How to calculate project profitability
For fixed-fee projects, profitability is the difference between what you charge the client and what it costs your agency to deliver the work. While revenue is fixed, your internal costs fluctuate based on who does the work and how long it takes.
Understanding Internal Cost Rates
The key to accurate profitability tracking is knowing the true cost of your staff's time. A cost rate is typically calculated by taking an employee's salary and benefits, and dividing it by their expected billable hours for the year. For example, a designer costing $100,000 annually who is expected to bill 1,500 hours has a base cost rate of roughly $66/hour.
Why margin matters more than revenue
A $50,000 project might look great on paper, but if it takes $45,000 worth of staff time to complete, your margin is only 10%. Meanwhile, a $20,000 project that costs $10,000 to deliver yields a 50% margin. Agencies that don't track project profitability often over-service fixed-fee clients without realizing they are losing money.
TrueClock calculates profitability automatically for every project. By setting a cost rate for each employee and having them log time against projects, you can see your margins in real time—before a project goes over budget.