AgenciesProfitabilityProject management

From timesheets to margins: measuring project profitability in an agency

Revenue per client tells you almost nothing. Here is the four-step calculation that turns logged hours into a real margin, and what to do with the result.

Published 14 July 2026 6 min read

Report with charts next to a laptop during a project profitability review

Short answer

How do you calculate whether a client project was profitable?

Multiply the hours logged on the project by the loaded hourly cost of the people who worked on it, then subtract that from what you invoiced. Divide the result by the invoiced amount to get the margin. A project at 40% margin on paper often lands below 15% once unbilled scope creep and rework are included.

Key takeaways

Loaded hourly cost, not salary, is the only valid input: add employer charges, tooling, premises and non-billable time.
Compare quoted hours to actual hours on every project, not just the ones that went badly.
Scope creep is visible in timesheets weeks before it appears in the invoice.
One monthly review of the three biggest projects catches most of the damage.

Step 1: compute a loaded hourly cost

Start from the annual cost of a person, not their salary. Add employer contributions, equipment, software licences, premises and a share of general overhead. Then divide by the hours they can realistically sell, which is never their total working hours.

A designer costing 60,000 per year in total, with 1,500 productive hours after holidays, training and internal work, has a loaded cost of about 40 per hour. That is the number to compare against your selling rate, and it is usually far higher than people expect.

Step 2: put quoted hours next to actual hours

Every quote contains an implicit hours budget, even when it is sold as a fixed price. Write it down at the start of the project, then compare it monthly with what timesheets actually show.

Do this on healthy projects too. Projects that finish on budget but consumed twice the estimated hours in one phase are telling you something about your pricing model that a single profitable outcome will hide.

Record the hours budget per phase when the quote is signed
Review actual versus planned hours at least monthly
Flag any phase above 80% of its budget before it is finished
Keep the comparison even after the project closes, for future quotes

Step 3: isolate scope creep and rework

Margin rarely disappears in one dramatic event. It leaks through small unbilled additions: an extra round of revisions, a meeting that became a workshop, a report rebuilt because the brief moved.

Timesheet notes are what make this visible. When entries carry a short description, you can identify the hours that went into work nobody agreed to pay for, and either bill them or use them as evidence in the next negotiation. See how agencies use Simple Timesheet for this.

Step 4: turn the number into a decision

A margin figure that leads to no decision is just reporting. For each project below your target, there are only four realistic moves: reprice, reduce scope, change how the work is delivered, or stop taking that kind of work.

Bring the numbers to the client conversation rather than to an internal complaint. Agencies that renegotiate with an hours breakdown in hand succeed far more often than those arguing from a general impression that the account is difficult.

Reprice at renewal, with actual hours as evidence
Reduce the scope included in the base package
Change delivery: fewer revision rounds, tighter briefs, templates
Decline the project type if the margin is structurally negative

Make it a routine, not an investigation

The teams that stay profitable do not run deep analyses. They spend twenty minutes a month on the three largest projects, looking only at hours consumed against budget and the margin trend.

That rhythm works because it catches problems while they can still be fixed. A quarterly deep dive tells you why last quarter was disappointing; a monthly glance stops this quarter from becoming the same story.

Frequently asked questions

What margin should an agency target per project?

Most agencies aim for a gross margin of 40% to 50% per project to cover overhead and leave a net profit. What matters more than the absolute number is the gap between projects: a 10-point spread usually points to a pricing or scoping problem rather than to execution.

Do fixed-price projects need time tracking?

They need it more than time and materials projects. With a fixed price, hours are your only way to know whether the price was right, and the only evidence available when you renegotiate.

How do you account for non-billable time in profitability?

Do not spread it across projects arbitrarily. Include it in the loaded hourly cost by dividing annual cost by sellable hours only. Non-billable time then reduces the divisor, which is exactly where its impact belongs.

All insights