Track agency project profitability

Direct answer

For this review, define project profitability as revenue minus delivery labor, contractors, software, and overhead allocated to the project.

Why this question comes up

Agency owners do not know whether projects are profitable until after delivery, when it is too late to fix margin leakage. This guide turns that concern into a review that can be repeated with a defined period, consistent inputs, and a visible trail back to the records.

Records to gather

• Time entries by project and person, with cost rate attached
• Project revenue, including approved change orders
• Pass-through costs: contractors, media, licences, print
• Original estimate by phase against actual
• Write-offs and discounts applied at invoicing

Review workflow

1. Price time at cost rate, not billing rate. Project cost is what the hours cost you — salary plus employment cost divided by productive hours. Using billing rate produces a margin figure that means nothing.
2. Include pass-through cost explicitly. Contractor and media spend routinely dwarfs internal time on some projects and belongs in the margin calculation.
3. Compare against original estimate by phase. Aggregate overrun tells you a project ran over; phase-level shows whether it was scoping, design, or endless revisions.
4. Include non-billable project time. Pitch work, internal review, and rework are real cost against the project even when nobody billed for them.
5. Report margin in currency and percentage. A 40% margin on a small project can matter less than 18% on a large one.
6. Identify the loss-makers explicitly. Blended agency margin almost always hides two or three projects that lost money, and those are the ones with lessons in them.

What a useful answer should include

• Project margin in currency and percent, using cost rates
• Pass-through costs included and itemised
• Actual versus original estimate by phase
• Non-billable project time counted
• Loss-making projects named rather than blended away
• Write-offs and discounts shown against the project

Common failure modes

• Costing time at billing rate. The resulting margin is arithmetic, not information.
• Excluding pass-through spend. On media-heavy work it is most of the cost.
• Reporting agency-level margin only. The problem projects stay invisible.
• Ignoring unbilled rework. It is the most common hidden cost in agency delivery.

Community context

The linked community posts show why people search for this topic and which parts create confusion in practice. They are anecdotal. Use the reference sources and your organization’s policies for accounting treatment, tax, compliance, and final decisions.