Project margin

Project margin is project revenue minus selected project costs, shown as a dollar amount or as a share of revenue.

Where a Firm’s Fee Dollar Goes

Definition

Project margin measures what remains from project revenue after subtracting the costs a firm assigns to that project. Depending on the firm's method, costs may include direct labor, labor burden, subconsultants, reimbursable expenses, and an allocation of overhead. Some reports show a dollar amount; others divide that amount by project revenue to show a percentage. The result also depends on whether revenue is billed, earned, or collected and how the firm handles work in progress and write-offs. Owners can use consistent project margin reports to compare work, understand staffing and scope effects, and inform future pricing. Project margin is not a universal accounting figure, because firms select different cost and revenue bases. It is not gross margin or operating margin unless the included costs match those measures, and it is not cash flow because recognized revenue and expenses may precede payment.

How owners use it

• Compare jobs using a consistent revenue basis and cost allocation policy.
• Review changes in margin as scope, staffing, subcontracting, or write-offs change.
• For example, ($120,000 revenue - $84,000 project costs) ÷ $120,000 = 30% margin.
• Use completed project results to inform estimates for similar scopes and staffing plans.

Related terms

• Gross marginGross margin is revenue remaining after subtracting costs directly associated with delivering services, expressed as a dollar amount or share
• Direct laborDirect labor is employee compensation assigned to client project work under a firm's accounting and project tracking policies.
• Labor burdenLabor burden is the employer cost associated with labor beyond base wages, such as payroll taxes, benefits, or insurance.
• Realization rateRealization rate compares the fees a firm earns or collects with the value of labor or services at standard billing
• Work in progress (WIP)Work in progress, or WIP, describes project effort or costs incurred that have not yet been billed, along with related

Related guides and articles

• Operating benchmarks for civil engineering firmsA useful benchmark starts with a consistent definition, a clean denominator and a peer group that resembles your firm.
• Project marginCompare a project fee with estimated direct labor and other direct costs.
• How do I calculate project margin for an engineering job?Choose a consistent margin definition before you calculate it.
• How do I estimate a lump sum engineering fee?A lump sum estimate begins with a clear scope and a task level effort plan.