Plenty of engineering, technical and SaaS businesses have a full order book and a thin bank balance. The quotes are winning work, the team is busy, and yet the year-end profit is smaller than it should be. The usual reason is that nobody is checking job margins once the work is done: what each job was quoted to make, against what it actually made. This guide shows how to do that check on your last ten jobs, what normally causes the gap, and what to change in your quoting this week.
Why a busy order book can hide a margin problem
A quote is a forecast. It assumes a number of hours, a cost per hour, a materials or subcontract figure, and a scope the customer has agreed to. Every one of those can move after the customer says yes. If nobody compares the quote with the finished job, the business only sees the combined result months later in the management accounts, when it is too late to tell which jobs, customers or estimators caused it.
Winning a high share of quotes can be a warning sign rather than good news. If you win almost everything you price, it is worth asking whether your prices are below what customers would accept, or whether your estimates are leaving out work that you then do for free.
Checking job margins: a worked example
Here is a made-up example. Example Design Services Ltd is an imaginary building services design consultancy. It quotes a job as follows:
- Engineer time: 20 days at a charge-out rate of £600 a day = £12,000
- Specialist subcontractor, passed on with 10% added: £3,000 + £300 = £3,300
- Total quote: £15,300
Its estimated costs are 20 days at £300 a day (the engineer’s full cost, not just salary) = £6,000, plus the £3,000 subcontract = £9,000. So the quoted margin is £15,300 − £9,000 = £6,300, or 41% of the price.
Now the finished job:
- Engineer time actually booked: 27 days × £300 = £8,100. Two of the extra days were a change the client asked for on site, which nobody priced.
- Subcontractor’s final bill: £3,400, not £3,000.
- An extra site visit, travel not recharged: £250.
- Invoiced: still £15,300.
Actual cost is £8,100 + £3,400 + £250 = £11,750. Actual margin is £15,300 − £11,750 = £3,550, or 23% of the price. The job made £2,750 less than quoted, and the margin nearly halved. Nobody made a big mistake; it was four small ones.
If a business doing 120 jobs a year has a quarter of them slip like this, that is 30 × £2,750 = £82,500 a year of profit that was in the quotes but never reached the bank.
The usual causes of the gap
1. Hours estimated from memory
Estimates are often based on what the job “should” take, not on what similar jobs took last time. Without actual hours from past jobs, the same underestimate repeats on every quote.
2. A cost rate that is out of date or too low
Many firms work out their cost per hour by dividing an engineer’s yearly cost by all paid hours. But nobody books every paid hour to customer work: holidays, training, travel, admin and rework all come out of the same pot. Take an engineer whose total yearly cost to the business is £60,000. Spread over 1,650 paid hours, that looks like £36 an hour. Spread over the 1,200 hours actually booked to jobs, it is £50 an hour. Quote on £36 and every hour of work loses £14 of margin before anything else goes wrong. Ask your accountant to help you get the full yearly cost per person right, including employer costs.
3. Changes done for free
The client asks for an extra drawing, another meeting or a design change, and the team just does it to keep the relationship good. Unless there is a simple rule for pricing and confirming changes before the work starts, these quietly eat the margin on fixed-price jobs, and they rarely show up anywhere except in the hours.
4. Supplier and subcontract prices that moved
A quote priced in spring and delivered in autumn may be using old supplier prices. If the quote does not say how long the price is valid for, the business absorbs any rise.
5. Margin and markup mixed up
Adding 25% to cost gives a 20% margin, not 25% (£100 cost + £25 = £125 price; £25 ÷ £125 = 20%). If your target is a 25% margin and someone adds 25% to cost, every job comes in five points short. Agree which one your quoting sheet uses and label it.
6. Discounts to win the work
A small discount to close a deal often costs far more profit than it looks. We set out the arithmetic in our guide on how to raise prices without losing customers: a 3% cut on a job with a 35% gross margin needs about 9% more work just to stand still.
What to do this week
You do not need new software to start. A spreadsheet and your timesheets are enough.
- Pick your last ten finished jobs. Choose a mix of sizes and customers.
- For each job, write down five numbers: quoted price, quoted hours, actual hours booked, actual direct costs (subcontract, materials, travel), and amount invoiced.
- Work out quoted margin and actual margin for each, in £ and as a percentage of the price.
- Sort by the gap, largest first. Look for patterns: one type of job, one customer, one estimator, or one stage (often design changes or commissioning).
- Check your cost per hour using hours booked to jobs, not hours paid.
- Write a one-line change rule for the team: any work outside the agreed scope is priced and confirmed by email before it starts.
- Add a validity period to every quote, for example “Prices valid for 30 days”, and recheck supplier prices before you accept an order outside it.
Then make it routine. Review every job above a set value within a week of it finishing, while people still remember what happened, and feed the actual hours back into your next estimate for similar work.
Using your accounting software
If you use Xero, project tracking (time and costs against each job) is included on the Ultimate plan, according to Xero’s UK pricing page. On other plans, a simple spreadsheet does the job. Whatever you use, the important part is that time and supplier bills are coded to a job as they happen, not at month end. Our guide to same-day invoicing in Xero covers the related step of getting the invoice out when the job closes.
What good looks like
A business that checks job margins regularly can answer three questions quickly: which types of job make the most money per hour, which customers cost more to serve than they pay, and how accurate each estimator is. Those answers feed straight into pricing, into which work you chase, and into how you quote. It turns quoting from guesswork into something you can improve each month.
Job margins are one of the leaks we rank by £ value in a profit and cash review, alongside late payment, slow invoicing and pricing. You can see how the review works and the packages and prices.
Find out what your leaks are worth
Our free leak calculator takes a few numbers and gives you a rough £ figure for cash held by late payers and slow invoicing, plus an estimate of your price gap. It takes about two minutes. If you’d like a second pair of eyes on your job margins, book a free 30-minute call or ring 020 3918 0460.
