How to Track Project Profitability in Xero

Written By Engineer Books

A simple, practical guide for engineering firms

If you run engineering projects, being busy doesn’t always mean being profitable. Often, loss-making projects go unnoticed, which means genuinely profitable projects end up subsidising the unprofitable ones.

Xero gives you a clean way to track project income versus project costs, so you can clearly see which jobs are actually making money — and which ones aren’t.

 

Here’s the simple way to do it.

1. Use Project Tracking in Xero

In Xero, set up a Tracking Category called Projects.

Each job becomes a project code, for example:

• Road Upgrade – North Perth
• Bridge Strengthening – Fremantle
• Residential Subdivision – Joondalup

This allows you to tag both income and costs to each project.

2. Tag All Project Income

When you raise an invoice, select the relevant project in the tracking field.

This tells Xero:

“This income belongs to this job.”

Milestone billing, progress claims, and variations should all be tagged to the same project.

3. Tag Direct Project Costs

Code all direct costs to the same project, including:

• Subcontractors and consultants
• Surveying and testing
• Materials
• Equipment hire
• Direct labour time

This gives you a true picture of the delivery cost for each job.

4. Handle Overheads the Smart Way

Overheads are often overlooked. Best way to allocate rent, IT, admin, and management time is to work out an overhead cost per hour.

You calculate:

Total expected annual overhead ÷ total expected billable hours

This gives you an overhead cost per hour, which is added to the staff cost per billable hour to determine the total cost rate per billable hour. This rate is then used for costing projects.

To determine the client charge-out rate, a profit margin (for example, 30%) is added on top.

Result:

✔ Every billed hour automatically recovers overhead
✔ True costs are reflected in each project
✔ Cleaner and more meaningful project reporting

 

5. Review Project Profitability

Use Xero’s Tracking Summary Report to review:

• Income by project
• Direct costs by project
• Gross project margin

This allows you to:

✔ Spot loss-making projects early
✔ Price future jobs more accurately
✔ Improve margins over time

 

The Big Mistake We See

Many firms track supplier costs — but forget to account for:

• True labour cost
• Overhead recovery
• Non-billable time

That’s how projects can “look profitable” while the business struggles overall.

 

Want the Full System?

We help Perth engineering firms to:

  • Set up project tracking properly in Xero

  • Calculate true charge-out rates

  • Track real project profitability

  • Improve cost control

Engineer Books