How to track project profitability?

If you charge an hourly rate for a project, you still need to track time so you can see how accurate your estimates are and whether the project is profitable. By knowing the real length of the project, you’ll know if you’re charging enough or if you’re losing money.

For example, you might tell a client you need 50 hours for a project, 20 for design and 30 for coding. So you arrange a fixed price, thinking you’ll finish it in under 50 hours. But how much time will you really need? The bigger the project, the greater the error will be.

But if you track time, you’ll know exactly how much time each activity takes and whether you made money on a project. Let’s say you finish the project in 70 hours, which is 20 hours more than estimated. You can negotiate with the client for a higher price or less work. But even if you charge as if you had worked 50 hours, at least you’ll estimate better in the future and won’t lose money.

Let’s say you start a new fixed-fee project. Here’s an example of what your Clockify workflow could look like.

Initial setup #

To have time entries categorized, first define client’s name on the Clients page. You can also define tags with the type of activities (e.g. project management). This way, you can filter time entries by tags and track how much time each activity takes.

1. Create a new project and select the client
2. Add tasks to the project (e.g. Design, Development)
3. Use task-based estimate (e.g. Design task: 20h, Development task: 30h) or enter a manual estimate (e.g. 50h for the whole project)
4. Set up billable rates, as well as labor cost rates

Subsequent configuration #

After the project starts:

1. When you track time, make sure each time entry has a project and a task.
2. When you hit some milestone (e.g. finished design), check project status for estimated vs tracked time. If you’re way over your original estimate, you might want to talk to the client about adjusting the budget, requirements, and timeline.
3. Once the project ends, go to Summary report and filter entries by the project. Then, export the report in CSV and import it to Excel where you can: better analyze data, see what activities took longer than planned, analyze why, and set better estimates (and prices) in the future.
4. In reports, view either amounts for billing, cost, or profit (the difference between the two)