Is the work you win worth doing once it has been delivered?
What remains once the cost of delivering the work is taken out. If this margin is thin, no amount of overhead control will fix it, because the problem sits in how work is priced and resourced.
Get a finance reviewWhether the work being won is actually worth doing, once the cost of delivering it is accounted for.
See all KPIs →(Revenue − direct delivery costs) ÷ Revenue × 100
Often 40% to 60% for consultancies and design practices where delivery is mainly salaried staff. Below 35% usually points to a pricing or resourcing issue.
Gross service margin is the share of revenue left after the direct cost of delivering the work. Direct cost means the salaries, employer costs and freelancer fees of the people doing client work, plus anything bought specifically for a project. Overheads such as rent, software and management time sit below the line. It is shown as a percentage of revenue, so it can be compared across months, service lines and clients of any size.
This is the margin that pays for everything else. If it is thin, cutting overheads only delays the problem, because the issue sits in how work is priced, scoped and staffed. It is also the earliest place a pricing problem shows. A business can grow revenue year on year and still become weaker if each new piece of work carries less margin than the last. Tracked by service line, it shows which parts of the offer are funding the rest.
The most common error is coding delivery staff to overheads, which makes the margin look healthier than it is. Decide once which roles count as delivery, including a share of directors' time where they do client work, and keep that rule consistent. Review it monthly but judge it on a rolling three months, since the timing of invoices and freelancer bills can distort a single month. Break it down by service line and by client before drawing conclusions from the total.
Most owner-managed businesses don't, or they work it out in a way that flatters the result. We'll calculate it from your own numbers and show you what it's telling you.
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