Gross margin on project
Wizard splits **commercial terms** from **delivery cost**—same roll-up pattern as **blended-hourly-rate** but at project level.
Example scenario
A creative shop closes a fixed-fee brand sprint with $78,000 in contracted billings recognized against the SOW (excluding reimbursable media passes recorded net). Finance rolls up fully loaded delivery at $41,800—burdened blended-rate hours for designers and PMs, contractor 1099s, allocated software seats, and client-meeting travel attributed to the engagement but not overhead pools like rent or sales commissions. Contribution before SG&A is therefore $36,200, which yields a gross margin of roughly 46.4% on fee—within the guardrail many project-led shops use before partner draws and bonus true-ups.
Gross margin on project
(Fee − delivery cost) ÷ fee × 100
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How to model gross margin on a fixed-fee project
- On the Revenue step, enter the fee tied to this engagement’s scope—usually signed SOW value net of pass-through media you book as reimbursable COGS or zero-margin revenue depending on policy.
- On Cost to deliver, sum fully loaded delivery for the project window: creative and strategy hours at burdened cost rates, freelance invoices allocated to the job, licenses billed to the client ID, and direct travel—omit firm-wide sales and leadership overhead unless your finance standard explicitly rolls it into project COGS.
- Compare “Gross profit ($)” to your PM’s burn forecast; variances usually trace missed contractor hours or rework before they hit write-offs.
- Interpret “Gross margin %” against your portfolio guardrails—slide delivery cost up 10% to simulate scope creep when pricing the next phase retainer.
Agency project economics benchmarks
- Typical gross margin band for project-based marketing / creative agencies (fee vs. delivery)
- Often mid-40s to low-60s percent when delivery cost includes labor + tools; thin margins signal scope creep or pricing discipline gaps
- Common rule-of-thumb for pass-through media or COGS in client invoices
- Many shops exclude pass-throughs from margin numerator or book net revenue—misclassification here swings margin points wildly
- Delivery cost capture completeness (benchmark for model quality)
- Strong ops teams allocate ~85–95% of identifiable project labor and tools before contested overhead allocations—missing contractor burden understates cost
Best use cases
- Growth and performance planning
- Budget and forecast scenario modeling
- Client-facing pre-qualification and education
Frequently asked questions
Should client fee include reimbursable expenses the client pays at net?
Follow your chart of accounts—if pass-throughs flow net with zero GP, exclude them from both fee and delivery here so margin reflects earnable work. If your agency marks up production buys, include only the earned markup in fee and match the associated fulfillment cost in delivery.
Why doesn’t gross margin match QuickBooks project P&L?
QuickBooks often spreads overhead, capitalizes software differently, or books revenue on cash milestones. This calculator uses contribution-style gross margin on delivered scope; reconcile timing (percent-complete vs. billed) before blaming the model.
Do I burden employee hours at loaded cost or sell rate?
Use loaded cost (salary + benefits + bench allocation method your CFO approved) for delivery cost. Sell rates belong in pricing models, not in margin-on-cost unless you explicitly define margin as contribution on sell-side revenue.
How should I treat a blended team across two retainers?
Split delivery hours by timesheet project codes before rolling up—averaging costs across clients hides loss-makers. Run this calculator per SOW or per engagement ID Finance recognizes.
Glossary
Scenario modeling
Comparing multiple assumption sets to estimate potential outcomes before execution.
Conversion intent
User behavior that indicates readiness to take a commercial action such as signup or purchase.
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Category: Agency finance & delivery opsTopics: Statement-of-work margin, Fully loaded cost rate, Professional services profitability
Last reviewed: 2026-05-07
Reviewed by: Calclet Growth Team