How to calculate job margin: formula and worked example

Job margin is what is left of the revenue once you subtract the costs of that job, and it is the result of job costing. Here is how to calculate job profitability: margin = revenue − costs, and margin percentage = margin ÷ revenue × 100. The hardest cost to see is almost always people’s time, which is why you need the hours logged on every job.

What you need for the calculation

• The job’s revenue: the agreed price, or the billed hours multiplied by the rate.
• The hours worked: those logged on the job, by everyone involved.
• The internal hourly cost: what one hour of each person costs the company.
• External costs: suppliers, licences, travel and anything else tied to that job.

How to calculate the internal hourly cost

A simple way is to divide a person’s annual cost by the hours they work in a year. If a person costs the company €52,500 a year and works 1,500 hours, their hourly cost is €35.

For the annual cost, it is best to include everything the company pays for that person, not just the net salary. If you also want to include overheads, add a share. What matters is to always use the same method, so that jobs remain comparable. For the exact figures, ask your finance team or your payroll or labour adviser.

A worked example

A €10,000 job took 120 hours of work at an average cost of €35 an hour, plus €1,300 of external costs.

Item	Calculation	Amount
Revenue		€10,000
Cost of hours	120 × €35	€4,200
External costs		€1,300
Margin	€10,000 − €4,200 − €1,300	€4,500
Margin percentage	€4,500 ÷ €10,000	45%

If the hours had been 160 instead of 120, the cost of hours would have risen to €5,600 and the margin dropped to €3,100, or 31%. Forty unlogged hours can make a job look profitable when it is not.

The most common mistakes

• Calculating the margin only at the end of the job: by the time the problem shows up, it is too late to fix it.
• Forgetting non-billed time: meetings, reviews and corrections are still costs.
• Estimating hours from memory: the margin is only as reliable as the hours it starts from.
• Confusing margin and markup: markup is calculated on cost, margin on revenue.

How to keep track of hours on each job

The starting point is to log hours on every job, even with a simple Excel timesheet template. If you are not sure where to begin, read what a timesheet is and how to fill it in.

When you have many jobs, Klokka assigns hours to client, project and task, values them with rates and internal cost and shows the margin of each project: value minus the cost of the hours worked. External costs still need to be considered separately.