Using time tracking data to calculate actual project profit margins by comparing revenue to labor costs. Identifies which projects, clients, and services are most profitable to inform strategic business decisions and pricing improvements.
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Project Profitability Analysis
Project profitability analysis compares project revenue against all costs (primarily labor) to determine true profit margins, revealing which work is financially successful and which drains resources.
Profit Margin % = ((Revenue - Total Costs) / Revenue) × 100
Revenue minus direct costs (labor, materials)
What percentage of revenue is profit Target: 30-50% for service businesses
Revenue / Total Hours Worked Shows true value per hour
Actual hours vs. estimated hours Indicates estimation accuracy
Sum of (Hours Worked × Employee Cost Rate) Use loaded rate (salary + benefits + overhead)
Labor + Materials + Expenses + Overhead
Revenue - Total Cost
(Profit / Revenue) × 100 = Margin %
Which services are most profitable?
Action: Focus sales on high-margin services
Which clients are profitable?
Action: Renegotiate with low-margin clients or fire them
Which team members drive profitability?
Action: Optimize team allocation
Which phases consume most time?
Action: Improve testing estimates, invest in automation
Projects consistently under 20% margin indicate pricing too low.
Large variance between estimated and actual hours.
Revenue fixed but hours ballooning.
High hours relative to deliverables.
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