How to improve project profitability in service-based businesses

Published Tuesday 16 September 2025

Table of contents

• Understanding project-level financial visibility
• Key metrics for measuring project profitability
• Tools and systems for profitability tracking
• Optimising project margins and resource allocation
• Reporting and analysis best practices
• FAQs on improving project profitability

Key takeaways

• Project profitability is essential for long-term sustainability in service businesses.
• Financial visibility is the first step—integrating project and accounting data reduces blind spots.
• Key metrics like gross profit margin, billable utilisation, and budget variance help track success.
• Software profitability tools (e.g., Xero Projects, WorkflowMax) reduce reliance on spreadsheets.
• Optimisation comes from clear scopes, strategic pricing, real-time cost monitoring, and smart resourcing.
• Regular reporting and benchmarking provide ongoing insights for stronger decision-making.

Understanding project-level financial visibility

Before you can improve project profitability, you need to see clearly where each project stands financially. This is called project-level financial visibility – that is, using accurate, real-time insights into the costs, revenue, and margins of each piece of work you take on.

Without it, you could be making decisions based on assumptions instead of facts, or potentially undercharging and misallocating resources where they’re not best placed. All of this can easily eat into your profit margins.

A few common challenges service firms in Australia and New Zealand face include:

• Data living in silos: Keeping crucial data separate, like managing project updates in one system, invoicing in another, or timesheets in a spreadsheet. Data needs to interact in order to paint a true and accurate picture of your project (and businesses) health.
• Lagging indicators: Static metrics that use old performance results and aren’t able to predict or alter current projections – for example, finding out a project has gone over budget only after it’s finished.
• Unclear scope tracking: A lack of clarity and control in a project’s scope, where tasks and responsibilities can balloon out beyond what was originally planned, and become unclear whether it should be billed to the client or absorbed as a cost.

When your systems are connected – for example, when your project tool lives within your accounting software for firms and service teams – you can track both time and money in one place.

This doesn’t just save precious energy on admin, but also gives you an accurate view of whether a project is on track, in trouble, or exceeding expectations.

This means you can double down on projects that need a little extra help, or if they’re ahead of schedule, even reallocate resources on other projects that need more support.

Key metrics for measuring project profitability

Once you’ve got visibility over your project data, the next step is to measure it. Here are some key metrics every project profitability firm should be tracking:

1. Gross profit margin per project

This is the difference between project revenue and your direct costs, like labour, materials and subcontractors, all expressed as a percentage. It’s your primary indicator of service-based business profitability at the project level.

2. Billable utilisation rate

This is the percentage of total hours worked that are billable to clients. When you actually break this down, you’ll know where you might be overstaffed or inefficient.

Jane runs a communications agency. One of her employees, Nidhi, works 40 hours a week, but Jane realises that only 25 of those hours are billable. That’s a billable utilisation rate of (25 ÷ 40) × 100 – just 62.5%.

By shifting 5 of Nidhi’s hours from internal admin to client projects, her billable hours jump to 30. That lifts their utilisation rate to 75%, and boosts Jane’s project profitability in the process.

3. Budget variance

Budget variance is the difference between your original project budget and your actual costs. Large differences in the variances can signal overspending, often due to scope creep or inaccurate estimates.

4. Realisation rate

This is how much of your billed work is actually collected from the client. Remember, a low rate could mean discounting, write-offs, or collection issues.

Sometimes, issues with pricing can signal a larger problem of inefficiencies within the business that could be bottlenecking your success. Xero’s top tips to introduce more productivity into your everyday processes can help to streamline any sticky parts holding you back.

5. Client acquisition cost (CAC) per project

Especially important for repeat or long-term clients, your client acquisition cost (CAC) tells you if the cost of winning the work is proportional to the return.

Tracking these metrics consistently will help you measure project profitability over time – helping you to spot patterns and learn what makes your most profitable projects succeed. In fact, learning about how to increase profits across all areas of your operations can lead you to run a more sustainable business.

Tools and systems for profitability tracking

There’s good news ahead for tradies, agencies and consultancies – you don’t have to manage all of this with spreadsheets. By using a growing range of software profitability tools, you’ll be able to integrate financials, time tracking, and project management in one place.

Some popular options for service firms in Australia and New Zealand include:

• Xero Projects: Track time, costs, and project profitability directly from your Xero account.
• Job management software like WorkflowMax or ServiceM8, which can be added as end-to-end workflow tools directly within your existing accounting software.
• Team collaboration tools like Asana or Trello.

The key is choosing tools that:

• Integrate seamlessly with your existing accounting platform.Provide real-time data, not just month-end reports.
• Allow for easy reporting on project-specific metrics.

When your project management system talks to your accounting software for firms and service teams, you’ll start making informed decisions quickly. So, whether it’s reallocating resources, renegotiating timelines, or adjusting budgets, you’ll have the confidence and data to back up your decisions.

Optimising project margins and resource allocation

Once you can see and measure your project profitability, the next step is improving it. Here are five tips that other service-based businesses just like yours use to boost their margins without compromising quality.

Tighten your scope of work

Make sure every project starts with a clear, detailed brief and signed agreement. Always define what’s included – as well as what’s not – to prevent scope creep, and responsibilities ballooning out of control.

Price strategically

Consider value-based pricing instead of purely using hourly rates. This can better reflect the expertise and results you deliver, rather than just time spent on projects.

For example, Daniel, a web developer with 15 years’ experience, charges a fixed fee for building high-conversion sites. His clients pay for the results, not the hours, and he earns more for the same workload.

Monitor costs in real time

Using software profitability tools like Xero that alert you when a budget threshold is approaching means you can take action before overspending.

4. Allocate resources effectively

Match the right people to the right tasks. For example, junior team members can handle lower-complexity work at a lower cost, freeing senior staff for higher-value tasks.

5. Learn from your most profitable projects

Set aside some time to review past projects with the highest margins. What did they have in common? Was it the client, the type of work, the project manager, or the pricing model? Then, you can use those insights to replicate success.

Xero’s is here to help Australian and New Zealand businesses like yours take a step back and see the big picture. We’ll walk you through hiring the right people, pulling together clear financial reports, understanding how your business is performing, setting KPIs you can count on, and using global small business insights to make confident, informed decisions.

Reporting and analysis best practices

Remember, improving service-based business profitability isn’t a one-off task – it’s a cycle of measuring, analysing, and refining.

Here’s how to set up reporting processes that help you keep projects on track:

• Schedule regular reviews: Set weekly or fortnightly check-ins on active projects.
• Set up dashboards: Visual snapshots of current performance help you spot red flags quickly.
• Compare actuals to forecasts: See if projects are delivering the project profitability you’re expecting.
• Segment reports: Break down project profitability by client, project type, or team to see where your best opportunities lie.

When you combine structured reporting with the right accounting software for firms and service teams, you create a feedback loop: where insights drive better decisions, and better decisions improve project profitability over time.

Top tip: Stack your results up against official industry profitability benchmarks – it’s a quick way to see how you measure up.

For service firms across Australia and New Zealand, being able to measure project profitability – and act on it – is a real edge. Improve your project-level financial visibility, track the right metrics, use integrated tools, and make smart tweaks so every project boosts your bottom line.

With the right systems, like Xero, you’ll spend less time on admin and more time wowing clients while growing profits.

FAQs on improving project profitability

Here are answers to frequently asked questions on improving project profitability.

What is project profitability in a service-based business?

It measures how much profit each project contributes after accounting for revenue, labour, and direct costs.

Which metrics should I track to measure project profitability?

Focus on gross profit margin, billable utilisation rate, budget variance, realisation rate, and client acquisition cost.

How can accounting software help with profitability tracking?

Tools like Xero Projects integrate financials, time, and project data, giving real-time insights.

What are common causes of low project profitability?

Scope creep, underutilised staff, inaccurate pricing, and delayed billing are common challenges.

How often should I review project profitability?

Weekly or fortnightly check-ins with dashboards and reports help you identify problems early and take corrective action.