54.8% of surveyed respondents aren’t satisfied with their total company profit margin and think it needs improvement

‍What is net profit margin in professional services?

Net profit margin shows what percentage of your revenue actually becomes profit after accounting for all costs - not just direct project expenses, but all operating expenses and non-standard (or indirect) costs, like office rent, utilities, taxes, interest etc. It's the financial reality check that many consultancies avoid facing.

Unlike gross profit calculations that only consider direct costs across all accounts, net profit margin captures your complete financial picture, including all the overhead of running your professional services firm.

The numbers that matter

When your firm generates $500,000 in revenue and ends up with $75,000 in net income after all expenses, your net profit margin is 15%. This means for every dollar your experts bring in, only 15 cents contribute to your firm's growth and sustainability - the rest is consumed by costs. How does your profitability compare to industry benchmarks?

How to calculate your net profit margin: step-by-step guide

Net margin, also known as company overall margin, takes into account all non-standard (indirect) costs such as office rent, utilities, and taxes (for profit, not payroll).

For consulting firms, calculating your net margin requires accounting for:

• All direct project costs (billable staff, project expenses)
• Non-standard indirect costs (office space, non-billable staff, technology)
• Administrative overhead (finance, HR, marketing)
• All taxes and regulatory expenses

Calculation: ((operating margin – all non-standard costs) ÷ operating margin) × 100 = net margin %

Learn how to calculate your operating margin

A company’s net margin will be of particular interest to private equity investors, because it provides a clear picture of your profitability (and therefore value as a prospective investment). Net margin is typically seen as the gold standard for figuring out what a firm is worth.

Why net profit margin matters for consulting firms: improving your bottom line

Net profit margin isn't just another financial ratio on your income statement - it's the definitive measure of your firm's overall profitability and the key to sustainable growth. It’s also a metric that is highly interesting to private equity investors. 

The problems your team tackles today are too complex, and your experts' time too valuable, to waste on unprofitable work that doesn't contribute to your bottom line after all expenses are accounted for.

When you track net profit margin as your central profitability ratio, you immediately:

• Understand your true company profits beyond project-level metrics
• Make data-driven decisions about pricing strategies and service offerings
• Identify inefficiencies in your operating costs structure
• Create more accurate forecasts for growth and investment
• Benchmark your performance against industry standards
• Demonstrate financial health to potential clients and partners

What's a good profit margin? Industry benchmarks that matter

When a client asks "what's a reasonable fee for this work?" you have an immediate answer. But when your CFO asks "what margin percentage should we target?" the silence is deafening.

Industry benchmarks aren't just nice-to-have data points - they're the reality check your firm needs to stop leaving money on the table. To keep up with the majority in your industry, aim for a total company profit margin of:

• Architecture services: >20%.
• Engineering services: >11%.
• Management consulting: >16%.
• Software services: >11%.

These aren't aspirational targets - they're what most of your competition actually deliver while producing their best work. The difference between average and top-tier margins isn't just academic - it's the runway that funds your firm's future.

Download the complete 2024 Projectworks Benchmarking Report

Calculate your net profit margin now: free interactive tool

Stop guessing about your profitability. Use our interactive net margin calculator to get immediate insight into your firm's financial performance and identify opportunities to improve your bottom line.

This calculator helps professional services firms:

• Instantly determine net profitability expressed as a percentage
• Simulate the impact of cost reductions on your bottom line

‍Transform your profitability from guesswork to growth engine: maximizing consulting net margin after interest and taxes

If your firm is going to solve meaningful problems, profitability can't be optional. Strong net profit margins fund your team of experts and buy runway for bigger bets on innovation.

Projectworks turns your financial data into real-time project intelligence that democratizes profitability insights across your firm. With instant visibility into margin, your team can course-correct before inefficiencies erode profits.

Ready to make profitability your new normal? Book a demo to see how Projectworks helps leading consultancies track and improve their profit margins and strengthen their overall bottom line.