How to Track Profitability by Client or Project in QuickBooks

A business can have a full schedule, strong sales and several large clients while still earning less profit than expected.

Revenue tells us how much the business has earned or billed. It does not tell us how much remains after the time, labor, contractor costs, software, materials and other resources needed to complete the work have been considered.

That is why client and project profitability matters.

When the financial information is organized properly, a business can begin to see which clients, projects or services are contributing to profit and which ones are using more time and resources than expected.

QuickBooks can support this process, but the available tools depend on the QuickBooks Online subscription, connected applications and the way the company file has been set up.

The setup needs to provide useful information without becoming so complicated that no one maintains it properly.

Revenue Is Not the Same as Profit

A client who pays the largest invoice is not automatically the most profitable client.

A large project may also require:

• More employee time
• Additional contractor support
• Specialized software
• Travel or mileage
• Materials and supplies
• Extra revisions or meetings
• Administrative coordination
• Payment processing fees
• Work that was not included in the original scope

If the business looks only at revenue, the project may appear successful.

Once the related costs and time are included, the result may look very different.

Profitability reporting helps the business move beyond asking:

“How much did we bill?”

It allows the business to ask:

“How much did we actually retain after delivering the work?”

Reliable Reporting Starts With Reliable Bookkeeping

Profitability reports are only as useful as the financial records behind them.

Before reviewing client or project performance, the business needs reliable:

• Income categorization
• Expense categorization
• Bank reconciliations
• Credit card reconciliations
• Payroll records
• Contractor payment records
• Customer and invoice information
• Payment processor activity
• Opening balances
• Accounts receivable records

If transactions are duplicated, missing or posted to the wrong accounts, the profitability information may also be incomplete or misleading.

A QuickBooks file that contains structural problems may need to be cleaned up before detailed profitability reporting can be trusted.

South Ridge explains this process in What a QuickBooks Cleanup Actually Includes.

Decide What the Business Actually Needs to Measure

Not every business needs to review profitability in the same way.

A professional service firm may want to review profitability by:

• Client
• Project
• Service line
• Department
• Team
• Contract
• Location
• Recurring engagement

A growing service business may want to review profitability by:

• Job
• Customer
• Service type
• Appointment category
• Crew
• Location
• Event
• Contract

Before changing the QuickBooks setup, the business should decide what information would genuinely help with pricing, staffing, capacity and client decisions.

Tracking too little can hide important problems.

Tracking too much can create a system that becomes difficult to maintain.

The right structure is detailed enough to answer important questions while remaining practical for the people who need to use it.

Understand What QuickBooks Can Track

QuickBooks Online offers different features depending on the subscription being used.

The dedicated Projects feature is available with certain QuickBooks Online subscriptions and can be used to organize income and costs connected to individual projects.

A business using a subscription without that feature may need a different approach. Depending on the circumstances, this could involve customer records, subcustomers, classes, locations, products and services, or carefully structured reports.

The appropriate setup depends on:

• The QuickBooks Online subscription
• How the business invoices clients
• Whether time is tracked
• Whether payroll is processed through QuickBooks
• Whether contractors are used
• How detailed the reports need to be
• Whether other applications are connected

The system should reflect how the business actually operates rather than forcing every business into the same structure.

Assign Income to the Correct Client or Project

The first part of profitability reporting is identifying the income connected to the client, job or project.

Depending on the business, revenue may come from:

• Customer invoices
• Retainers
• Project deposits
• Recurring monthly services
• Hourly work
• Fixed-fee projects
• Milestone billing
• Appointment payments
• Online payment platforms
• Direct bank transfers

Whenever the bookkeeping system supports it, income should be connected to the appropriate customer, client or project.

If all income is recorded as one general sales total, the business may know its total revenue but still have no clear idea which clients or projects produced it.

Consistency matters.

The same client should not appear under several different names. A project should not be recorded one way on an invoice and another way when the payment reaches the bank.

Clear naming and consistent customer records make the reports easier to understand and reduce the risk of duplicated information.

Track Direct Project Costs

Direct costs are expenses that can be connected to a particular client, job or project.

Examples may include:

• Contractor fees
• Freelance support
• Project materials
• Printing
• Shipping
• Travel
• Mileage reimbursements
• Equipment rental
• Specialized software
• Event costs
• Client-specific advertising
• Merchant processing fees
• Outside professional services

When reliable supporting information is available, these costs can be assigned to the relevant client or project.

If a contractor works only on one project, that contractor's cost may belong directly to that project.

If software or materials were purchased specifically for one engagement, those costs may also need to be included.

When all direct costs are recorded as general operating expenses, individual project margins can appear healthier than they really are.

Include Labor Where It Matters

For many professional service firms, employee time is one of the largest costs involved in delivering the work.

A project may have very few outside expenses but still require many hours from the team.

Ignoring labor can create an incomplete picture of profitability.

For example, two clients may each generate $5,000 of revenue.

Client A may require 20 hours of staff time.

Client B may require 70 hours, several revisions and additional management involvement.

The revenue is the same, but the financial return is not.

A labor review may consider:

• Employee hours
• Hourly wages or estimated labor cost
• Employer payroll taxes
• Benefits
• Overtime
• Management review time
• Administrative support
• Nonbillable project work

Labor costs do not necessarily appear in project reporting automatically.

The business may need properly entered time records, employee or contractor cost rates, payroll information and the appropriate QuickBooks or time-tracking setup.

Some businesses use integrated time tracking and payroll information. Others review payroll reports, scheduled hours or carefully documented calculations outside QuickBooks.

Whichever method is used, it should be reasonable, supportable and applied consistently.

Separate Direct Costs From General Overhead

Not every expense belongs to one client or project.

General overhead may include:

• Office rent
• General business insurance
• Bookkeeping
• Internet
• Administrative software
• General marketing
• Office supplies
• Professional memberships
• Telephone costs
• Leadership salaries
• General training

These costs support the business as a whole.

A business may choose to allocate some overhead to clients or projects, but the method should be clear and consistent.

Possible allocation methods may be based on:

• Revenue
• Employee hours
• Project hours
• Number of clients
• Number of jobs
• Direct labor cost
• Department usage

There is no single method that works for every business.

The purpose is to improve decision-making, not to create a formula so complicated that it is rarely updated or understood.

Many businesses begin by reviewing revenue less direct costs. Overhead can then be considered separately when reviewing the overall financial return.

Understand Gross Profit and Project Margin

A basic project profitability calculation may begin with:

The gross profit margin compares the resulting gross profit with the project revenue.

For example:

This calculation becomes more useful when the same method is applied consistently across similar clients or projects.

It may help reveal:

• Projects that appear to be priced too low
• Clients who require more support than expected
• Services with stronger margins
• Services with high delivery costs
• Contractor costs that are increasing
• Projects affected by scope changes
• Work that is taking longer than planned

The business should decide which costs need to be included in the calculation and then apply that approach consistently.

A practical method that is reviewed every month is usually more useful than a highly detailed method that is rarely completed.

Record Retainers and Deposits Carefully

Professional service firms often receive money before all the work has been completed.

Examples include:

• Retainers
• Advance payments
• Project deposits
• Milestone payments
• Prepaid service packages

Receiving money does not automatically mean that the full amount should immediately appear as earned revenue in the operational books.

An unused customer retainer or deposit may need to remain recorded as a liability until it is applied to services or otherwise earned under the agreement.

The correct treatment can depend on:

• What the payment represents
• Whether the amount is refundable
• The terms of the agreement
• Whether the related work has been completed
• The company's accounting method
• Guidance from the company's CPA or tax professional

From an operational reporting perspective, the business should be able to distinguish between:

• Money received
• Work completed
• Amounts applied to completed services
• Amounts still connected to future work
• Remaining client obligations

If retainers and deposits are handled inconsistently, client profitability reports may be distorted.

A project may appear highly profitable in the month the money was received and much less profitable in the month the work was completed.

A clear workflow helps the financial records follow the progress of the engagement more accurately.

South Ridge does not prepare tax returns. Businesses should confirm tax treatment and revenue-recognition questions with their CPA or tax professional.

Capture Scope Changes and Unbilled Work

Profitability often declines because the work grows beyond what was originally agreed.

This may happen through:

• Additional revisions
• Extra meetings
• New deliverables
• Urgent requests
• Extended timelines
• Additional reporting
• Team changes
• Client delays
• Work performed outside the original agreement

The accounting records may show the original project revenue, but they may not explain why the labor or contractor costs increased.

This is where financial reporting and the business's internal workflow need to work together.

The business should have a process for identifying:

• Out-of-scope work
• Additional time
• Change requests
• Unbilled services
• Discounts
• Write-offs
• Credits
• Delayed invoices

QuickBooks can support the financial side, but the business still needs a reliable way to document changes before they reduce the project margin.

Reconcile Payments Before Trusting the Reports

Revenue reports and bank deposits do not always match one-for-one.

A payment platform may:

• Combine several payments into one deposit
• Deduct processing fees
• Withhold reserves
• Process refunds
• Remove chargebacks
• Delay part of a payment
• Split deposits across different dates

QuickBooks may also need to group several customer payments so the recorded deposit agrees with the amount shown on the bank statement.

If only the net amount deposited into the bank is recorded as revenue, gross income and payment processing fees may both be understated.

Payment activity should be reviewed and reconciled so sales, fees, adjustments and final deposits are recorded consistently.

This becomes especially important when payment fees or other transaction costs are included in the profitability analysis.

South Ridge provides structured bookkeeping and financial support for professional service firms, including QuickBooks workflows, project income, contractor activity and reliable reporting.

Review Accounts Receivable

A client may appear profitable based on invoiced revenue even though the invoice has not been collected.

This creates an important distinction between:

• Revenue billed
• Revenue earned
• Cash received
• Amounts still outstanding
• Amounts that may be difficult to collect

A profitability report should therefore be reviewed alongside accounts receivable.

Questions to consider include:

• Has the client paid?
• How long has the invoice been outstanding?
• Has part of the balance been disputed?
• Was a credit issued?
• Is additional work continuing before older invoices are paid?
• Is the business carrying the cost of the project while waiting for payment?

A profitable project on paper can still create cash-flow pressure when the client pays slowly.

Compare Similar Types of Work

Profitability information becomes more useful when comparable projects are reviewed together.

A consulting firm may compare:

• Monthly retainers
• Fixed-fee projects
• Hourly engagements
• Strategy work
• Implementation work
• Ongoing support
• One-time assessments

A creative agency may compare:

• Website projects
• Branding projects
• Monthly marketing retainers
• Photography
• Design work
• Campaign management

A growing service business may compare:

• Residential jobs
• Commercial jobs
• Recurring services
• One-time appointments
• Emergency work
• Contract work

The purpose is not to judge one project in isolation.

The purpose is to identify patterns.

Several similar projects with weak margins may point to a pricing, scope or workflow problem.

Several strong projects may show where the business should focus more of its time and resources.

Use Profitability Information to Review Pricing

Pricing should not be based only on what competitors charge or what appears reasonable to the client.

The business also needs to understand what it costs to deliver the service.

Profitability information may help identify:

• Services that appear underpriced
• Projects that may require a minimum fee
• Clients who need a different service level
• Work that should require a deposit
• Tasks that should be billed separately
• Contractor costs that need to be considered
• Services that could be standardized
• Work that may no longer be financially sustainable

The answer is not always to increase every price.

Sometimes the business may need to improve the workflow, reduce unnecessary revisions, change the staffing structure or clarify the project scope.

The reports provide the information, but the business owner still needs to decide what action makes sense.

Do Not Rely on One Report Alone

A client or project profitability report should be reviewed alongside other financial and operational information.

Useful reports may include:

• Profit and loss statement
• Balance sheet
• Accounts receivable aging
• Revenue by client
• Revenue by service
• Project income and costs
• Payroll reports
• Contractor payment reports
• Cash-flow information
• Month-to-month comparisons

The reports available will depend on the QuickBooks subscription, setup and information being tracked.

Business owners can learn more about the wider reporting process in What Business Owners Should Actually Look at in Their Monthly Financial Reports.

A project can appear profitable while the business still has cash-flow problems, excessive overhead or unpaid liabilities.

The reports need to be reviewed together so they provide proper context.

Common Profitability Tracking Problems

Client and project reports may become unreliable when:

• Income is not assigned to the appropriate client
• Contractors are recorded only as general expenses
• Employee labor is excluded from the analysis
• Deposits are handled inconsistently
• Payment fees are not separated
• Project or customer names are duplicated
• Personal and business activity is mixed
• Reconciliations are incomplete
• Costs are entered long after the project ended
• Scope changes are not documented
• Old accounts receivable balances remain unresolved
• The reporting method changes from month to month

These are not always just reporting problems.

They can also be signs that the bookkeeping workflow needs attention.

The process should remain consistent from the time a client or project is created through invoicing, payment, expense recording, reconciliation and monthly reporting.

Build Profitability Review Into the Monthly Process

Profitability should not be reviewed only when a business becomes concerned about a particular client.

A practical monthly review may include:

1. 1Confirm that bank and credit card accounts are reconciled.
2. 2Review income assigned to clients or projects.
3. 3Confirm direct expenses are assigned consistently.
4. 4Review contractor and relevant labor costs.
5. 5Check outstanding invoices.
6. 6Investigate unusual project balances.
7. 7Compare actual costs with expectations.
8. 8Review available client or project margins.
9. 9Document pricing, scope or workflow concerns.
10. 10Carry unresolved questions into the next management review.

This creates a repeatable process rather than a one-time exercise.

What the Information Can Help a Business Decide

Reliable profitability information can support decisions about:

• Pricing
• Client selection
• Project minimums
• Staffing
• Contractor usage
• Service offerings
• Payment terms
• Deposits
• Scope controls
• Workflow changes
• Capacity
• Growth

It may show that the largest client is not the most profitable.

It may show that a smaller recurring client provides a stronger return with fewer demands.

It may show that one service remains profitable only when the work stays within scope.

It may also confirm that certain projects are performing exactly as expected.

The aim is not to produce more reports for the sake of it. It is to give the business clearer information that can be used when decisions need to be made.

Where South Ridge Begins

South Ridge begins by understanding how the business earns revenue, delivers services, pays employees or contractors and records activity in QuickBooks.

When there appears to be a potential fit, a paid Financial Diagnostic may be recommended.

The diagnostic can help identify:

• QuickBooks setup concerns
• Inconsistent client or project records
• Reconciliation problems
• Missing direct costs
• Contractor tracking concerns
• Reporting limitations
• Workflow gaps
• Opportunities for clearer monthly reporting

The business receives a written summary with practical next-step recommendations.

South Ridge also provides QuickBooks setup, cleanup and financial catch-up services based on the condition, complexity and reporting needs of the business.