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What is planned project margin?
Planned project margin is the amount you build into a project estimate (in Russian) before work starts. In this article, it means the money your business expects to retain from a contract after completing the work and paying the project's direct costs.
The calculation is: planned project margin = planned contract revenue − planned direct project costs. Revenue is the amount the customer is expected to pay under the estimate or proposal. Direct costs are costs attributable to that specific project: tradespeople and subcontractors, materials, delivery, equipment hire and similar items. For a refresher, see our article on what revenue means (in Russian).
This amount still needs to cover other business expenses. Office costs, accounting, marketing and taxes must also be paid before you arrive at the owners' net profit. Planned project margin therefore represents the financial contribution the project is expected to make to the business before those further deductions.
For example, suppose you quote a renovation at RUB 2,000,000 and expect direct costs for labour, materials and subcontractors to total RUB 1,400,000. The planned project margin is RUB 600,000. That RUB 600,000 must cover the remaining fixed business expenses and leave a net profit. These are the original example's illustrative amounts in Russian roubles, not a local price quotation.
For a manager, this figure provides a way to plan the project's economics in advance and decide whether the terms offered to the customer make the work worth accepting.
What planned project margin needs to cover
In construction, design, consulting and other project businesses, planned margin serves several purposes. You may not show each one on a separate line in the estimate, but distinguishing them internally helps you judge whether the total is sufficient.
The first is funding management and business support: the owner, project managers, office, administrators and accountant. This work enables the company to run several projects, negotiate, resolve disputes and control quality. Allow for the share of these costs that has not already been included in direct project costs.
The second is a risk reserve. Project requirements can change, material prices can rise and schedules can shift. Without an allowance for uncertainty, a cost overrun can quickly consume the expected margin. A reserve gives you room to absorb such changes.
The third is the net profit intended for owners and partners after all relevant expenses. That return supports the reasons for building a company, taking responsibility and developing its processes beyond your own work as an individual specialist.
Some companies also plan a bonus pool for salespeople, designers or project managers. A profit-linked bonus can encourage the team to protect project margin rather than chase revenue at any cost. This is an optional incentive policy: agree on the calculation in advance, classify remuneration consistently and avoid deducting the same payment twice.
Once you know what the margin needs to fund, you can set a minimum both as a percentage of revenue and as a monetary amount. A project below that threshold may fail to provide the return your business needs.
Planned margin, actual profit and contribution margin
Planned project margin is a forecast. Before work begins, you estimate the time, materials and subcontractor costs involved. Delivery often changes those assumptions: some costs rise, others fall and additional work may be agreed.
Actual project profit is the result calculated from the project's recorded revenue and the costs included in your chosen accounting scope. To assess the final result, include all relevant project revenue and expenses; any company overheads still excluded need to be considered separately. In 101, project profit and profitability reports are available through Analytics (article in Russian).
Another useful measure is contribution margin: revenue minus variable costs. We explain it in our guide to contribution margin. It shows how much remains to cover fixed costs and profit. Direct and variable costs are different classifications: a cost can be directly attributable to a project without varying with the volume of work.
For a meaningful comparison, calculate the plan and the actual result using the same revenue and cost scope. Compare planned revenue minus planned direct costs with actual revenue minus actual direct costs. Compare contribution margin separately using variable costs on both sides. The differences can then help you investigate discounts, estimating errors, excess material use, management problems or weak controls over employee advances and supporting expense records.
Reviewing completed projects against a consistent plan helps you refine the next estimate. Tracking actual contribution margin is also useful, provided you keep its cost definition consistent. Together, these measures make the financial outcomes of future projects easier to assess.
Using planned margin to manage projects
Planned project margin becomes a practical management tool when you use it to decide which projects to accept, what discounts to offer, how to reward the team and what return to expect.
First, use it to screen projects. Set a minimum percentage of revenue or a minimum monetary amount. If the estimated margin falls below it, consider raising the price, reducing the scope or declining the work. This helps you avoid projects that generate turnover without an adequate return.
Second, use it to set discount limits. If the scope and costs stay the same, a price reduction cuts the planned margin by the same amount. Before offering a discount, calculate what will remain and whether the work will still earn enough. This makes the financial consequences of a sales concession visible.
Third, planned margin can inform incentives. Under an agreed company policy, a project manager's, salesperson's or designer's bonus can be linked to project profit. Define which profit measure applies, how actual results affect the payout and how the bonus itself is treated. This can give the team a reason to control costs and avoid concessions that erode the return.
Finally, use the estimate as a baseline for analysis. Once the project is complete, compare planned and actual results on the same basis to identify where they diverged. Combined with expense-category analysis, described in our article on expense categories in 101 (in Russian), this helps you assess which types of work and projects produce the strongest returns and which create disproportionate demands.
How 101 helps you track planned project margin
In many businesses, the expected margin lives in the owner's head or in separate Excel files. Comparing the plan with the result becomes difficult when project figures are spread across chats, spreadsheets and bank statements. 101 brings project records together so you can use them for that review.
In 101, you can prepare an estimate as a preliminary calculation: tradespeople prepare calculations for their work, and the project manager brings them into a shared document for the customer. This allows you to examine planned markup and project profit before work starts. Our article on project economics and contribution margin and the materials on preliminary calculations explain the approach.
Daily records then supply the actual figures. Tradespeople and subcontractors record completed work, material receipts, advances and settlements. Expense categories let you review recorded spending by category and examine it alongside the project's calculation and profit figures. See our article on how expenses are grouped in 101 (in Russian) for an example.
PRO+ includes expanded analytics (article in Russian), including project margins, company funds and project managers' income. Use those recorded results alongside the original estimate to investigate where the expected margin was achieved and where it decreased.
This gives planned margin a practical role throughout the project. You examine the expected return in the preliminary calculation, keep project events in one place and review the result after completion. Calculate planned and actual project margin on the same cost basis, then account for the additional deductions needed to establish net profit.
To see how this approach could work for your business, book a free demonstration of 101. An expert will show examples of estimate-based profit tracking and project analytics.