You have won the project. The costing added up on paper: hourly rate times expected hours, minus direct costs, healthy margin left over. Three months later everything is finished, the invoice is sent, the client is happy, and the actual margin turns out to be ten percentage points below budget. Sometimes considerably lower.
We see this pattern recur at many professional services firms. It is rarely down to sloppy costing. It is down to a calculation method that does not match reality. Indirect costs are underestimated, scope creep is not charged on and the review afterwards gets skipped because the next deal is already on the table. The result: silent margin leakage that only shows up when the annual accounts arrive.
Where costing usually goes wrong
The classic project costing looks at three things: hourly rate, estimated hours and direct costs such as tooling, licences and travel. What is almost never fully included are the indirect costs that do weigh on the project.
Think of overhead, office costs, management, finance, administration, IT, which you should spread not over all hours but over the hours you actually invoice. Of non-billable time: business development, training, internal meetings, sickness. At a healthy firm usually only 70 to 80% of available hours are truly billable. Of unpaid scope creep, the extra work delivered "because we don't want to damage the relationship". And of setup and close-out time: kick-off, delivery, knowledge transfer, post-calculation. Often forgotten in the estimate, always there in practice.
Add those costs and the margin that looked like 25% on paper ends up at 12 to 15% in reality. On projects that go wrong: zero or negative.
How to calculate an honest project margin
A realistic costing takes two steps. First you determine the fully loaded hourly cost: what an hour of consultancy really costs you, including all indirect costs. Then you compare that rate with what you invoice.
You cannot deploy this consultant profitably below €110 per hour, and that still leaves room for scope creep and hidden setup. Firms that do not use a model like this sometimes invoice below cost for years without realising it.
A case from our practice
An IT services firm with ten consultants had a report showing an average project margin of 22%. Decent numbers. When we linked their time tracking, CRM and accounts, a different picture emerged.
One client, accounting for 15% of revenue, turned out to consume more hours than were charged, consistently. Scope creep, late deliveries, extra support outside the contract. The actual margin on that client: -3%. The relationship felt fine, so that kind of conversation kept being postponed. But the numbers said otherwise.
After an open conversation in which the actual hours were put on the table, a new rate and a fixed scope were agreed. Within six months the company margin rose from 22% to 27%. Same clients, same team. Just honest costing and visibility.
Review: the part that gets skipped
Costing up front is half the story. The review afterwards is the other half, and in many businesses it gets skipped. Project done, invoice sent, everyone wants to move on to the next one. People only look critically at the margin when there is a visible loss.
You learn nothing from that. What you want to know: which type of project consistently yields more than expected? Which teams achieve better margins? Which clients systematically cost more than they bring in? That insight only comes if you review every project close-out with the same attention as the costing up front.
Real-time visibility makes the difference
At Strategie InZicht we link time tracking, CRM, project management tool and accounts. That way you see every running project in real time against its costing. Deviations in hours, scope or rate become visible before they cost margin, not only in the review afterwards.
What you can do tomorrow
You do not need to wait for a data warehouse to start on this today. Three steps already deliver a lot. Calculate your actual loaded hourly cost once, using the model above; that becomes your floor. Take your five largest clients from last year, add up the actual hours (including the unbilled ones), and compare that with what you received. And introduce a simple project close-out template: a 20-minute review per project with three questions: what was the costing, what was the reality, what will we do differently next time?
Further reading: Why fixed-price deals in IT projects make a loss more often than you think and Why a machine builder on fixed prices loses its margin to a steel price rise between quote and purchase. New: How an IT services firm reads the Rule of 40 when its margin drops from 15 to 9 percent in a growth year. Also of interest: Why a machine builder only sees at invoicing that a 2,400-hour project took 2,870.
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