenue minus the direct costs of this project (chiefly the team’s labour). It shows whether the project itself makes money.
• Net profit — margin minus a share of overheads and taxes. It shows whether the company makes money.

For management decisions (“should we take projects like this”) the number that matters is gross margin. That’s what you calculate per project.

The formula:

Margin = Revenue − Direct costs
Margin % = Margin ÷ Revenue × 100%

Everything else is about calculating the right-hand side honestly.

Step 1. Work out an employee’s hourly cost

The classic mistake here is taking the salary and dividing it by 160 hours. That understates the hourly cost by around forty per cent, and every project looks more profitable than it is.

What you need is the fully loaded cost:

Loaded cost = salary + payroll taxes + bonuses
            + equipment and software + training

Then divide not by calendar hours but by billable ones. In a project business nobody spends 100% of their time on client work: stand-ups, internal tasks, learning, gaps between projects. Realistic utilisation is 60–75%.

Hourly cost = Monthly loaded cost ÷ (hours in the month × utilisation)

Example. A designer: salary 120,000 ₽, payroll taxes around 36,000 ₽, software and hardware amortised at 4,000 ₽ → a loaded cost of 160,000 ₽/month. At 160 working hours and 70% utilisation that’s 112 billable hours.

160,000 ÷ 112 = 1,430 ₽/hour

Against the naive 120,000 ÷ 160 = 750 ₽/hour, that’s nearly double. It’s exactly this gap that has companies taking loss-making projects for years while believing they’re profitable.

Recalculating the rate twice a year is enough — it doesn’t need doing per project.

Step 2. Collect the project’s direct costs

Direct costs are the ones that wouldn’t exist without this project:

• Team labour — each person’s hours × their hourly cost. Usually 70–90% of all direct costs.
• Contractors and freelancers — as actually paid.
• Project-specific purchases — licences, stock assets, photography, equipment, materials.
• Media budget, if it flows through you.
• Travel and logistics.
• Payment fees — 2–3% quietly eats the margin on low-margin work.

Office rent, your accountant, the owner’s salary and general software subscriptions are not direct costs. Those are overheads, handled in step 5.

Step 3. Don’t forget the invisible hours

This is where paper margin parts ways with reality. Account for:

• Pre-sales. Meetings, scoping, writing the proposal — sometimes 10–20 hours before anything is signed. For projects you won, those hours belong to the project’s costs.
• Out-of-scope revisions. The classic: “it’s tiny, we’ll just do it.” Five tiny things is 10% of the margin.
• Management. Account and project management time is billable work, not thin air.
• Communication. Calls, threads, approvals. In client work that’s a visible share.

A quick self-check: if a project’s logged hours match the estimate exactly, hours weren’t tracked — they were copied from the estimate.

Step 4. The calculation template

Copy this table into Excel or Google Sheets — it’s enough to compute margin on any project.

The project that “seemed all right” returned 10.8%. After overheads and taxes, that’s most likely break-even work.

Step 5. Allocate overheads — but separately

Overheads (office, accounting, subscriptions, salaries of people who never log project hours) don’t attach to projects directly. But you do need to know whether your margin covers them.

A simple approach for a small business:

Overhead rate % = Monthly overheads ÷ Monthly revenue × 100%

If overheads are 300,000 ₽ against revenue of 1,500,000 ₽, that’s 20%. Which means a project below 20% margin is eating the company, even if it’s formally “in the black”. That’s your floor — recalculate it quarterly.

Step 6. Watch margin before the project ends

Calculating margin after the fact is like taking a temperature after the funeral. An interim check is far more useful:

• At 50% of the hour budget — how much work is actually done? If 60% of hours are spent at 40% completion, the project is already heading into the red.
• On every out-of-scope revision — log those hours separately. By the end you’ll see what “being nice” cost.
• Weekly across active projects — compare spent hours against planned.

That’s the only window in which you can still act: negotiate an increase, cut scope, or move work to a cheaper resource.

If hours are tracked in your tracker, project analytics computes margin for you: contract minus labour cost, visible as you go rather than at the end.

Five mistakes that make margin lie

1. Counting revenue instead of collected cash. A 400,000 ₽ contract with 150,000 unpaid for six months is not 400,000 ₽. Split it: collected + receivable = contract.

2. Not counting your own time. An owner who runs projects personally and assigns themselves no rate gets a beautiful margin and money that vanishes somewhere unexplained.

3. Ignoring idle time. Someone pays for the hours between projects — you do. That’s exactly why the hourly cost carries a utilisation factor.

4. Looking at the average across all projects. The average hides the point. Calculate per project: it usually turns out 20% of clients deliver 80% of the margin, and a couple of projects run at a loss.

5. Doing it once a year. An annual report doesn’t help you decide anything. Regular checks on active projects do.

What to do with low-margin projects

You ran the numbers and saw 5% — don’t rush to walk away. First find the cause, because they differ:

• Underestimated scope → fix estimating: build in a 20–30% buffer and count pre-sales.
• Endless revisions → fix the contract: fix the number of rounds, bill hours beyond that.
• Expensive people on simple work → fix allocation: a senior shouldn’t be building template pages.
• A high-maintenance client → that’s hours too, and they belong in the price.
• You underpriced to win it → raise the price on the next project, or part ways.

There’s a separate category: projects taken at a deliberate loss for the portfolio, a foothold in an industry, or a big name. That’s fine when the decision is conscious and such projects are few. It isn’t fine when half the company works that way and nobody knows.

Bottom line

Project margin is the contract minus everything that wouldn’t exist without it, and the crux is an honest hourly cost: with payroll taxes and real utilisation, not a salary divided by 160.

Start small: work out the hourly cost for three key people and run your last two completed projects through the template. That’s usually enough to surface a couple of unpleasant surprises — and it’s the best evening you’ll invest this quarter.

After that it’s a question of regularity. When tasks, hours and money live in one system, none of it is manual: Gosudarynya shows margin per project in real time, with clients and tasks sitting alongside. 7 days free, no card.