As a business owner, you’ve likely asked yourself: “Why does it feel like I’m working harder than ever, but my profits just don’t add up?”
It’s common to see sales revenue grow while profits remain stagnant—or even shrink. The truth is, not all projects are created equal. Some are your business’s biggest moneymakers, while others quietly drain your resources. Without tracking profit by project and monitoring key performance indicators (KPIs), you may unknowingly waste time and money on unprofitable areas, leaving your financial health vulnerable.
Tracking profit by project provides the clarity needed to:
- Spot inefficiencies.
- Focus on what works.
- Make informed decisions for sustainable growth.
When Should You Start Tracking Profit by Project?
Here are the clear signs it’s time to make project tracking a priority:
1. When You’re Making Sales but Not Seeing Profits
Not all revenue is the same. Some projects may generate high income but come with equally high costs, such as variable costs or labor expenses, leaving you with slim margins—or worse, a loss.
Example: A construction company landed a commercial remodeling project worth $500,000. However, due to untracked subcontractor fees, material costs, and cost overruns, they ended up spending $480,000. Initially, it looked like a $20,000 profit, but after factoring in overhead costs and current liabilities, they realized they had lost money.
How Tracking Helps:
- 💸 Spot money pits: Identify projects that are costing more than their actual value.
- 🏆 Focus on winners: Prioritize the projects with the highest profit margins based on actual performance.
2. When You’re Unsure If Your Pricing Is Right
Pricing is one of the toughest parts of running a business. Without clear data from financial metrics, it’s easy to undercharge or guess at pricing without knowing if it’s profitable.
Example: A marketing agency offered website design services for $10,000 per project. After tracking profitability using key financial performance indicators, they realized these projects required significant labor costs and software expenses, leaving them with only $500 in profit. By increasing their prices to $12,500, they ensured healthier margins moving forward.
How Tracking Helps:
- 📊 Use real data for pricing: Understand exactly how much each project costs to complete, including anticipated costs and cost drivers.
- 💵 Avoid undercharging: Ensure every project aligns with your business goals and supports your financial objectives.
3. When Managing Multiple Projects Feels Overwhelming
Running several projects at once can feel chaotic, especially when you’re unsure which ones are on track financially and which are veering off course. Strategic objectives and efficient resource allocation become critical.
Example: A catering company handled five events simultaneously. They didn’t realize one wedding was over budget on labor and food costs until it was too late. If they had tracked profitability earlier, they could have adjusted resources to prevent unnecessary losses.
How Tracking Helps:
- 🔍 Simplify decision-making: See at a glance which projects are profitable and which need corrective action.
- 🔄 Allocate resources strategically: Focus your team, time, and budget on projects that align with your strategic goals and drive the best results.
How to Start Tracking Profit by Project
- Break Down Costs and Revenue: Assign all income and expenses—including payroll headcount ratio, variable costs, and labor—to individual projects in a tool like QuickBooks Online.
- Monitor Performance Regularly: Use profitability reports and financial ratios such as the quick ratio, current ratio, and profit margin ratio to track which projects are hitting or missing your targets.
- Adjust and Optimize: Leverage insights from essential metrics to refine pricing, improve efficiency, and focus on high-value opportunities.
The Benefits You’ll See
- ✅ Stronger Margins: Stop wasting money on unproductive efforts and focus on optimizing cost controls.
- 📊 Data-Driven Confidence: Make decisions backed by numbers, not assumptions, using financial statements like the income statement or balance sheet.
- 🎨 Clearer Priorities: Focus on what drives results, helping you grow smarter, not harder.
Real-Life Example: How Profit Tracking Transformed a Business
A marketing agency believed their large website redesigns were their bread and butter. After tracking profitability, they discovered these projects required too many hours and resources, resulting in razor-thin margins. Their real moneymakers? Monthly SEO retainers with minimal overhead and high client profit.
By shifting their focus and aligning efforts with strategic plans, they grew profits by 25% in just six months. This clarity isn’t unique to them—it can work for your business too.
Take Control of Your Bottom Line
Tracking profit by project isn’t just about bookkeeping; it’s a strategic move to transform your business. It allows you to monitor key indicators like revenue per employee, cost of sales, and cash flow while answering crucial questions such as:
- Which projects make me money?
- Where am I losing money?
- How can I grow profitably?
✨ Start tracking today—your business deserves it.
With the right financial performance analysis, project plan, and focus on efficiency KPIs, you can protect your business from risk, seize new business opportunities, and achieve your business strategy. From better budget objectives to increased employee satisfaction, tracking profit by project is the cornerstone of a thriving business model.