Draft reference — content review pending
Project Gross Margin
The percentage of project revenue remaining after the direct costs assigned to the project.
Business question
What percentage of project revenue remains after the direct cost of delivering that project?
Formula
Project gross margin = (project revenue − direct project costs) ÷ project revenue × 100.
Calculation notes
Define direct labor treatment, contractor costs, pass-through expenses, project revenue scope, and revenue-recognition timing. Keep the accounting policy consistent when comparing projects or periods.
Edge-case guidance
If project revenue is zero, the margin is not meaningful. Document projects with fixed-fee, time-and-materials, milestone, deferred, or partially recognized revenue, and distinguish approved scope changes from delivery overruns.
Required data
| Input | Type | Status | Available source hints |
|---|---|---|---|
| Project revenueRevenue assigned to the project under the agreed scope and recognition policy. | Currency | Required | Accounting software · Project management system · Excel |
| Direct project costsDirect labor, contractor, delivery, and other costs assigned to the project under the agreed policy. | Currency | Required | Accounting software · Project management system · Excel |
Interpretation
Use the measure to understand the direct economics of individual projects. It supports project review but is not interchangeable with company-wide Gross Margin because scope and cost policies may differ.
Caution
Project margin can be distorted by incomplete time entry, unassigned shared costs, changing scope, or revenue-recognition timing. A higher margin is not automatically better if it reflects under-resourcing or omitted direct costs.
Implementation recommendation
Agree on project-cost and revenue-recognition policies with the finance and delivery owners, then review estimates against actual direct effort and approved scope changes.
Target guidance
Set the first target from comparable historical performance for project gross margin, then adjust it for the service model, strategy, delivery capacity, seasonality, data quality, and client commitments. Review the direction with the accountable owner and consider this trade-off: protecting margin must not mean understaffing delivery, excluding legitimate direct costs, or accepting scope that cannot be delivered well.