Project profitability calculator
Run a real project-level P&L. See gross margin, effective hourly rate, and profit per hour based on revenue, actual time logged, and direct costs.
Revenue
Labor
Direct Costs
Project P&L
Gross Margin
35.6%
Acceptable
Effective Rate
$156.25/hr
Profit Per Hour
$55.63
Run this at project close: The gap between your quoted hours and actual hours is where profitability lives or dies. Track both to improve estimates.
How project profitability is calculated
- Labor cost = hours worked x average cost per hour.
- Direct costs = labor cost + subcontractors + materials + project software.
- Gross profit = project revenue - direct costs. Gross margin = gross profit / revenue x 100.
- Effective hourly rate = revenue / hours worked. Profit per hour = gross profit / hours worked.
Worked example
With the defaults, a $25,000 project took 160 hours at an $80 average cost: $12,800 of labor. Add $2,500 of subcontractors, $500 of materials and $300 of software for $16,100 of direct costs. Gross profit is $8,900, a 35.6% margin. The project earned $156.25 per hour worked and $55.63 of profit per hour.
How to read the result
The status label uses fixed bands: Healthy at 50% margin or more, Acceptable from 30%, Thin from 10%, Unprofitable below 10%. These are this calculator's bands, not an industry benchmark. If your hourly cost already includes overhead, the margin here is closer to profit; if it covers salary costs only, overhead still has to come out of it.
How to use this calculator
Enter total project revenue. For fixed-fee projects, that's the contracted amount. For time-and-materials, it's total billed. Hours worked should come from your time tracking tool, not memory. The blended hourly cost is your team's fully-loaded cost per hour, which already accounts for salary, taxes, benefits, and overhead.
Add direct project costs: subcontractors, materials, project-specific software, stock, and anything else tied uniquely to this engagement. Leave out shared overhead; that's already in the loaded hourly cost.
The calculator returns gross profit, gross margin, effective hourly rate, and profit per hour. Run this on every completed project to build an honest picture of which work actually makes money.
What to do with the results
- Healthy (50%+ margin): Capture what made this work. Document scope, team assignments, and process so you can repeat it.
- Acceptable (30-50%): Review time breakdown. Often one phase blew up and dragged the rest down; fix the estimate for next time.
- Thin (10-30%): Investigate root cause. Was it scope creep, underestimating, inefficient process, or wrong team assignment?
- Unprofitable (under 10%): Do a full post-mortem. Don't sign similar engagements without addressing the cause; these projects rarely fix themselves.
Frequently asked questions
How do I calculate project profitability?
Take total project revenue, subtract labor cost (hours worked multiplied by blended fully-loaded hourly cost), then subtract direct costs (subcontractors, materials, software specific to the project). The result is gross profit. Divide by revenue to get gross margin percent.
What is a healthy project gross margin?
It depends on what your hourly cost includes. The calculator labels 50% or more as healthy, 30-50% acceptable, 10-30% thin and under 10% unprofitable; those bands are its own, not an industry benchmark. The thinner the margin, the less room there is for an overrun before the project loses money.
Should I use billable rate or cost rate for hours?
Use the cost rate (fully loaded cost per hour). Using the billable rate assumes the answer: the project would look profitable by definition. The gap between revenue and labor at cost is your actual margin.
What direct costs should I include?
Only costs tied specifically to this project: subcontractor or freelancer fees, licenses purchased just for this engagement, stock assets, travel reimbursed by client, hosting, testing tools. Do NOT include general overhead like office rent or shared software; those are factored into loaded hourly cost.
Why is my effective hourly rate lower than my billable rate?
Because the work took more hours than you priced for. If you quoted $20,000 for 120 hours ($166.67 an hour) and delivered in 180 hours, your effective rate fell to $111.11 an hour. Compare estimated and actual hours on every project to improve the next estimate.
Know project margin before it's too late
On AgencyPro Pro, time is logged on each client request, so actual hours are ready when the project closes. Plus adds profitability reports that set revenue against time by client and service.