Only counting one person's time
Margin calculations that ignore time logged by junior team members, reviewers, or account managers will overstate profitability.
Guide
How to calculate project margin
Project margin is the clearest single number for whether client work is actually paying off. Here's the formula, a worked example, and the mistakes that quietly distort the number.
The formula
Margin % = (Revenue − Cost) ÷ Revenue × 100
1
Add up total revenue
Total billable hours logged on the project, multiplied by each person's billing rate. If the project is fixed-fee, this is simply the agreed project price.
2
Add up total cost
Total hours logged, multiplied by each person's cost rate. Include everyone who worked on the project, not just the person who owns the client relationship.
3
Subtract cost from revenue
Revenue minus cost gives you gross margin in currency — the actual amount of money the project made after paying for the time spent on it.
4
Divide by revenue, then multiply by 100
This gives you margin as a percentage, which is what makes margin comparable across projects of different sizes.
Worked example
A three-week website project bills out at £8,400 in total. The team logged hours that, at their respective cost rates, add up to £3,360 in internal cost.
Revenue
£8,400
Cost
£3,360
Margin
£5,040 (60%)
(£8,400 − £3,360) ÷ £8,400 × 100 = 60%
Common mistakes
What quietly distorts a margin number
Using billing rate as cost
If cost rate and billing rate are treated as the same number, every project looks 0% margin or 100% margin — neither is informative.
Calculating only at month-end
By the time a monthly export shows a project is underwater, the work is already done and invoiced. The number arrives too late to change anything.
Excluding non-billable time
Internal meetings, revisions beyond scope, and rework still cost money even if they're not billed. Leaving them out makes margin look better than it is.
Frequently asked questions
Project margin FAQs
What is a good project margin for an agency?
It varies by discipline and market, but many service businesses target somewhere between 40% and 65% gross margin on client work, after direct cost of delivery. The right number depends on your overhead, growth goals, and how much risk you're taking on for each client.
What's the difference between margin and markup?
Margin is profit as a percentage of revenue (profit ÷ revenue). Markup is profit as a percentage of cost (profit ÷ cost). They use the same two numbers but answer different questions — margin tells you what share of revenue you keep, markup tells you how much you added on top of cost.
How often should I check project margin?
Ideally continuously, or at least weekly while a project is active. The earlier you spot a project drifting toward a low or negative margin, the more options you have — adjusting scope, reallocating staff, or having a conversation with the client before the work is finished.
Can I calculate margin without time tracking?
Not accurately for hourly or blended work. Without logged hours tied to cost and billing rates, margin becomes an estimate based on the original quote rather than what actually happened on the project.
Related reading
Keep exploring
Skip the spreadsheet
Margin that calculates itself as work happens.
Tideflow applies cost and billing rates to every logged hour automatically, so project margin is always current — not a month-end exercise.