Real profit margin per project in a design studio

Every design studio knows its monthly revenue. Almost none know which projects made money. That gap is why a studio can grow revenue and get worse at cash in the same year.

Why the napkin maths lies

The usual calculation is price charged minus freelancer paid. Sold for $12,000, illustrator cost $2,500, "we made $9,500". That is not margin, it is revenue minus one direct cost. Missing: your internal team hours, an allocation of overhead, the sales time spent winning the job, and the rework nobody logs.

Real margin is price collected minus total cost of delivery. Total cost of delivery has three layers.

Layer 1: costed internal hours

Every internal hour has a cost, even on a fixed salary. If you do not assign it to the project, every project looks profitable. Take the studio's monthly fixed cost (salaries, payroll taxes, owner draws, rent, software, accounting) and divide by productive team hours. In a small studio, assume 100 to 112 productive hours per person per month, not 160: internal meetings, proposals and admin are not billable.

Multiply that hourly cost by the hours each person logged on the project. Without time logging there is no per-project margin. It is the tedious part and the only indispensable one.

Layer 2: direct third-party costs

Freelancers, illustration, photography, voiceover, font licences, stock, printing, prototype shipping. Easy to collect, and usually the only layer studios already track.

Layer 3: the cost of selling

This one gets forgotten. A $12,000 brand identity may have required three briefing calls, two proposal revisions and a month of follow-up. That is easily 12 partner hours. At a $75 partner hourly cost, the project started $900 in the hole before a single file was opened.

Add the projects you quoted and lost. If you win one in four, the sales cost of the three losses has to be covered by the one win. Studios that ignore this price below cost without knowing it.

The formula with numbers

A naming and identity project sold at $15,000:

• Internal hours: 96 hours at $60 = $5,760
• Freelancers and licences: $2,300
• Allocated sales cost: $1,400
• Total cost: $9,460
• Margin: $5,540, or 37%

Thirty-seven percent is healthy for a service studio. The value of the exercise is not the final number: it is discovering that the same studio has projects at 45% and projects at 4%, and that the 4% ones are often the ones the team enjoys most.

Where margin leaks

• Unlimited revisions: the fourth round costs hours and earns nothing. A revision cap fixes it.
• Scope that grows out of politeness: "while you are at it, can you resize this?". Every favour is half an hour nobody logs.
• Stretched timelines: a six-week project that takes four months consumes supervision, status calls and context switching. Calendar time costs money even without new work.
• Discounts without scope cuts: a 15% discount on a 37% margin project drops it to 26%. Discounts must come with reduced deliverables.

What to do with the answer

Calculate margin for your last ten projects, sort high to low, and look at what the top three share: client type, deliverable, size, acquisition channel. That is your profitable project profile, and it should drive prospecting, portfolio and website.

Do the same with the bottom three. There is usually a pattern: approval by committee, open-ended scope, a discounted referral. The point is not to refuse them, it is to price differently when the pattern appears.

None of this works without two habits: log hours per project and book every direct cost against the right project. Eluvie ties proposal, contract, cost and payment to each project so margin surfaces without a parallel spreadsheet, and the free diagnostic shows where your leak is today.