How to calculate architectural project profit at completion

What does architectural project profit measure?#

Architectural project profit is the completed service fee less the costs within a stated project boundary. The boundary matters. A figure before overhead answers a different question from a figure after all practice costs have been allocated.

For a closed project, calculate direct contribution first. Then subtract allocated overhead to find fully costed management profit. Direct contribution means the amount left after direct delivery costs. It must still pay for the practice.

This review is not a cash report. Your architect fee payment milestones explain when an agreed fee becomes due, not how much profit each stage leaves.

Use the method below after the agreed architectural services are complete and the final fee is settled. It is a management calculation, not instructions for formal revenue recognition. Ask your accountant about statutory reporting and tax treatment; this guide does not provide tax or legal advice.

Set one fee and cost boundary#

Write the boundary above your calculation before you enter any figures. Use the final agreed fee for completed services, excluding VAT and regardless of collection timing. Include approved additional services and deduct agreed fee reductions or credits.

Do not include an unapproved request for extra payment as if it were settled income. Keep any disputed amount outside the closed calculation until you resolve it. Otherwise, label the review provisional.

Match costs to those same services, including late supplier bills for work already delivered. A missing invoice does not make that work free. Record a supported cost estimate where necessary, and replace it when the final bill arrives.

For this method, the service fee includes any consultant work that the practice supplies within its appointment. It excludes separate expense recoveries charged at cost. Keep those recoveries and their matching costs in a separate reconciliation.

These distinctions prevent mismatched totals. Architekwiki's resource allocation example excludes consultants and reimbursable expenses from its core model. State whether those items sit inside or outside your project review. Do not use a ratio without its exclusions.

What is direct salary cost?#

Direct salary cost assigns the salary paid for project delivery time to that project. It is not the rate charged to the client. Record the calculation basis beside each person's hours so another reviewer can reproduce the total.

One method divides annual gross salary by annual paid hours to establish a salary rate. Multiply that rate by the person's recorded project hours. Put salary for non-project time into the overhead pool, rather than losing it from the calculation.

For the method used here, employer pension contributions and other employer employment costs also enter that pool. Other methods can assign these costs directly. Choose one treatment and apply it consistently across the practice.

Include the owner's delivery time. It is not free.

If the owner has no comparable salary, use a documented replacement salary rate for this management review. Show that adjustment separately. If that amount is already included in overhead, remove it from that pool. Keep drawings and distributions outside this project cost calculation.

A fully loaded resource cost already includes allocated practice costs as well as direct salary cost. RIBA's explanation of resource costing includes overhead and non-earning time, then adds specific costs such as consultants and travel.

Check your rates before proceeding. If they already contain all the overhead used below, do not subtract that overhead again. Either use direct salary rates with a separate allocation, or use fully loaded rates with no repeated allocation.

Worked example: reconcile each completed stage#

This example is invented. It describes a practice that has completed its appointed services through RIBA Stage 6. The figures are not recommended fees, cost ratios or industry benchmarks.

The original service fee was £90,000, with approved additional services of £12,000 and an agreed credit of £2,000. The completed service fee is therefore £100,000, excluding VAT. No fee remains disputed, and all delivery costs are included.

The consultant column contains subconsultants appointed and paid by the practice within that fee. The other direct cost column contains project-specific costs which the practice bears without separate recovery. All amounts below are in pounds.

Completed stage	Service fee	Direct salary	Consultants	Other direct cost	Direct contribution
0–1: definition and brief	8,000	3,000	0	200	4,800
2: concept design	17,000	7,000	1,000	300	8,700
3: spatial coordination	22,000	9,000	3,000	500	9,500
4: technical design	30,000	18,000	8,000	1,000	3,000
5: manufacturing and construction	18,000	12,000	2,000	1,500	2,500
6: handover	5,000	3,000	0	500	1,500
Total	100,000	52,000	14,000	4,000	30,000

Each row subtracts all three direct cost columns from its service fee. Check that the stage totals match the final fee and supporting cost records, not the payment dates.

Stage 4 has the largest fee but leaves only £3,000 before overhead. Stage 2 leaves £8,700 from a smaller fee because its direct costs are lower. A large payment for Stage 4 would improve cash without changing either result.

If you need to explain the salary difference, use a project cost variance review by role. Keep that review separate from this reconciliation. Establish the final result before you ask why it changed.

Keep consultants and reimbursable expenses consistent#

The example includes £14,000 of consultant costs because the completed service fee includes the associated services. Do not deduct those costs again after calculating direct contribution. If the client appoints and pays a consultant directly, exclude that consultant's fee and cost from this practice's calculation.

Suppose the practice also paid £2,400 of separately recoverable travel and printing costs. The client owes exactly £2,400 for those expenses. Keep both outside the table: expense recovery less matching expense cost equals zero.

This separate reconciliation matters even when it adds no profit. If you exclude the recovery but retain its cost in the table, you understate contribution. Including only the recovery would overstate it.

If an agreed expense charge contains a handling fee, separate that fee from the matching expense recovery. Include the handling fee in service income under your stated boundary. For costs the client will not reimburse, include the unrecovered amount as a direct project cost.

Allocate overhead once to find management profit#

Use a documented allocation method across all projects. For this invented example, the practice divides a £120,000 overhead pool by 8,000 direct project hours from the same period. The allocation rate is £15 per direct project hour.

The pool includes non-project salary and the employer costs excluded from direct salary above. It also includes shared practice costs such as rent and insurance, but excludes every direct cost already assigned to projects.

This project used 1,200 direct hours. Its allocated overhead is £18,000, leaving fully costed management profit of £12,000 from the £30,000 direct contribution. Direct contribution margin is £30,000 divided by £100,000, or 30%. Management profit margin is 12% on the same fee boundary.

Neither percentage is a target. Both describe this example.

If a project spans several accounting periods, apply each period's allocation rate to its relevant hours. Do not use one unrelated annual rate.

Reconcile allocated overhead across the practice to the overhead pool, and report any difference separately. These project results do not automatically equal statutory business profit. The margin and profitability hub covers other management questions without changing this calculation's boundary.

Keep the signed reconciliation beside the next proposal for comparable work. It gives the estimator a completed cost record, not just a fee that looked attractive.

Start with Korrel to carry a proposal into a project and track delivery time and expenses against the estimate.