Project margin calculator for agencies
Work out the profit and margin on a fixed-fee project or a monthly retainer, how many extra hours it can take before the margin is gone, and what happens if the work runs over estimate. It runs in your browser and nothing you type is sent anywhere.
How this is worked out
Margin is the share of the fee you keep once the work is paid for. The cost of the work is the hours each role spends multiplied by what an hour of their time costs you, plus anything else you buy in for the project.
- Labour cost = sum of (hours x cost per hour) for each role
- Total cost = labour cost + other costs
- Profit = fee - total cost
- Margin = profit / fee
- Markup = profit / total cost
- Average cost per hour = labour cost / total hours
- Extra hours to zero margin = profit / average cost per hour
- Extra hours to target margin = (fee x (1 - target) - total cost) / average cost per hour
- Fee needed for target margin = total cost / (1 - target)
The extra-hours figures assume the extra time is spread across roles in the same mix as your estimate, which is why they use the average cost per hour. The overrun scenario raises every role's hours by the percentage you choose and leaves other costs as they are, because a late project rarely needs more stock or media, it needs more people-time.
What the margin means depends on the cost per hour you enter. A fully loaded cost, which includes overheads and non-billable time, gives the margin left after running the agency. A salary-only cost gives a gross margin, and overheads still have to come out of it.
Your numbers, worked through
Questions
How do I calculate the profit margin on a project?
Add up the cost of delivering it: the hours each person spends multiplied by what an hour of their time costs you, plus any other costs such as freelancers, stock, media or travel. Subtract that from the fee to get the profit. Divide the profit by the fee to get the margin. A fee of 300,000 with 191,000 of cost leaves 109,000 of profit, a margin of 36.3 percent.
What cost per hour should I use for each role?
Use what an hour of that person's time costs the agency, not what you charge for it. If you use the fully loaded cost per billable hour, which includes overheads and non-billable time, the margin you get is what is left after running the agency. If you use salary divided by paid hours, you get a gross margin, and rent, tools and non-billable time still have to be paid out of it. The billable rate calculator works out the fully loaded figure.
What is the difference between margin and markup on a project?
Margin is profit divided by the fee. Markup is profit divided by the cost. A project with a fee of 125 and a cost of 100 has a 20 percent margin and a 25 percent markup. They describe the same profit, so always say which one you mean.
How many extra hours can a project absorb before it loses money?
Divide the profit by the average cost of an hour on the project. The average is the total labour cost divided by the total hours, so it reflects your actual mix of roles. If the profit is 109,000 and an average hour costs 1,267, about 86 extra hours take the margin to zero. The calculator also works out how many hours take you down to your target margin, which is the number to watch.
Does this work for a retainer?
Yes. Choose monthly retainer and enter one month: the monthly fee, the hours each role spends in a typical month and that month's other costs. Every result is then per month, including the extra hours a month the retainer can absorb before its margin is gone.
Related tools and guides
This calculator checks a project before it starts. Ancor keeps checking while it runs: budget burn and projected margin update as hours are logged, with a warning when a project is heading below target, and it shows what work beyond its estimate is costing you while there is still time to change the scope or the fee.