Productivity
Enter the fee, the hours it actually took and what an hour of your time costs to get the profit, the margin and the rate you really achieved — plus what the next overrun would cost you.
Overview
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.
Step by step
Type what you charged for the job and how many hours it actually took, including the ones you did not bill for.
Not your billing rate — what an hour costs the business. The hourly rate calculator works this out from your income target, costs and billable days.
The hours you quoted for and the rate you meant to achieve, so the result can be compared against what you intended rather than only reported.
The fee divided by the hours it took is the rate the job actually paid. The table below shows what the next overrun would cost at this margin.
Background
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 — which 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.
Reference
Five inputs, and the two that decide whether the answer means anything are the ones people are most tempted to approximate: the hours, and the cost of an hour.
The fee
What you charged, excluding tax. On a fixed-fee job this is the whole revenue, which is exactly why an overrun has nowhere to go except profit.
Required
The hours it took
All of them. Revisions, chasing, admin, the call that ran long — the unbilled hours are what the gap between the quoted rate and the realised one is made of, so leaving them out defeats the exercise.
Required
What an hour of your time costs
The cost to the business, not what you bill for it. Using the billing rate makes every job show no profit, which is a sign the wrong number went in rather than that the job was bad.
Required
The hours you estimated
What the price was built on. Without it the result is a report; with it, it is a comparison, and the pattern across several jobs says more than any single one.
Optional
Your target rate
The rate you meant to achieve. It converts the fee into the hours it was supposed to cover, which is a more useful way to see an overrun than a percentage.
Optional
Direct expenses
Subcontractors, licences, travel. Whether they were recharged changes everything: a recharged cost passes through, an absorbed one comes straight off the profit.
Optional
What is deliberately excluded
Recharged expenses, from the realised rate. Counting money you never kept would flatter the rate on any job carrying heavy pass-through costs, which is the opposite of the point.
Optional
Who it helps
The people carrying all the estimating risk. One job checked is interesting; five checked is a pricing policy, because the pattern in the overruns is more reliable than any single estimate.
Where a project that felt fine can still have lost money, and nobody finds out because the invoice was paid. Per-job margin is what turns a busy quarter into a legible one.
A fee detached from hours still has hours behind it. The realised rate is the check on whether value pricing raised the rate or just removed the visibility.
The overrun that wipes out the profit is worth knowing before quoting. If a plausible estimating error would erase the margin, the price is the thing to change.
Asked why a profitable-looking year produced little cash. Job-level margin usually answers it faster than the management accounts do.
The realised rate on the last one is the best available estimate for the next one, and a far better basis than how the job felt.
Do it properly
The hours nobody logs are exactly the hours that separate the quoted rate from the achieved one. Excluding them produces a comforting number that tells you nothing.
An hour of your time has a cost, and it is well below what you charge. Substituting the billing rate makes every job break even and makes the whole calculation useless.
Margin ÷ (1 − margin). If a plausible estimating error is bigger than that number, the price is wrong — no amount of project management will rescue it.
A single overrun is noise. Three in the same direction is an estimating bias, and it is correctable — usually by raising the estimate rather than the rate.
Work that was added is a conversation with the client and a change order. The same work taking longer is yours to absorb and yours to price better next time.
An absorbed cost comes off the profit at full value, so on a 25%-margin job a £500 expense costs the equivalent of £2,000 of fee. Agreeing recharges up front is the cheapest fix available.
Hours become unrecoverable within about a month. A rough total recorded at handover is worth far more than a precise one nobody ever reconstructs.
Avoid these
Judging a job by whether the invoice was paid
Divide the fee by the hours. Payment says the client was satisfied, which is worth knowing and says nothing about whether the work paid you properly.
Using your billing rate as the cost per hour
Use what an hour costs the business. The billing rate includes the profit you are trying to measure, so putting it in as a cost guarantees the answer is roughly zero.
Leaving unbilled hours out of the total
Include them. Revisions and admin are the hours the fee has to cover too, and omitting them turns the realised rate back into the rate you already knew.
Assuming a 10% overrun costs 10% of the profit
It costs 10% × (1 − margin) ÷ margin. On a 20%-margin job that is 40% of the profit, which is why thin-margin work is so much less forgiving than it looks.
Counting recharged expenses as revenue
Net them out. They inflate the fee and the realised rate without adding a penny of profit, and on subcontractor-heavy work the distortion is large.
Treating a bad result as a client problem
Check the estimate first. A job that ran 40% over on work nobody added is an estimating error, and the same error will be in the next quote unless it is corrected.
Pricing a thin margin and planning to be careful
Raise the price or reduce the scope. At a 15% margin an 18% overrun erases the profit entirely, and 18% is well inside the ordinary error of an estimate.
FAQ
The Project Profitability Calculator is at the top of this page — free, no signup, nothing uploaded.
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