# Profit as Professional Services KPIDefinition, Calculation, Example

Why is profit an important metric? How is profit calculated and measured?

## Profit definition

Profit is a difference between the amount earned and the amount spent. In consulting business, earnings are usually revenue from projects while spendings are the cost of delivering these projects: salaries of consultants and overhead (non-project-related expenditures).

## Why profit is an important metric

Without profits, consulting companies could not invest money in marketing, sales, training, services engineering, and knowledge management. Consulting businesses without profits are more like self-employment or nonprofit organizations. A typical profit margin for a consulting firm is in the range of 15%-25%.

## How to calculate profit

The following is the formula to calculate profit in a consulting business
$$Profit\; =\; Revenue\; -\; Expenses$$

## Profit calculation example

The company sold and delivered a project. The client paid $150,000 for the service. It cost the company$80,000 to deliver the project.
The profit of the company is \$70,000.
$$Profit\; Margin\; =\; \frac { \160,000\; -\; \84,000 }{ \160,000 } \; ×\; 100%\; =\; 47.5\%$$

## How to measure profit

Measurement should be performed over time by project, department, and employee. This will enable you to answer the following questions:
• Who are my most profitable customers?
• What type of projects are my most profitable?
• On which parts of a long-term project do I make the most money?
Here is how Metric.ai calculates profit by client and by project. Switch image to see the inside project profit change over time.