Accountants Project Profit Formula
Learn how to calculate total project cost, project profit, profit margin and break-even revenue from project revenue and costs.
The Accountants Project Profit Calculator estimates whether a project produces a surplus after direct costs, subcontractors, internal labour and allocated overhead are included. Using a consistent cost basis helps make project results easier to compare.
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Estimated Project Profit
Where:
Add all entered project costs, then subtract that total from project revenue. A positive result is estimated profit; a negative result is an estimated loss.
Variables Explained
| Variable | What It Means | Unit |
|---|---|---|
| projectRevenue - Project revenue | Total expected or invoiced revenue for the project. | currency |
| materialsCost - Materials and direct costs | Costs directly attributable to the project, such as materials, software, travel or supplies. | currency |
| subcontractorCost - Subcontractor costs | Payments to external contractors, freelancers or suppliers working on the project. | currency |
| internalLaborCost - Internal labour cost | Fully loaded cost of employee time assigned to the project. | currency |
| allocatedOverhead - Allocated overhead | The share of indirect business costs assigned to the project. | currency |
| totalProjectCost - Total project cost | Combined entered direct, subcontractor, labour and overhead costs. | currency |
| projectProfit - Project profit | Revenue remaining after total project cost is deducted. | currency |
| profitMargin - Profit margin | Project profit expressed as a percentage of project revenue. | percent |
Step-by-Step Calculation
Add direct costs
Combine materials and other direct costs with payments to subcontractors.
directCostTotal = materialsCost + subcontractorCost
Calculate total project cost
Add all four entered cost categories.
totalProjectCost = materialsCost + subcontractorCost + internalLaborCost + allocatedOverhead
Calculate project profit
Subtract total project cost from revenue.
projectProfit = projectRevenue - totalProjectCost
Calculate profit margin
Divide project profit by revenue and convert the result to a percentage.
profitMargin = (projectProfit / projectRevenue) * 100
Find break-even revenue
At break-even, revenue equals the entered cost total and estimated profit is zero.
breakEvenRevenue = totalProjectCost
Worked example: consulting project profitability
Add all project costs
$5,000 + $4,000 + $6,000 + $3,000
$18,000
Calculate project profit
$30,000 − $18,000
$12,000
Calculate profit margin
($12,000 / $30,000) × 100
40.0%
Calculate break-even revenue
$18,000 total project cost
$18,000
Final Result
Estimated project profit is $12,000, profit margin is 40.0%, and break-even revenue is $18,000.
Assumptions
- ✓All amounts relate to the same project and are entered in the same currency.
- ✓Revenue and costs are recorded on a consistent tax basis, such as excluding sales taxes where appropriate.
- ✓Internal labour represents the cost basis selected by the user, which may include wages, payroll costs and benefits.
- ✓Allocated overhead follows the organisation's chosen allocation method.
- ✓All material project costs have been identified and entered.
Limitations
- !The calculation does not separately calculate income taxes, sales taxes, financing costs or foreign-exchange effects.
- !It does not adjust for unbilled work, doubtful collection, scope changes, refunds or contingencies.
- !The reported margin changes if the cost allocation method or labour cost basis changes.
- !Break-even revenue covers only the entered costs and is not a pricing recommendation.
Common Mistakes to Avoid
Using employee wages alone instead of a consistent fully loaded internal labour cost.
Omitting project-specific software, travel, supplier charges or rework from direct costs.
Counting subcontractor invoices in both materials and subcontractor costs.
Leaving out allocated overhead when comparing project profitability.
Mixing tax-inclusive costs with tax-exclusive revenue.
Treating estimated profit as cash received before invoices are collected.
Related Formulas
Frequently Asked Questions
How is project profit calculated?
Project profit equals project revenue minus materials and direct costs, subcontractor costs, internal labour cost and allocated overhead.
How is project profit margin calculated?
Divide project profit by project revenue and multiply by 100.
What is break-even revenue for a project?
It is revenue equal to total entered project cost. At that amount, estimated project profit is zero.
Can project profit be negative?
Yes. A negative result means the entered costs are greater than the entered revenue.
Should allocated overhead be included in project profit?
Including allocated overhead can provide a fuller profitability view, provided the same allocation approach is used consistently across projects.
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