Contract Margin Worksheet
Ask most service businesses which contracts are profitable and the answer comes from revenue minus direct labour. Add mobilisation, standby, travel, equipment, rework and subcontracted work, allocated properly, and the ranking often changes — sometimes reversing.
This is not an accounting problem. It is a data-capture problem at the point of dispatch. Every cost line below is knowable at the moment it happens and effectively unknowable three weeks later, which is why margin assembled at invoicing is optimistic in a consistent direction. The worksheet is deliberately structured around the work order rather than the invoice, because that is the only object every cost line can attach to. Use it on three contracts — your largest, your most operationally demanding, and one you assume is fine. The comparison is usually the interesting part.
What it covers
- Revenue — contracted value, variations agreed, variations pending, retention held.
- Direct labour — productive hours by person and rate, separated from everything below.
- Mobilisation and demobilisation — allocated to the contract that caused them rather than absorbed as overhead.
- Travel and accommodation — including the days that are neither productive nor billable.
- Standby and waiting — permit delays, plant not ready, weather. Costed to the job, with the cause recorded separately.
- Equipment — hire, transport, consumables and calibration cycles consumed.
- Subcontracted work — allocated against the work order it served, not only against payables.
- Rework — attributed to the contract that generated it, which is where most businesses stop looking.
- Reporting and administration — the non-billable hours spent producing what the client actually receives.
- Margin — gross, and again after every line above, so the difference is visible.
- Cause analysis — which lines are recoverable, which are chargeable as variations, which are simply the cost of this client.
- Decision — renew, reprice, renegotiate scope, or decline next time.
How to use it
Capture at dispatch, not at invoicing: If the work order is the object that timesheets, equipment issue and subcontractor orders all attach to, cost accumulates on its own. If cost is assembled later from memory, it will be wrong in the same direction every time.
Cost standby even when it is not your fault: Whether it is recoverable is a commercial question; whether it consumed your capacity is not. Contracts with high client-caused standby are expensive contracts, and the record is what supports either a variation claim or a rate adjustment at renewal.
Choose a granularity the field will sustain: Work-order level is enough for every decision that matters. Task-level costing sounds better and is usually abandoned within two months — and incomplete fine-grained data is worse than complete coarse data.
Give it to operations, not only finance: Margin visible to the person making dispatch decisions changes behaviour. Margin visible only in a monthly pack changes a conversation.
Frequently Asked Questions
Is this not just standard project accounting?
Conceptually yes. The practical difference is where the data originates: in a service business the costly events happen in the field and are recorded by the people doing the work, not by finance. Unless field capture records them against the work order at the time, project accounting receives an incomplete picture and produces a confident wrong answer — which is worse than no answer, because people act on it.
Which cost line is most commonly missing?
Standby and waiting time, closely followed by rework. Both are recorded as non-billable and then effectively forgotten, so they never attach to the contract that caused them. Together they are frequently the difference between a contract that looks acceptable and one that is actually losing money.
How quickly does this change decisions?
Faster than most people expect, once operations managers rather than only finance can see running margin. The first quarter usually confirms something everyone privately suspected about one or two contracts — and confirming it with allocated cost is what makes it possible to act, whether that means repricing, renegotiating scope or declining the renewal.
Do we need software to do this?
Not to start. This worksheet on three contracts will tell you whether the problem is real and roughly how large it is, which is the right way to decide whether the systems work is justified. What a worksheet cannot do is stay current across every job automatically — and that is the point at which it stops being a worksheet question.
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