April 24, 2026·7 min read

How to Calculate Landscape Architect Profit Margin (Per Project and Firm-Wide)

Step-by-step guide to calculating profit margin for a landscape architecture firm — per project and firm-wide. Covers direct labor, indirect costs, overhead allocation, industry benchmarks, and the common accounting mistakes that make firms look more profitable than they actually are.

Most landscape architecture firms don't actually know how profitable their projects are. They know revenue. They know what hit the bank account. They might know overhead at the year-end tax meeting. But profitability per project — the single number that should drive pricing and staffing decisions — is usually unknown or miscalculated.

This guide walks through how to calculate it correctly, both per-project and firm-wide.

Why profitability is confusing

The confusion comes from how most firms track money:

Revenue is tracked in QuickBooks or a similar accounting system
Hours are tracked in a timesheet tool
Expenses are mixed together in QuickBooks
Overhead is a single annual number, not allocated to projects

To calculate profitability per project, you have to pull from all of these and reconcile them. That's painful enough that most firms skip it or do it once a year.

The result: firms that think they're making 20% margins are actually breaking even on half their projects. Or firms that think a particular client is their best one is actually their worst once you load in the staff time properly.

The formula (simple version)

For a single project:

Project Profit = Revenue Earned − Direct Labor Cost − Direct Expenses − Allocated Overhead
Project Margin % = Project Profit / Revenue Earned

Three categories of cost to pull in. Let's walk each.

1. Direct labor cost

This is the hourly cost (not billing rate) of every staff hour charged to the project.

Hourly cost formula:

Hourly Cost = Annual Salary / 2,080 (working hours per year)

So a Landscape Architect on $85,000/yr has an hourly cost of ~$40.87.

Important: Hourly cost is only the base salary. It does NOT include benefits, payroll taxes, or overhead — those go in separate categories (see below).

To calculate direct labor cost for a project:

Σ (staff hours on project × their hourly cost)

If your project log shows 80 hours from the Principal ($58/hr cost), 140 hours from a PM ($43/hr), and 200 hours from a Designer ($32/hr):

Direct labor = (80 × $58) + (140 × $43) + (200 × $32) = $4,640 + $6,020 + $6,400 = $17,060

2. Direct expenses (project-specific)

Costs incurred specifically for this project and billable or deductible from revenue:

Sub-consultant fees (arborist report, irrigation specialist, renderings)
Travel and mileage
Printing and plotting
Permit and review fees fronted by the firm
Materials bought specifically for the project (mock-ups, presentation boards)

Most firms pass these through at cost or cost + 10% markup. Either way, track them per project.

3. Allocated overhead

This is where most firms get it wrong. Overhead includes everything that isn't direct labor or project expenses:

Rent, utilities, insurance, technology
Benefits and payroll taxes on direct labor (typically 20–30% on top of salary)
Admin staff time (bookkeeper, office manager, receptionist)
Software subscriptions
Marketing and BD
Professional development and training
Non-billable principal time (firm leadership, BD, admin)

The typical firm has overhead of roughly 1.5–2.0× direct labor. So every $1 of direct labor needs ~$1.75 of overhead to cover it.

Simple overhead allocation method:

Overhead Rate = Total Annual Overhead / Total Annual Direct Labor
Overhead Allocated to Project = Project Direct Labor × Overhead Rate

For the project above with $17,060 of direct labor and a firm-wide overhead rate of 1.75×:

Overhead allocated = $17,060 × 1.75 = $29,855

That's allocated overhead — the project's fair share of the firm's total overhead based on how much labor it consumed.

Putting it together

Say the project billed $52,000 total, had $2,500 in pass-through expenses (billed at cost), and the numbers above:

Revenue earned:        $52,000
  − Direct labor:     −$17,060
  − Direct expenses:  −$2,500
  − Allocated overhead:−$29,855
  = Project profit:     $2,585

Project margin:       5.0%

That project was barely profitable. Most firm owners would have assumed it was solidly in the black.

Industry benchmarks

Typical landscape architecture firm profit margins:

Firm size	Typical net profit margin
Solo practitioner	15–25% (owner takes everything not spent)
2–5 person firm	8–15%
5–15 person firm	10–18%
15+ person firm	8–15%
Enterprise firms	5–12% (but larger base)

These are net margins after all overhead allocation. Firms often quote "gross margins" (revenue minus direct labor only) which are much higher — 50–65% — but less meaningful.

If your firm's net margin is below 8%, you're either under-pricing, over-staffing, or carrying too much overhead. Below 5% means you're probably subsidizing your clients with your own retirement contributions.

Where firms get it wrong

Mistake 1: Using billing rates instead of hourly cost

Billing rate is what you charge the client. Hourly cost is what you pay the employee. Calculating "profit" using billing rates gives you a meaningless number — you're essentially subtracting revenue from revenue.

Mistake 2: Ignoring overhead allocation

A project that made $10,000 "gross profit" after direct labor might have actually cost the firm money once overhead is loaded in. Firms that skip overhead allocation consistently overestimate their profitability.

Mistake 3: Mixing calendar time with billable time

A project started in January and closed in December might have $30,000 of direct labor, but if half of that was spread across staff working on multiple projects, only the hours actually tracked to this project count toward this project's cost.

Mistake 4: Not tracking non-billable hours

If staff spent 50 hours on internal meetings, training, or BD that somehow got coded to the project instead of admin/overhead, your "project direct labor" number is wrong. Utilization tracking at the individual level is how you catch this.

Mistake 5: Forgetting the CA phase

Most firms scope CA at 10–15% of fee and spend 20–25% of hours there. If you're calculating profitability before the project is fully closed, you're probably over-counting the profit.

Mistake 6: Change orders not tied to fee

If you did the work but forgot to raise a change order, the client paid nothing and you ate the labor. This is a shockingly common way to lose 5–10% margin on a project.

Firm-wide profit margin

Same formula at the firm level:

Firm Revenue (annual) − Firm Direct Labor − Firm Direct Expenses − Firm Overhead = Firm Profit

The nice thing about firm-wide is you can pull it straight from your P&L. No overhead allocation needed — it's all there.

The useful thing about per-project is you can see WHICH projects drive profit and WHICH drive losses. Firm-wide averaging hides that.

A simple monthly review process

Pick one Friday a month. Block 1 hour. Walk through:

Which projects closed this month? For each closed project, calculate direct labor + expenses vs. fee. Note margin.
Which active projects are over budget? Pull a burn-rate report. Flag anything over 80% spent with less than 80% work complete.
What's the firm-wide utilization? Hours billable / hours available. Industry target is 70–80%.
What's the firm-wide profit margin year-to-date? Revenue − direct labor − overhead. Compare to target (10–15% typical).

This takes an hour once you have the numbers in front of you. Without a system, gathering the numbers takes a day.

How Phasewise handles this

Phasewise tracks all four inputs needed for per-project profitability:

Billing rates and hourly cost pre-populated per role, editable per staff
Time entries logged per project + per phase by each team member
Overhead rate configurable firm-wide
Work plan tracks budgeted hours vs. actual hours per phase

The profitability report pulls these together automatically. You see margin per project, per phase, and per person without reconstructing spreadsheets.