How to track profit by project (without job-costing software)

Why total profit is not enough

Your profit and loss statement tells you whether the business made money last year. It does not tell you which work made the money. A marketing agency can be profitable overall while one big retainer loses money every month. A renovation firm can make all its profit on bathrooms and lose it on kitchens. A consultant can find that the fixed-fee jobs they enjoy pay half the hourly rate of the others.

Tracking profit by project answers three practical questions: which work should I quote higher next time, which work should I stop taking, and is this project on track while there is still time to do something about it?

What counts as a project

A project is any piece of work with its own income and its own costs that you would like to see separately. For a contractor it is a job site. For an agency it is a campaign or a client retainer. For an event planner it is an event, for a consultant an engagement, for a manufacturer a custom order. In QuickBooks Desktop this is called a job; many programs call it a sub-customer.

Pick a level you will actually keep up with. "One project per customer per year" is better than a project per task that nobody tags correctly.

Tag income and costs to the project

Project profit is only as good as the tagging. The rule is simple: every invoice, and every cost that exists because of the project, carries the project's name.

• Income: invoice the project, not just the customer. Deposits and progress invoices count too.
• Direct costs: materials, subcontractors, equipment rental, travel, printing, freelancers, permits. Tag them on the bill, cheque (check) or card charge, line by line if one purchase covers two projects.
• Billable costs: when a cost will be passed on to the customer, mark it billable so it is not forgotten on the next invoice. It still counts as a project cost; the matching income comes when you bill it.

Here is what a finished project looks like when everything is tagged:

The habit that makes this work: once a month, look for costs with no project that should have one. A supplier bill entered in a hurry without the project tag quietly makes that project look better than it was.

Do not forget your own time

For most service businesses, people are the biggest cost, and they are the one most often missing from project figures. There are two parts:

• Employees: if payroll hours are tagged to projects, wages can be charged to them. A simple timesheet with a project column is enough. Use a loaded hourly cost (wage plus employer payroll taxes and benefits), not just the wage.
• The owner: an owner who is not on payroll costs the project nothing in the books, which makes owner-heavy projects look wonderful. Track your hours anyway and multiply by a fair rate in your own review, even though no entry is posted for it.

Hours also tell you something money does not: a project can stay inside its budget only because someone worked unpaid evenings on it.

Overhead: allocate it or not?

Rent, software, insurance and the bookkeeper are real costs, but no single project causes them. You have two choices:

1. Leave overhead out of project figures and look at each project's contribution: income less direct costs and labour. Then check that the contributions together cover overhead and leave a profit. This is simpler and usually enough.
2. Spread overhead with one simple rate, such as a percentage of direct labour or a cost per hour worked. Work the rate out once a year from last year's figures and apply it in your review, not as journal entries in the books.

Either way, be consistent. Changing the method each quarter makes projects impossible to compare.

Reading the numbers

• Margin, not just profit. A $20,000 profit on a $200,000 project (10%) may be worse work than $6,000 on $15,000 (40%).
• Estimate against actual. If you quoted the project, compare quoted cost with actual cost line by line. The gap tells you which part of your quoting is off: materials, hours or subcontractors.
• Unbilled costs. Billable costs not yet invoiced are money you are owed but have not asked for.
• Watch work in progress. On a long project, compare the share of cost spent with the share of the job done. If 80% of the budget is gone and the work is half finished, you want to know now, not at the end.

Contractors who need more (cost codes, progress billing against a contract, retainage, over and under billing) will find the detail in job costing for contractors. For budgets by account rather than by project, see budget vs actual reports.

Doing it in AcboBooks

In AcboBooks a project is a sub-customer: when you add a customer, choose the customer it belongs to under "Sub-customer of (project)". You invoice and quote the project by choosing it as the customer, timesheets have a Customer:Project field, and Enter Bill and Write Checks have a Customer:Project column, for the whole document or line by line. A billable line must have a Customer:Project, so passed-on costs are never orphaned.

The Project Hub lists every project with its estimate, actual cost, actual revenue, profit, % complete and unbilled costs, and shows one project's estimates, open bills, purchase orders and transactions when you pick it. The reports include Project Profitability, Profit & Loss by Project (a column for each project), Project Estimates vs. Actuals, Unbilled Costs by Project, Time by Project, and Expenses Not Assigned to Projects, which is the monthly check for costs that were never tagged. Classes and Profit & Loss by Class are there as well, for departments or lines of work.

Frequently asked questions