A practical step-by-step guide for consultancies that want to measure real project margin — not just revenue. Covers cost definition, budget setting, live tracking, and the tools that make it manageable.
Hourglass Editorial Team
Hourglass · 5 July 2026
Tracking project profitability in a consultancy is one of the most commercially important disciplines you can establish — and one of the most consistently avoided. Projects feel profitable whilst they are happening: the team is busy, the client is engaged, invoices are going out. The discomfort tends to arrive weeks or months later, when someone finally adds up the hours and discovers the margin was far lower than expected, or was negative entirely.
The barriers to profitability tracking are rarely about capability — they are almost always about process and data infrastructure. The first is fragmented data: time is logged in one system, project plans live in another, invoices are raised in a third, and billing rates exist in a spreadsheet last updated by someone who has since left.
The second barrier is cultural: in many consultancies, particularly smaller ones, there is an implicit belief that rigorous financial tracking is incompatible with a high-trust professional environment. The opposite is true. A team that understands project economics can make better decisions about scope, pace, and priorities — and is less likely to deliver work that quietly destroys margin.
The third barrier is insufficient granularity in time logging. If your team logs time to "Project X" without distinguishing between phases, activities, or individuals, the resulting data cannot tell you where overruns are coming from or how to prevent them on future projects of the same type.
Most consultancies underestimate project cost because they account only for direct labour at the billing rate, rather than at the true cost to the firm. True project cost includes: direct staff time at cost rate (annual salary plus employer National Insurance at 13.8% above the secondary threshold, pension contributions, and a proportional allocation of overhead), contractor and freelancer fees, project-specific software licences, management and account coordination overhead, and any project-specific expenses.
For a consultant on a £55,000 salary, true employment cost including NI, pension, and a reasonable overhead allocation is likely to be £70,000–£75,000 per annum. Divided by 1,650 to 1,800 billable hours per year, this gives a cost rate of approximately £40–£45 per hour. Getting cost rates established correctly is a one-time exercise that transforms the accuracy of every profitability calculation from that point forward.
Every project should start with a formally agreed budget before any work commences. Without a baseline, there is no way to measure whether you are on track or adrift. The budget should reflect the contract: if you have sold 100 hours of senior consultant time, that is your ceiling.
For fixed-price projects, translate the contract value into hours at cost. A £20,000 contract with a blended cost rate of £42 per hour gives a cost-hours budget of 476 hours — the ceiling before the project stops being profitable. For time-and-materials projects, set a service target expressing the spend level the client expects. Even if it is not a hard cap, it tells you when you are approaching a conversation about additional investment.
Document the budget in the same system where time is logged — not in a separate project plan that nobody reads after kick-off.
The most common failure in consultancy profitability management is that time is tracked diligently but nobody looks at it until the project closes. Data that nobody reviews serves no operational purpose — it documents history rather than informing decisions.
Establish a clear review cadence: projects of one to three months should be reviewed weekly by phase. Projects over three months bi-weekly with a monthly summary. Short or intensive projects of under four weeks every two to three working days. The review should address three questions: how many hours have been logged against budget? How does consumption by phase compare to the plan? If current trends continue, will the project be delivered within budget?
Once you have hours logged by person and phase, apply each person's billing rate to calculate the revenue value of time delivered, and their cost rate to calculate actual cost. The difference is your live gross margin — and this calculation must happen at the individual level, not at a blended average, if your team has meaningful variation in seniority and rates.
Express margin as both a percentage of revenue (gross margin percentage) and in absolute terms (gross margin in pounds). The percentage tells you how the project compares to your targets; the absolute figure tells you how important it is to the firm's overall performance. Track margin weekly as you track hours.
Not every project requires equal attention at every moment. Red/amber/green budget status is the triage tool that surfaces projects needing action without requiring you to review every project in detail each week.
A sensible threshold: green below 70% of budget consumed, amber between 70% and 90% (review required — understand what drove the consumption and whether remaining scope can be delivered within remaining budget), red above 90% consumed (immediate action required — escalate and consider a client conversation about scope or additional investment). The discipline is to actually review amber and red projects weekly and document what action was taken.
The final step — and the one most frequently omitted — is a formal profitability retrospective at the end of every project. A 30-to-60-minute session with the account lead and project manager should answer four questions: what was the planned margin at the start of the project? What was the delivered margin at close? What were the top two or three causes of any variance? What would we do differently when scoping a similar project in future?
The output is a record — stored in a searchable format — that becomes the firm's institutional knowledge about what project types, at what scale, with what kinds of clients, consistently deliver the margin you plan for. Over time, this database is arguably more valuable than any piece of software: it allows you to price future work with genuine evidence rather than optimistic estimation.
The discipline of profitability tracking only works at scale if it is easy enough to execute consistently. If generating a profitability view requires 90 minutes of spreadsheet work, it will not happen every week. Purpose-built tools for consultancy profitability tracking connect time logging, cost rates, billing rates, and project budgets in a single system. The profitability view is a dashboard rather than a deliverable — it exists automatically, updated every time a timesheet entry is submitted.
Hourglass was built precisely for this workflow. Projects have budgets, team members log time against them, and the platform shows live margin, RAG status, and planned versus actual comparisons without any manual calculation. When a project turns amber, the account manager knows immediately — not three weeks later when the monthly report is distributed.
The terms are often used interchangeably, but there is a useful distinction. Project margin typically refers to gross margin — revenue minus direct costs of delivery — expressed as a percentage of revenue. Project profitability is a broader concept that may also include overhead allocation and indirect costs. For most consultancies, tracking gross margin per project is the right starting point, with overhead allocation reserved for firm-level P&L rather than project-level analysis.
Scope changes — whether formally agreed change requests or informal scope creep — should be reflected in your budget immediately when they occur. If the client agrees to additional work billed separately, create a budget extension. If scope creep is absorbed without additional billing, document the hours consumed and note the reason. Over time, tracking the frequency and cost of unrecovered scope creep provides the evidence needed to tighten contracts or adjust pricing.
When a project is forecast to overrun its budget before completion, you have three options: reduce remaining scope (deliver less than originally planned to stay within budget), absorb the overrun (accept lower margin and learn from it), or have a commercial conversation with the client about additional investment. The important principle is to make this decision actively and early — not discover the overrun after the fact when all options have expired.
Set a sub-budget for each project phase reflecting the hours planned for that phase. Track consumption at the phase level, not just the project total. This makes it possible to identify which phases consistently overrun and investigate why — whether it is a scoping problem, a process problem, or a client behaviour pattern. Phase-level tracking also helps with milestone-based invoicing, as it shows when a phase is complete relative to the budget allocated to it.
With the right software, there is no practical limit. The dashboard approach — where every project's RAG status is visible at a glance — means that tracking 20 or 30 projects simultaneously requires no more management time than tracking five. The bottleneck with manual approaches (spreadsheets, exports) is what limits the number of projects you can track meaningfully. Software removes that constraint entirely.
Tracking project profitability in a consultancy is not technically complex — it is behaviourally complex. The data is almost always available; what most firms lack is the operational discipline to review it regularly and act on what it reveals. Start with accurate cost rates, set budgets before work begins, review variance weekly rather than monthly, and use software that makes the data accessible without manual effort. Over time, these practices compound: your pricing becomes more accurate, your scoping becomes tighter, and your margin becomes more predictable.
Project profitability, utilisation tracking, resource planning — all in one platform built for UK professional services firms.
Get started freeNo credit card required · Setup in minutes