USInvoices tell you what a project was worth. They do not tell you what it cost to deliver. Enter the project fee, the third-party costs and the hours your team logged, and get gross margin, utilization and effective hourly rate.
Gross margin is the fee minus the direct cost of delivering the work, divided by the fee. The direct cost has two parts: the cost of your team's hours, and anything you bought in from outside. The calculator asks for both, then divides.
The cost of hours is each role's internal cost rate multiplied by the hours that role worked, added together. Use internal cost rates, not charge-out rates. Internal cost is roughly salary plus employer costs, divided by working hours in the year. Entering charge-out rates subtracts revenue from revenue, and the result will read far lower than reality.
Gross margin is what the project contributed before overheads. It sits above rent, software, admin salaries and everything else that is not direct delivery, so net margin will always be lower than the figure shown.
Utilization is billable hours as a share of total hours logged. Low utilization with a healthy margin usually means the work was priced well and the non-billable time was absorbed. High utilization with a poor margin means the rate is too low for the work being done.
Effective rate is the fee divided by every billable hour logged. It is what the client paid per hour of your firm's time. Compared against your rate card, it shows how much of the published price survived delivery.
A margin figure on its own says very little. What matters is the band it falls in, and whether the cause sits in pricing or in delivery. The ranges below are rules of thumb for professional services work rather than a published benchmark, and they are best used as a sense check.
Margin is rarely lost in one decision. It is lost in four places, each of which is visible in the hours long before it is visible in the accounts.
Senior time absorbs junior work: Senior cost rates run two to three times mid-weight rates. A small number of hours at the top of the team moves the margin by several points, and it rarely appears in a status report because the work still gets delivered on time.
Revision rounds exceed the scope: Additional rounds are delivered without a change order because each one appears minor in isolation. The cumulative hours are not minor, and by the time they are counted the fee is already fixed.
Recurring meetings sit outside the estimate: Standing calls are rarely scoped. Multiply the attendees by the number of weeks and the cost is comparable to a small delivery workstream.
Freelance cover protects the date and not the margin: Contract cover is booked to hold a deadline. It is added to third-party costs after the fee has already been agreed, so it comes directly out of the margin.
Budgeted hours against actual hours, by role and by client, with a flag raised before the budget is spent.
The calculation above is accurate for one project on one day. In practice the figure moves as hours are logged, scope grows and costs arrive. Running the calculator monthly on the same project will show the direction of travel, which is more useful than any single result.
Magnetic maintains the same calculation continuously across every project and client. Fees, purchases, cost rates and logged hours resolve into a margin figure that updates as work happens, so the number arrives while the outcome can still be changed rather than at month-end.
One connected view · Live margin by project · Fewer month-end surprises
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Yes. There is no sign-up, no email field and no limit on how many times you can run it. The calculator runs entirely in your browser, so nothing you enter is uploaded, stored or emailed. Closing the tab clears it.
Internal cost rates. Roughly salary plus employer costs, divided by working hours in the year. Entering charge-out rates subtracts revenue from revenue, and the result will read far lower than reality. A common shortcut is annual salary, plus around 25 percent for employer costs and benefits, divided by about 1,700 working hours.
Anything bought in specifically to deliver the project rather than to run the firm. Freelance and contract cover, media spend, print and production, licensed assets, and project-specific software. General overheads such as rent, insurance and company-wide subscriptions are excluded, because gross margin sits above them.
Yes. Enter one month of the retainer fee, with that month's logged hours and costs. Running it across three consecutive months is more revealing than any single month, because retainer scope tends to grow gradually rather than in one step.
Utilization is billable hours as a share of total hours logged. Low utilization with a healthy margin usually means the work was priced well and the non-billable time was absorbed. High utilization with a poor margin means the rate is too low for the work. The two figures only make sense read together.
Most services firms aim for 30 to 40 percent gross margin on delivery work. Below 20 percent the fee does not cover delivery plus a contribution to overheads. Above 40 percent is strong, though it is worth checking that all hours were logged before treating it as repeatable. These are rules of thumb rather than a published benchmark, and they vary by discipline.
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