Last Updated: December 2025
Project management companies live or die by accurate job costing. If you cannot see the true cost of delivering each project, you cannot price competitively, identify problem jobs before they blow out, or understand which project types and clients drive your profitability.
Project management firms that lack proper job costing typically underprice by 15 to 25 percent on complex projects. They win the work because they are cheap, then wonder why profitability is poor despite being busy. Meanwhile, they lose straightforward projects to competitors who understand their costs and can price aggressively on the right opportunities.
Project management companies operate in a challenging financial environment. You sell expertise and coordination, not physical products. Your main costs are people, and those costs accumulate daily whether or not you bill them to clients.
The Australian project management sector spans construction, infrastructure, IT, events, and business transformation. Industry benchmarks suggest well-run firms achieve net margins of 12 to 20 percent. Many firms operate below 10 percent because they cannot accurately track job costs or identify unprofitable work until it is too late.
The fundamental challenge is matching costs to revenue across time. You might incur costs in March, bill in April, and collect in June. Without proper systems, your monthly financials become meaningless, showing losses when you are actually profitable and profits when you are bleeding money.
Milestone billing complexity. Most project work bills at milestones rather than monthly. This creates lumpy revenue that does not match the steady accumulation of costs. Your accounts might show three months of costs followed by a large revenue spike, making month-to-month comparison useless.
Resource allocation across projects. Your project managers and coordinators work across multiple jobs simultaneously. Allocating their time accurately to each project requires discipline and good systems.
Contractor and subcontractor management. PM firms regularly engage specialist contractors, consultants, and subcontractors. These costs must be tracked against specific projects and either absorbed or recovered from clients.
Scope creep and variations. Projects rarely proceed exactly as planned. Changes occur, and capturing these as billable variations rather than absorbing them determines whether projects make or lose money.
Work in progress management. WIP represents your investment in incomplete projects. Without proper tracking, aged WIP becomes difficult to bill and may require write-off.
Milestone billing means invoicing at defined project stages rather than periodically. Milestones might include project initiation, design completion, implementation phases, and project close-out.
Work in progress (WIP) represents costs incurred on projects not yet billed. This includes staff time at cost rates, contractor expenses, and direct project costs.
Resource utilisation measures billable hours as a percentage of available hours. It tells you how effectively your team's time converts to revenue.
Project margin is project revenue minus all direct project costs, divided by revenue. It measures the profitability of individual jobs.
Backlog represents contracted work not yet completed or billed. It indicates future revenue and workload.
Your P&L tells the story of your business, but only if structured correctly. Here is how to read it for a project management company.
Revenue section:
Your revenue should be separated by project type or service line. This might include Project Management Fees, Consulting and Advisory Fees, and Recoverable Expenses. This separation lets you see which services drive your business.
Revenue should reflect work completed, not just amounts billed. If you complete $80,000 of work in a month but only bill $50,000, your revenue is $80,000. The unbilled portion sits in WIP on your balance sheet.
Cost of sales section:
Direct costs include staff time allocated to projects (at cost rates including salary, super, and leave provisions), contractor and subcontractor costs on projects, and direct project expenses like travel, software, and materials.
Gross profit (revenue minus cost of sales) shows your margin on project delivery before overhead. Target 45 to 55 percent gross margin for healthy PM firms.
Operating expenses section:
Overhead includes salaries for non-billable staff, rent, insurance, marketing, professional fees, and general administration. These costs do not vary with project volume in the short term.
Net profit:
The bottom line after all costs. Target 12 to 20 percent net margin. If you are below 10 percent, either your pricing is too low, your delivery is inefficient, or your overhead is too high.
Revenue categories:
Direct cost categories:
Overhead categories:
Every project needs a job code. Track against each code:
Calculate project margin when jobs complete. Compare actual margin to quoted margin. Build a database of project performance to improve future estimating.
All project staff must track time daily. Minimum categories:
Target utilisation rates:
Week 1: Finalise timesheets, calculate WIP movements, prepare project invoices.
Week 2: Issue invoices, process contractor payments, reconcile accounts.
Week 3: Review project profitability, analyse utilisation, identify problem projects.
Week 4: Update forecasts, review backlog, plan resourcing.
- Accounting: Xero Business at $78 monthly with Projects add-on at $13 per user. Handles job costing, time tracking, and financial reporting in one system.
- Project management: Monday.com from $12 per user monthly or Asana from $15 per user monthly for project coordination. Microsoft Project for complex scheduling.
- Time tracking: Harvest at $12 per user monthly if you want dedicated time tracking with strong reporting. Integrates with Xero.
Example costs for 12-person firm:
Financial KPIs:
Operational KPIs:
How should project management companies recognise revenue?
Recognise revenue based on percentage of completion, not billing. If a project is 60 percent complete, recognise 60 percent of the total fee as revenue regardless of amounts billed. This matches revenue to the period when work is performed and provides meaningful monthly financials.
Why is time tracking essential for PM companies?
Time tracking enables project costing. Without knowing hours spent on each project, you cannot calculate actual costs, compare to estimates, or identify efficiency issues. It also supports utilisation analysis, showing how effectively your team's capacity converts to billable work.
What gross margin should PM firms target?
Target 45 to 55 percent gross margin (revenue minus direct project costs). This provides sufficient buffer for overhead and profit. Margins below 40 percent typically indicate pricing issues or delivery inefficiency.
How should firms handle project scope changes?
Document original scope clearly in contracts. When changes occur, identify them formally, quote additional fees, obtain client approval, and track variation revenue separately. This discipline prevents scope creep from destroying margins.
What causes aged WIP problems?
Common causes include forgotten billing, disputed work, poor milestone definition, and costs that should be written off. Review WIP weekly. Investigate anything over 30 days. Take action on anything over 60 days.
Scale Suite provides specialised finance services for Australian project management companies. We understand job costing, milestone billing, and the challenge of matching revenue to costs across project timelines.
Our team handles complete financial operations including project cost tracking, WIP management, contractor payments, and monthly reporting that shows true project profitability. We help you build financial systems that support better pricing and project control.
Our embedded finance service delivers specialist expertise at less than the cost of a dedicated hire.
Scale Suite delivers embedded finance and human resource services for ambitious Australian businesses. Our Sydney-based team integrates with your daily operations, working like part of your internal staff but with senior-level expertise.
Disclaimer: This guide provides general information only and does not constitute tax, legal, or financial advice. Revenue recognition requirements, contractor classification rules, and reporting obligations change regularly. Always consult with a registered tax agent for tax matters and seek professional advice specific to your circumstances.
Scale Suite delivers embedded finance and human resource services for ambitious Australian businesses.Our Sydney-based team integrates with your daily operations through a shared platform, working like part of your internal staff but with senior-level expertise. From complete bookkeeping to strategic CFO insights, we deliver better outcomes than a single hire - without the recruitment risk, training time, or full-time salary commitment.
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