Q. What is profitability?
A. Gross Income - Cost of Goods Sold = Net Profit

While the above is a solid answer, its a bit generic. Often times we forget that its not only the profitability of a project we are interested in measuring, but the overall profitability of the company.

If we’re looking to measure the profitability of a particular project this formula works perfectly: Total Project Income - Cost of Contracted Services = Project Profit.

Example
$10,000 (Project Bid) - $3,500 (Project Hard Cost) = $6,500 Project Net Profit.

Its when we’re looking to measure the profitability of the company it becomes a tad bit tricky.

Here are some factors that come to mind when measuring the profitability of the company: Project Hard Costs (Contracted Services), Salaries, Insurance, Monthly Dues & Subscriptions, Travel & Entertainment.

Example
$400,000 (Company Revenue)
- $75,000 (Project Hard Costs)
- $180,000 (Salaries)
- $10,000 (Insurance)
- $25,000 (Dues & Subscriptions)
- $15,000 (Travel & Entertainment)
= $95,000 (Company Profitability)

Just because projects individually you may be working on are profitable doesn’t mean the company as a whole is profiting on them. Be sure to measure both aspects of profitability when measuring the sucess of your company.