Ask any small business owner which of their projects are most profitable and you’ll get a confident answer. Ask them how they know, and the confidence usually wobbles.

The truth is most small businesses don’t actually know which work makes them money. They know which projects had big revenue. They suspect which were stressful. They have a vague sense of which clients were “good.” But the actual margin per project, project-by-project? That number rarely exists in any usable form.

This article is a way to fix that without becoming an accountant or buying enterprise software.

What “profitable” actually means at the project level

Project profitability is straightforward in concept:

Project profit = revenue from the project − all the costs to deliver the project

The trick is the second half. “All the costs” is where small businesses get vague, because some costs are obvious and some are hidden.

Obvious costs:

Materials
Subcontractors
Direct expenses (travel, accommodation)
Software licences specific to the project

Hidden costs that small businesses chronically miss:

Your own time at a realistic hourly rate
Time of any team members on the project
Pre-sale time (the hours spent winning the project before any revenue)
Admin time during the project (status updates, invoicing, project management)
Post-project time (handover, retros, snagging)

The hidden costs often add up to more than the obvious ones. Which is why your gut feel about profitability is usually wrong — you’re remembering the materials and forgetting the hours.

A simple framework

You don’t need fancy software for this. You need three numbers per project:

Number one: revenue. What did the client actually pay you (excluding VAT)?

Number two: direct costs. Materials, subcontractors, expenses. Anything you wrote a cheque for that wouldn’t have happened without this project.

Number three: time costs. The hours you and any team members spent on the project, multiplied by a realistic blended hourly rate.

That third one is where it gets interesting. Most people don’t track project time in a way that makes this calculable. They have a sense, not a record. So step one is to actually start logging time per project, even loosely. Half-hour granularity is fine. You don’t need to be precise; you need to be consistent.

Once you have those three numbers, profitability is:

Profit = Revenue − Direct Costs − Time Costs

And margin is:

Margin % = Profit / Revenue × 100

What to do with the numbers

The first time you run these numbers, expect surprises. In every business I’ve seen do this exercise, three things show up:

Surprise one: some “big” projects were barely profitable. The £20,000 brand identity that took 280 hours and required two subcontractors might have a margin of 12%, when you expected 40%.

Surprise two: some “small” projects are remarkably profitable. A repeat £1,500 piece of work for a long-time client, completed in 14 hours with no admin and no surprises, might be a 65% margin job. The work that felt minor was actually the work paying the bills.

Surprise three: certain types of clients consistently underperform. When you bucket projects by client type — by industry, by size, by lead source — patterns emerge. Maybe enterprise clients have 18% margins on average and SME clients have 47%. Maybe direct referrals have 60% margins and ad-driven leads have 22%. These patterns reshape strategy.

What to do with the patterns

Once you can see margin per project and per client type, you have actual decisions to make.

Stop doing the bottom 20%. There’s almost always a category of work that, on close inspection, makes you very little money. Stop doing it. Politely raise prices to where it would be profitable, or refer the client elsewhere.

Double down on the top 20%. Whatever’s producing 50%+ margins is your gold mine. Get more of it. Refer more leads to it. Productise it if possible.

Adjust pricing on the middle 60%. Most projects sit in the middle — fine but not exceptional. Often a 10-15% price increase is invisible to the client and meaningfully shifts your margin into healthy territory. Test it on the next round of quotes.

The trap people fall into

The trap is thinking this is a one-time exercise. It isn’t. The first time you do it, you’ll discover surprising things. But your business changes — clients change, costs change, your time changes — and what was a 50% margin engagement two years ago might be a 30% one now.

Run the numbers quarterly at minimum. The whole exercise should take an hour, not a day, once you have the time-tracking habit in place.

What you don’t need to build

A few things you might think you need but don’t:

You don’t need detailed cost accounting. Materials and subs and time. That’s enough. Trying to allocate “rent” or “software” or “marketing” across projects produces a feel of precision but adds little signal.

You don’t need an accountant for this. This is operational, not financial. An accountant looks at the year-end picture; this looks at project-by-project decisions you can make immediately.

You don’t need to be perfectly accurate. 80% accuracy is plenty. The patterns you’ll see are big enough that 20% margin error doesn’t change them.

What you do need is the habit. Track time per project. Note costs against projects. Run the numbers quarterly. Make decisions based on what they show.

After a year of doing this, you’ll have something most small businesses never have: a clear, evidence-based view of which work makes you money. From there, every other decision gets easier.

stedd.io tracks project costs and time alongside revenue — so the numbers are already in the system when you go to look.