Calculate project margins with labor costs, materials, overhead allocation, and revenue to determine project-level profitability.
A project can bill on time and still lose money, and this tool shows why: it subtracts labor, materials, and an overhead allocation from a project's revenue, then reports the profit left over in dollars and as a margin percentage. The overhead line is where the result most often misleads. Overhead is company-wide indirect cost (rent, administration, insurance) spread across projects using a rate you choose, and that choice decides the answer: the same project can look clearly profitable under one allocation basis and unprofitable under another.
A concrete input and expected output from the current implementation.
Input
Revenue: $50,000 Labor: $20,000 Materials: $12,000 Overhead allocation: $8,000
Expected output
Project profit: $10,000. Profit margin: 20%.
Total cost is $20,000 + $12,000 + $8,000 = $40,000, leaving $50,000 - $40,000 = $10,000 of profit. As a share of revenue, $10,000 / $50,000 = 20%.
Profit is what remains after the tool subtracts the three cost buckets you enter - labor, materials, and overhead - from revenue. The margin is that profit divided by revenue, which is why the percentage only means something when revenue is greater than zero. Labor and materials should be scoped to the project alone: hours and purchases spent on this job, not the company's payroll or purchasing totals.
Overhead never arrives as an invoice for this project. It is indirect company cost - rent, administration, insurance, equipment - spread across projects on a basis you pick, such as a percentage of labor, dollars per labor hour, or a percentage of revenue. The basis is your choice, so the same project can produce different margins in different companies, and switching bases changes the result even though the work is unchanged.
Either works; the tool accepts the number you give it. Labor-based allocation falls when the project needs fewer hours, while revenue-based allocation falls when you discount the price. What matters is consistency: use one basis for every project, record which basis you used, and remember the margin is only comparable between projects calculated the same way.
For ranking purposes, yes: margin is a percentage, so it removes project size. But compare only the percentage, not the profit dollars, and only when both projects used the same overhead basis and the same cost definitions. A small project can show a higher margin yet add fewer dollars than a large one, so for cash planning, look at profit dollars as well.
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