Project Profitability Calculator

Check whether a project, contract or client engagement is really profitable once labour, pass-through costs and overheads are included.

How project profitability is calculated

Labour cost = Hours × Average cost per hour Direct cost = Labour cost + Other direct costs Gross profit = Revenue − Direct cost Overhead = Labour cost × Overhead % Net project profit = Gross profit − Overhead Net margin = Net project profit ÷ Revenue × 100

Example

A ₹25 lakh contract needs 1,800 hours at an average cost of ₹750 an hour (₹13.5 lakh) plus ₹3 lakh of vendor and travel costs. Gross profit is ₹8.5 lakh (34% gross margin). Allocating 25% overhead on labour (₹3.375 lakh) leaves ₹5.125 lakh net profit, a 20.5% net margin. Each hour earns ₹1,389 of revenue.

Getting the cost rate right

The fully loaded cost per hour should include salary, employer PF, gratuity, insurance and other benefits, divided by realistic available hours (after leave, holidays and training), not 2,080. Underestimating it is the most common reason projects that look profitable are not.

Watch these project KPIs

Estimate at completion vs budget: recalculate with forecast hours as the project runs.
Realisation: billed revenue ÷ (hours × standard bill rate).
Pass-through costs: vendor costs recharged at cost inflate revenue but add no margin, so track margin both with and without them.
Utilisation: see the Billable Hours Calculator.

Frequently asked questions

What is a good project margin?

Professional services firms often target 30–50% gross margin on labour-based projects and 10–25% net margin after overheads, but it varies widely by industry and contract type.

How should overhead be allocated to projects?

Common bases are a percentage of direct labour cost, a rate per labour hour or a percentage of revenue. Use one method consistently so projects are comparable.

Results are for planning and information only and are not accounting or financial advice. Check important figures with your accountant.