Measuring project profitability without being misled by turnover
Why turnover and overall gross margin can distort the picture
Turnover tells you what you invoiced, not what the job actually consumed. A global gross margin can hide one loss-making package offset by another. To manage project profitability, think job by job: actual material and subcontracting spend, recorded hours, rework. Without that, you confuse performance with volume.
Separating margin, project profitability and cash flow: what your numbers really say
| Concept | Calculated on | What it answers |
|---|---|---|
| Margin | Sales minus direct costs | The job “makes money” on paper |
| Profitability | Margin minus real time | The job pays for your hours |
| Cash flow | Cash in minus cash out | You get through the month |
A job can be profitable and still strain cash flow if purchases are due before interim payments arrive. Align your definitions with the Chart of Accounts and keep track of payment terms.
Setting up simple job costing by project (without over-engineering it)
Open a job code. Allocate 3 flows: purchases, subcontracting, labour. Compare hours sold in the quote with recorded hours. Produce a weekly variance report. If the variance exceeds your internal threshold, freeze the cause: missed preparation, travel, rework, unpriced work, late discount. Also make sure extra works without a change order are properly framed to secure your variances and your margin.
Calculating your margin on direct costs by project (materials, subcontracting, hire)
Listing actual direct costs: purchases, deliveries, hire, subcontracting and consumables
To manage project profitability, start from reality. An expense not allocated to the right job turns a profitable job into an “average” one, and prevents you from acting.
- Material purchases, hardware, small tools not capitalised.
- Deliveries, craneage, waste removal, skips, dumpster hire.
- Hire, plant, scaffolding, tools, consumables.
- Subcontracting, temporary labour, one-off services.
Margin on direct costs formula and booking errors that distort everything
Calculate project margin on direct costs on a consistent basis: same scope, same VAT rules, same credit notes.
| Indicator | Calculation | Unit |
|---|---|---|
| Total direct cost | Purchases + deliveries + hire + subcontracting + consumables | € |
| Margin on direct costs | Net sales - Total direct cost | € |
| Rate | Margin on direct costs / Net sales | % |
Common traps: “workshop” invoices posted to overheads, unmatched credit notes, multi-job hire not allocated, subcontractors without a purchase order, year-end discounts removed from the job. To secure the subcontracting side, also check the rules for VAT reverse charge on construction subcontracting so you avoid net/VAT mismatches that distort your margins.
Spotting a job losing money on materials: signs in the margin on direct costs
When margin on direct costs drops while hours remain “on track”, look for material overruns.
- Extra purchases during installation, substituted references, cutting losses.
- Uncredited returns, delivery errors, consumables “absorbed” by the job.
- Variances between quoted quantities and supplier invoiced quantities.
Comparing hours sold in the quote with hours recorded on site
Defining clean sold hours: installation, preparation, protection, cleaning, after-sales
In the quote, break down your sold hours by phase. Installation should not absorb preparation (drawing review, procurement, loading), protection (sheeting, containment), cleaning, and after-sales. This gives you a usable reference time and a defensible line if you need to justify rework or a discount request.
Organising time recording by job in 2026: simple rules and useful categories
In 2026, time recording must be daily, linked to a unique job code, and signed or approved. Keep 5 stable categories; otherwise nobody records accurately.
| Category | What to include |
|---|---|
| Installation | Execution, adjustments, tests |
| Preparation | Procurement, set-up, protection |
| Travel | Outbound/return, parking |
| Rework | Defects, incidents, work to redo |
| After-sales | Call-backs, adjustments after handover |
Reading the sold hours / recorded hours gap to spot a job losing time
Calculate the hour variance by phase. If the drift is mainly in preparation, travel or rework, the job is losing money on time even if materials are under control. That is where project profitability is won or lost. Correct your estimating baseline, secure change orders, and lock in preparation before start.
Calculating your company’s hourly cost rate and applying it job by job
What goes into the hourly cost rate: overhead, supervision, vehicles, workshop
| Item | Examples to include | Basis (unit) |
|---|---|---|
| Production labour | Salaries + employer contributions, paid leave, paid absences | €/year |
| Supervision and support | Team leader, site manager, admin, accounting | €/year |
| Structural overheads | Rent, insurance, software, telecoms | €/year |
| Vehicles and workshop | Depreciation, fuel, maintenance, tools | €/year |
Group these items as indirect costs. You are looking for what the business consumes to produce a saleable hour, not a global budget.
Step-by-step calculation method: productive hours, non-productive hours and coefficient
- Total the annual cost to recover. 2. Calculate paid hours (presence + holidays). 3. Isolate productive hours recorded on billable tasks. 4. Set the productivity coefficient = paid hours / productive hours. 5. Hourly cost rate = annual cost / productive hours.
In the quote, value each task as hours x hourly cost rate. During tracking, compare sold hours and recorded hours to make drift visible.
Updating the hourly cost rate in 2026: cadence and control points
Update it at least quarterly. In 2026, watch wages, social charges, fuel, fleet insurance and workshop rent in particular. A 5% error in the hourly cost rate quickly skews project profitability if you do not realign your estimating times and coefficients.
Cross-checking margin on direct costs and real time: diagnosing drift and choosing the right fix
Cross-reading grid: lost on materials, lost on time, or both
| Margin on direct costs | Recorded vs sold time | Interpretation | Priority fix |
|---|---|---|---|
| Stable | Stable | Job under control | Standardise |
| Down | Stable | Lost on materials | Purchasing, estimating, waste |
| Stable | Up | Lost on time | Prep, method, time recording |
| Down | Up | Mixed drift | Stop, rebase, change order |
For project profitability, cross-check these two variances every week. If only one slips, you know where to look without doing a full post-mortem.
Common causes and their signature in the numbers: missed preparation, travel, rework, discounts
- Missed preparation. Hours recorded upfront, no line in the quote. Clear time variance from day one.
- Travel. Diffuse time, multiple crews. Hours up, materials stable.
- Rework. Double consumption on one item. Material cost rises, time too, often near the end of the package.
- Discounts. Selling price falls without any drop in direct cost. Margin falls before the job even starts.
Extra works without a change order: how they show up in your ratios and how to respond
Without a change order, turnover stays flat. Recorded time exceeds sold time, and margin on direct costs falls if you install more materials or subcontracting than planned.
- Isolate “out-of-scope” hours in time recording.
- Price, get approval, then invoice before restarting production.
