Project margin

Project margin is the dollars left over once a project has paid for the people and the direct costs it consumed. The standard calculation is project revenue minus the loaded cost of staff time, minus pass-through expenses such as travel or third-party licenses. The result is reported as an absolute number or as a percentage of revenue, depending on whether leadership is comparing portfolios or individual deals.

Margin is the metric that makes utilization meaningful. A practice can run at 90 percent utilization and still bleed cash if the work is priced below cost. Healthy services firms watch margin per project, per practice and per client to see where the model is working, where rates need to move and where the team should walk away from low-quality revenue.

Related: billing rate, burn rate, time and materials.