The quoted margin and the actual margin rarely match. Here’s how to calculate it properly, taking hours, materials and hidden costs into account.
In brief
- Revenue measures how much you bring in, not how much you earn.
- The real margin is calculated on actual costs, not estimated ones.
- Unreported hours are the main cause of overestimated margins.
- Checking the margin while the project is running lets you change course.
The profitable project that wasn’t
A €40,000 quote with estimated costs of €30,000: a 25% margin. Three months later, with the work delivered, the numbers tell a different story. Extra hours for unbilled change requests, a supplier who raised prices, two more site visits. The real margin has dropped to 3%.
It happens to a great many project-based SMEs. The problem isn’t the estimating error itself, but discovering it when there’s nothing left to be done.
Quoted margin and actual margin
The quoted margin is the difference between the agreed price and the costs estimated when the quote was prepared. The actual margin is the same difference calculated on the costs actually incurred.
The formula is simple: margin = revenue − costs. As a percentage: (revenue − costs) / revenue × 100. The hard part is knowing the real costs.
The three components of real cost
For a service or installation SME, the cost of a project has three components:
- Labor: hours worked by each team member multiplied by their hourly cost to the company (salary, social contributions, severance accrual (TFR) and other charges, not just take-home pay).
- Materials: everything taken from stock or bought specifically for the job, including small parts and urgent purchases.
- External costs: subcontracting, consultancy, rentals, travel.
How to calculate a team member’s hourly cost
A common mistake is using the hourly rate on the payslip. The annual cost to the company should be divided by the hours that can actually be worked (net of holidays, leave and training). A technician who costs €42,000 a year and works 1,650 productive hours costs about €25.50 an hour, not €15.
If the same team member is billed at different rates to different customers, the cost stays the same: only the revenue changes, and with it the margin of each project.
Why unlogged hours skew everything
If hours are written down at the end of the month, from memory, some get lost or end up on the wrong project. The result is one project that looks profitable and another that looks loss-making, while the reality is quite different.
Logging hours every day, even from a smartphone, is the simplest way to get reliable margins.
Checking the margin while the project is open
The final margin is for learning; the margin while work is in progress is for deciding. By comparing costs incurred with work progress you can tell early on whether the project is heading over budget, and act: renegotiate a change request, reassign resources, rethink purchases.
How to do it with Commesse.Cloud
In Commesse.Cloud you set each team member’s hourly cost and their rate on each project. Hours and materials logged by the team instantly update costs, revenue and actual margin, with variances from the budget visible on the project record.
Calculate the real margin of your projects
Create your company’s workspace for free: set up in a minute, no credit card required.
Start for free