Project Profitability Calculator

Enter the fee, the hours the job actually took and what an hour of your time costs, and this gives the profit, the margin and the rate you really achieved. Add the estimate and your target rate and it also shows how far the job drifted from what you priced.

The figure worth having is the realised rate: the fee divided by the hours it took. Almost everybody who bills for time knows their headline rate and almost nobody knows this one, and the gap between them is where a busy year turns into a disappointing one. Pricing uses the estimate; the estimate is usually light; the difference lands entirely on the rate.

The other half is what an overrun costs, which turns on the margin far more than on the overrun. Going 20% over removes a fifth of the profit on a job priced at a 50% margin, nearly half at 30%, and four fifths at 20%. Those are exact figures from the same arithmetic, not rules of thumb, and the profit disappears altogether at an overrun of margin ÷ (1 − margin), which on a 15% job is 18%.

What a job earned and what your time costs are the two most sensitive numbers a small business has. Both are calculated in this browser and neither is transmitted.

A fixed fee is priced from an estimate. You judge how long something will take, multiply by a rate, round it, and quote. Everything after that is fixed on one side and variable on the other: the fee will not move, and the hours will. So the rate you actually achieve is not a decision you made at the start. It is an outcome you discover at the end, and only if you look.

Almost nobody looks, because the job finished, the invoice was paid, and it felt fine. That feeling is calibrated against the fee, which was as agreed. It is not calibrated against the hours, which nobody totalled. A job that took 50 hours against an estimate of 40 and paid £5,000 produced £100 an hour, not the £125 it was priced at, and the difference is a fifth of the year's income if it happens on every job.

The cost side needs the same honesty. Your cost per hour is not your billing rate; it is what an hour of your time costs the business once holidays, non-billable time, software, insurance and everything else is spread across the hours you can actually bill. It is a smaller number, and using the billing rate in its place makes every job look like it broke even, which is the fastest way to conclude the calculation is useless.

Once both sides are honest, the interesting property appears. On a fixed fee the revenue is settled, so an overrun does not reduce the margin proportionally. It comes wholly out of profit. Overrun by a fraction k against a priced margin m and the profit falls from m to m − k(1−m), so the share lost is k(1−m)/m. The overrun matters, but the margin matters more: the same 20% overrun costs 20% of the profit at a 50% margin and 80% of it at 20%.

That also gives a threshold worth knowing before quoting rather than after delivering. Setting the profit to zero, the overrun that wipes it out is margin ÷ (1 − margin). A job priced at a 50% margin survives a full doubling of the hours. One priced at 30% breaks even at 43% over. One priced at 15% breaks even at 18% over. That is inside the ordinary error of an estimate, meaning the job was never really priced to make money at all.

None of this argues against fixed fees. Clients often prefer them, they reward getting faster at something, and hourly billing has its own failure mode of punishing efficiency. The argument is only that a fixed fee transfers the estimating risk to you, and the size of that risk is a number: one you can work out before quoting and check afterwards, rather than absorbing quietly.