Project Gross Margin

Include in direct costs:

• Billable staff hours at fully-loaded cost rate — salary plus benefits plus payroll taxes, expressed as an hourly rate. The rule of thumb is 130–140% of base salary to account for benefits and employer taxes.
• Subcontractor fees directly tied to project delivery. If a subcontractor's hours are billed to the client, their cost belongs in the project's direct costs.
• Direct project expenses — travel to client sites, software licenses purchased specifically for the project, third-party data or research costs, and other expenses you can directly attribute to delivering that project.

Do not include in direct costs:

• G&A overhead (rent, utilities, company-wide software subscriptions)
• Sales and marketing costs
• Shared infrastructure (your internal tooling, shared servers)
• Non-project management time (internal meetings, business development)

These belong in your firm's overhead allocation, not in project-level margin calculation. Including them produces a net margin figure, not a project gross margin figure — and blurs the signal about delivery efficiency.

1. QuickBooks doesn't calculate project-level margin natively

QuickBooks produces a transaction-level P&L and can generate reports by class or project — but it doesn't natively connect hours worked, labor costs, and billed revenue into a project margin view. You can approximate it with manual workarounds, but the data is not there by default.

2. Time data and financial data live in separate systems

Many firms track time in one tool (Harvest, Toggl, spreadsheets) and financials in another (QuickBooks, Xero). Without an integration that maps hours to projects and applies loaded cost rates, you cannot calculate project margin without manual reconciliation — which means it typically does not happen.

3. Loaded labor cost rates aren't calculated or applied consistently

Even firms that want to track project margin often do not have loaded hourly cost rates defined per employee. They know salary but have not added benefits and payroll taxes to arrive at a true cost rate. Without that, direct labor cost is underestimated and margins appear artificially high.

The result: firms can tell you their overall gross margin from their P&L, but they cannot tell you which projects are driving it, which clients are unprofitable, or which project types should be repriced.

Step 1: Pull total revenue billed to the project

Use your invoicing system to identify all revenue recognized for the project during the period. For T&M projects this is straightforward. For fixed-fee projects, use revenue recognized (not necessarily cash received), which may require percent-complete accounting.

Step 2: Calculate direct staff cost

Pull approved hours by team member from your time tracking system. Multiply each person's hours by their loaded hourly cost rate.

Loaded hourly cost rate = (Annual salary × 1.30–1.40) ÷ 2,080 billable hours per year. The 1.30–1.40 multiplier accounts for employer payroll taxes (~7.65%), health insurance and benefits (~15–20%), and other employer costs. A staff member earning $80,000/year has a loaded cost of roughly $104,000–$112,000, or $50–$54/hour.

Step 3: Add subcontractor costs and direct project expenses

Add any subcontractor invoices tied to the project, plus direct project expenses (travel, project-specific tools, etc.).

Step 4: Apply the formula

Project Gross Margin % = (Project Revenue − Total Direct Costs) ÷ Project Revenue × 100

Example: $150,000 in project revenue, $72,000 in direct staff costs, $8,000 in subcontractor fees, $5,000 in direct expenses = $85,000 total direct costs. Project gross margin = ($150,000 − $85,000) ÷ $150,000 = 43.3%.