Agency & Pricing
Project Margin Calculator
Project margin is where good agencies find out they had a bad quarter. This takes the price you quoted, the hours it actually took, and the costs you passed through, and tells you what you really kept.
Result
FormulaGross margin = ((price - (hours × internal cost per hour + pass-through costs)) ÷ price) × 100
Worked example
A $48,000 project taking 260 internal hours at $95 an hour plus $6,500 in pass-through costs has $31,200 of delivery cost. That leaves $16,800 of gross profit, a 35 percent margin, and an effective realized rate of $185 an hour.
What to watch for
Healthy agency project margin sits around 50 to 60 percent before overhead. A 35 percent result like the worked example is survivable once, and a pattern of it means your scoping is systematically optimistic.
Log hours on fixed-price work even though nobody is billing them. Without that data you cannot tell whether a project was underpriced or badly run, and those two problems have opposite fixes.
Pass-through costs deserve their own line and, in most cases, their own markup. Managing a contractor is real work and absorbing that cost at zero margin subsidizes the client with your own overhead.
Frequently asked questions
What margin should I target on projects?
50 to 60 percent gross before overhead is a common target for services firms. Whether that leaves net profit depends entirely on your overhead ratio and utilization, which is why gross margin alone never tells the full story.
How do I stop projects from going over?
Scope in phases with a defined deliverable per phase, write a change order process into the contract, and review actual hours against estimate weekly rather than at the end. Overruns are almost always visible by week three if anyone looks.
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