Most small service businesses know their revenue per client. Far fewer know their profit per client or per project. Yet that’s the number that tells you which work to chase, which contracts to renegotiate and which “great client” is quietly losing you money. The good news: if you already track time, you have almost everything you need.
The formula
For a project or a client over a given period:
Profit = Revenue − (Labour cost + Expenses)
- Revenue — billable hours × the hourly rate, plus re-billed expenses (for hourly clients); or the amount actually invoiced (for fixed-price and retainer clients).
- Labour cost — all hours spent, billable or not, × each employee’s internal cost rate.
- Expenses — travel, software, subcontractors and anything else spent on the project.
The margin is profit divided by revenue. A project with high revenue and a 5% margin is often worse than a smaller one at 40%.
Step 1: Give every employee a cost rate
The cost rate is what one hour of a person’s time costs the company — salary, taxes and overheads divided by productive hours. It doesn’t need to be precise to the cent; a reasonable estimate is far better than nothing. In Clocknico, admins set cost rates on the Team page; regular members never see them, because the Finance section is only available to managers and above.
Step 2: Track all hours, not just billable ones
Non-billable hours are exactly where profit disappears: extra revisions, long email threads, internal coordination. If people only log what the client pays for, every project looks profitable. Ask the team to log everything, and simply mark non-billable work as such.
Step 3: Log project expenses with receipts
Add expenses to the project as they occur, attach the receipt, and mark whether they’re re-billable to the client (optionally with a markup). Re-billable expenses then show up on the next invoice; the rest count as cost.
Step 4: Set a budget
A project budget turns profitability from a post-mortem into an early warning. When costs approach the budget halfway through the project, you still have time to talk to the client.
Step 5: Look at it by project and by client
Clocknico’s Profitability page has both views:
- By project — revenue, labour cost, expenses, profit and margin for each project, compared with its budget;
- By client — the same figures rolled up for all of a client’s projects, with a detail page per client.
For hourly clients revenue comes from billable time; for fixed-price and retainer clients it comes from the invoices issued in the period — so a fixed-price project that ran long shows up honestly as a low or negative margin.
What to do with the numbers
- Raise rates for clients with consistently low margins, or change the billing model (for example from fixed price to retainer with included hours).
- Find scope creep by looking at non-billable hours per project.
- Staff projects better — sometimes a margin problem is a seniority mix problem.
- Say no to work that looks like your least profitable clients.
Keep it in one place
Profitability analysis falls apart when time is in one tool, invoices in another and expenses in a spreadsheet. In Clocknico the same data feeds reports, invoices and profitability, so the numbers agree with each other. It’s included in every plan, including the free plan for up to 5 users.