How to Track Project Profitability in Your Accounting Software

Your business might be profitable overall, but do you know which projects are making money and which are losing it? Many business owners are surprised when they start tracking profitability at the project level. The project they thought was their best turns out to be mediocre once all the costs are allocated. The small, seemingly unglamorous work is quietly generating the best margins.

Project profitability tracking — sometimes called job costing — is the practice of assigning revenue and costs to individual projects, clients, or jobs. It gives you the information you need to price your work accurately, allocate resources wisely, and make better decisions about which work to pursue.

Why project-level profitability matters

Overall profit masks the details

A business that is profitable overall can still have deeply unprofitable projects hiding within the numbers. If you run ten projects and seven are highly profitable while three lose money, your profit and loss statement shows a healthy result. But you are leaving money on the table by continuing to take on work that loses money.

Better pricing decisions

When you know the actual cost of delivering a project, you can price future work more accurately. Many businesses underprice because they do not fully account for all the costs involved — not just direct costs like materials and labour, but indirect costs like project management time, software, and overheads.

Resource allocation

Project profitability data shows you where your most valuable resources — usually your people — are best deployed. If your senior team spends most of their time on low-margin projects while high-margin work is handled by juniors, there is an opportunity to optimise.

Client profitability

By aggregating projects by client, you can see which clients are most and least profitable. This informs decisions about which client relationships to invest in and which might need renegotiation.

Setting up project tracking in your accounting software

Create projects or cost centres

Most accounting software allows you to create projects, jobs, or cost centres. Each project should correspond to a distinct piece of work that you want to track independently. This might be:

• A client engagement
• A construction job
• A consulting project
• A product development initiative
• An event you are organising

Define your cost categories

Before you start tracking, decide what cost categories you want to monitor for each project. Common categories include:

• Direct labour — Time spent by your team on the project
• Subcontractor costs — External contractors or freelancers hired for the project
• Materials — Physical materials consumed
• Travel and expenses — Travel, accommodation, and incidental expenses related to the project
• Software and tools — Project-specific software licences or subscriptions
• Overhead allocation — A share of your fixed costs (rent, utilities, insurance)

Assign revenue to projects

Every invoice or revenue item related to a project should be tagged or allocated to that project. If an invoice covers work on multiple projects, split it accordingly.

Assign costs to projects

This is where the discipline comes in. Every expense that relates to a project needs to be tagged to that project. This includes:

• Purchase invoices — When you receive a bill from a subcontractor or supplier, assign it to the relevant project
• Expense claims — When team members submit expenses, they should specify which project the expense relates to
• Time tracking — If labour is a significant cost, you need a way to track how many hours each person spends on each project

Handle overhead allocation

Not every cost can be directly tied to a project. Rent, general insurance, administrative salaries, and accounting fees benefit all projects. There are several approaches to allocating overheads:

• Percentage of revenue — Allocate overhead in proportion to each project's share of total revenue
• Percentage of direct costs — Allocate based on each project's share of total direct costs
• Hourly rate — Build overhead into your hourly labour rate
• Ignore for project analysis — Track only direct costs at the project level and handle overheads at the business level

The right approach depends on your business. The important thing is to be consistent.

Key metrics for project profitability

Gross margin per project

Gross margin is revenue minus direct costs. This shows how much each project contributes before overheads are considered.

Gross margin = Project revenue - Direct project costs

Gross margin percentage = (Gross margin / Revenue) × 100

A project with 50,000 in revenue and 30,000 in direct costs has a gross margin of 20,000, or 40 percent.

Net margin per project

Net margin includes allocated overheads. This shows the true profitability of each project.

Net margin = Project revenue - Direct costs - Allocated overheads

Revenue per hour

If your business sells time, revenue per hour is a critical metric. Divide total project revenue by total hours worked.

Revenue per hour = Project revenue / Total hours

This reveals the effective hourly rate you are earning on each project, which is often very different from your listed hourly rate once scope creep, unbilled time, and project management hours are factored in.

Budget vs actual

Compare actual costs to your original project budget. This shows whether you are estimating accurately and helps improve future quotes.

Common pitfalls in project profitability tracking

Not tracking time

For service businesses, labour is typically the largest cost. If you do not track how much time your team spends on each project, your profitability figures are meaningless. Even rough time tracking is better than none.

Forgetting indirect time

It is easy to track the hours spent doing billable work on a project. But what about the project management meetings, the emails, the internal reviews, the travel time? These are real costs that erode margins. Capture them.

Inconsistent cost allocation

If you assign overhead to some projects but not others, or change your allocation method from project to project, your comparisons are meaningless. Pick a method and stick with it.

Waiting until the project ends

Tracking profitability only at the end of a project is too late to do anything about it. Monitor costs and margins during the project so you can take corrective action — renegotiating scope, managing resources more tightly, or escalating issues — before the project becomes unprofitable.

Ignoring scope creep

Additional work requested by clients that is not reflected in invoices is invisible profit erosion. Track scope changes and their impact on project costs. This data supports conversations about change orders and additional fees.

Using project data to improve your business

Price adjustments

If your project data consistently shows margins below your target, your pricing needs to change. Use historical project data to build more accurate estimates that account for all costs, including the ones you previously overlooked.

Go/no-go decisions

Before taking on a new project, estimate its profitability based on historical data from similar projects. If the projected margin does not meet your threshold, reconsider the pricing or decline the work.

Team performance

Project profitability data, combined with time tracking, reveals how efficiently different teams or individuals deliver work. This is not about punishing underperformance — it is about identifying where additional training, better tools, or process improvements could help.

Client segmentation

Rank your clients by profitability. You may find that a small number of clients account for most of your profit, while others barely break even. This should influence how you allocate your time, energy, and resources.

Choosing the right tools

Effective project profitability tracking requires accounting software that supports project-level reporting. Look for:

• Project or job code assignment on invoices, bills, and expenses
• Time tracking integration — Either built in or connected to a dedicated time tracking tool
• Project-level reporting — Profit and loss by project, budget vs actual comparisons
• Dashboard views — Visual summaries of project performance across your portfolio

Relentify's accounting platform includes project tracking that lets you assign revenue and costs to individual projects, with reporting that shows profitability at both the project and client level.

Start simple, build from there

If you are not currently tracking project profitability, do not try to implement a complex system overnight. Start by:

1. Creating projects for your current active work
2. Assigning invoices and direct costs to projects
3. Reviewing project margins monthly

Once the habit is established, you can add time tracking, overhead allocation, and more sophisticated analysis. The key is to start — even imperfect project tracking is vastly better than none.