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Understanding margin in Projectworks

Gross margin is an important metric for a services business to know and understand. It is a key indicator to the health of how you deliver your service projects and whether they are providing the financial results you expect.

There are two slices of information needed to calculate gross margin: what your staff costs are for delivering the work and what you invoice for it.

Once your workforce has been set up correctly, with their actual costs (salary and other benefits or overhead loading) the costs side of the equation is covered and will be used in timesheets and resourcing. The invoices issued and the Invoice Forecasts entered for a project provide the invoicing side of the equation.

Naturally this information is very sensitive and it is unlikely to be made visible to many people. Your Projectworks administrator will be able to provide access as directed by your organisations management. Typically the Human Resources function of an organisation will maintain the people costs data, while access to the margin screens will likely be kept to a certain level of management.

See People costs for details on how costs are maintained

Pro Tip: You can predict the gross margin you will make on a project before you even start working on it. By entering your Invoice Forecasts (the value you expect to invoice) and the resourcing expected to complete it (cost to deliver) you can verify whether the project will deliver the financial results expected. 

Calculating gross margin

Using a combination of timesheet entries and future resourcing the people related costs of delivering a project can be calculated. A combination of invoices and Invoice Forecasts are used to determine the invoicing for the project.

To facilitate this, the cost for each staff member is calculated down to an hourly rate, based on the value of the costs/benefits that have been loaded against them. The costs can change over time (with pay rises etc) so the hourly cost that applies on any specific day is calculated and used in the gross margin calculation..

The invoicing for the project is calculated by adding invoices that have been issued to your future Invoice Forecasts. Only invoices and forecasts against services GL Codes are included.

Gross margin is measured against your invoicing — the value invoiced to date plus the value still to be invoiced (your Invoice Forecast). The gross margin amount and percentage is calculated as:

  • Gross Margin $  =  Invoicing -  Costs
  • Gross Margin %  =  Gross Margin $  /   Invoicing

This is the invoicing basis of margin, shown in Projectworks as Margin - Invoicing Basis. If your organisation has Revenue Recognition enabled you will also see Margin - Recognition Basis, which measures margin against revenue you have recognised rather than against what you invoice. The margin articles in this section describe the invoicing basis. 

Gross margin can be calculated for a project level or rolled up to a company level (based on all projects). It can also be calculated for an individual person or for a team.

See project gross margin for details on project level margin.