Project profitability for architecture studios

Why the annual accounts do not answer this

A profit-and-loss statement tells you how the practice did. It cannot tell you that the residential work carried the studio while a prestige project quietly ran at a loss for eighteen months. That answer needs cost attached to projects, and most small practices never attach it.

The calculation, in order

1. 01Start with the fee actually invoiced for the project, excluding tax.
2. 02Subtract direct staff cost: hours logged on the project, at each person's cost rate.
3. 03Subtract direct project costs: printing, travel, models, statutory fees you bore.
4. 04Subtract consultant fees you paid, unless they were a clean pass-through billed onward.
5. 05Subtract an overhead share, using a consistent rule across all projects.
6. 06Compare the result against the fee to get a margin you can rank projects by.

A cost rate is not a salary divided by 12. It should include statutory contributions and, if you allocate overhead per hour rather than per project, a share of the studio's fixed costs.

Allocating overhead without a spreadsheet argument

Any consistent rule beats an inconsistent precise one. Two rules work in practice:

Pick one, write it down, and do not change it mid-year. The point is comparability between projects, not accounting perfection.

The two adjustments everyone forgets

• Retention: money invoiced but not received. A project can show a healthy margin while a slice of it has been sitting uncollected for a year.
• Unbilled scope: extra rounds and site visits absorbed rather than charged. These are real costs with no matching revenue, and they are the difference between 'we underpriced it' and 'we gave it away'.

What to do with the answer

Rank completed projects by margin and look for the pattern: a project type, a client type, a stage, or one particular scope you keep absorbing. Practices usually find that the problem is concentrated, not spread — which means the fix is a pricing change on one category, not an across-the-board increase.

How UpLabs handles this

Because invoices, logged hours, consultant bills and project expenses all live on the same project record, UpLabs can show margin per project as the work happens rather than after the year closes — including what is still sitting in retention.

Common questions

How often should we review project profitability?

At each stage completion for live projects, and once at close. Reviewing only at close means every lesson arrives after the money is gone.

Do consultant fees belong in project cost?

If you carry the consultant and bill the client a single fee, yes. If the client appoints and pays the consultant directly, the fee is not yours to count either way.