# Project margin calculator

> Project gross margin is the fee minus labour and expenses, divided by the fee. See margin so far and the hours left before it drops below target.

Canonical URL: https://usepike.com/tools/project-margin-calculator
Last updated: 2026-10-25

## The formula

- **Gross margin:** (Fee − labour cost − expenses) ÷ fee × 100
- **Labour cost:** Hours logged × blended cost per hour
- **Effective hourly rate:** Fee ÷ hours logged
- **Hours left at target margin:** (Fee × (1 − target margin) − expenses) ÷ cost per hour − hours logged

## How to calculate project margin

1. **Start with the fee.** Use the fixed fee, or for time and materials the amount you expect to bill.
2. **Cost the hours.** Multiply hours logged by a blended cost per hour: salary plus employer costs, divided by working hours. Use cost, not billing rate.
3. **Add expenses.** Include pass-through costs, freelancers, and media you do not mark up.
4. **Divide profit by fee.** Fee minus all costs, divided by the fee, is gross margin.

## Worked example

A fixed-fee project is sold at $40,000 with a 300-hour budget. The team has logged 240 hours at a blended cost of $65 an hour, plus $2,500 in expenses. Cost to date is $18,100, so gross margin is **54.8%**.

The effective hourly rate is $167. With 80% of the budget used, the team has 29.2 hours left before margin falls below 50%, and 60 hours left in the budget. The budget allows more hours than the margin does: that gap is where fixed-fee projects lose money.

| Step | Calculation | Result |
| --- | --- | --- |
| Labour cost | 240 h × $65 | $15,600 |
| Total cost | $15,600 + $2,500 | $18,100 |
| Gross margin | ($40,000 − $18,100) ÷ $40,000 | 54.8% |
| Hours at target margin | ($40,000 × 0.5 − $2,500) ÷ $65 | 269.2 h |

## How to protect project margin

- **Check margin weekly, not at the end.** By month-end the hours are spent. A weekly check leaves time to raise a [change order](https://usepike.com/glossary/change-order) or rescope.
- **Watch the gap between budget hours and margin hours.** If the budget allows more hours than your margin target, the budget itself is the problem.
- **Log out-of-scope work separately.** Unlogged extra rounds are [over-servicing](https://usepike.com/glossary/over-servicing) you cannot see or bill.
- **Staff to the price.** A senior person on a junior-priced task raises cost per hour and cuts margin even when hours stay on budget.

## Project margin, live in Pike

Watch margin and budget burn while the project runs.

Pike calculates margin per project and client from logged time, member costs, and expenses, so you can raise a change order while there is still budget to protect.

## Project margin questions

### How do I calculate project profit margin?

Subtract labour cost (hours × cost per hour) and expenses from the project fee, then divide by the fee. The result is gross margin.

### Should I use billing rate or cost rate for labour?

Use cost rate: salary plus employer costs per hour. Billing rate is what the client pays. Using it as cost hides the margin you are trying to measure.

### What is an effective hourly rate?

The [effective hourly rate](https://usepike.com/glossary/effective-hourly-rate) is the fee divided by hours actually worked. On fixed-fee work it falls with every extra hour, which makes it an early warning for overruns.

### What is the difference between gross margin and net margin?

Gross margin subtracts only delivery costs: labour and project expenses. Net margin also subtracts overhead such as rent, software, and admin staff. Project margin is usually gross margin.

## Related tools and guides

- [Billable rate calculator](https://usepike.com/tools/billable-rate-calculator): Set rates that leave room for your margin.
- [Project profitability guide](https://usepike.com/blog/project-profitability-guide): Track profitability across projects and clients.
- [QuickBooks integration](https://usepike.com/integrations/quickbooks): Bring bills and expenses into project margin.