How do I calculate contribution margin for my services startup?

Question

Accepted Answer

Quick answer. Take the revenue from a project or client and subtract the variable costs of delivering it — mainly the cost of the people's time and any project-specific expenses. What's left contributes to your overheads and profit. How to calculate it. Contribution margin = project revenue − variable delivery costs. For services, the big variable cost is the cost of the team's time spent on that project (their salary cost for those hours), plus any project-specific costs — travel, subcontractors, tools bought for the job. Your office rent and admin salaries are fixed overheads, not variable, so they sit below contribution margin. An example. You deliver a project for ₹2,00,000. The team spends time that costs ₹90,000 in salaries, plus ₹20,000 in travel and subcontracting — ₹1,10,000 variable. Contribution margin = ₹90,000, or 45%. Watch this alongside utilisation (how much of your team's paid time is actually billable) — low utilisation quietly destroys services margins even when each project looks fine. Our honest take. In services, your people are both your product and your biggest variable cost. Price on value, keep utilisation high, and watch margin per project — that's how a services business makes real money instead of just staying busy.