- Enter service revenue. Use net revenue for the job, client, or period.
- Enter direct labor cost. Include labor attributable to delivery.
- Add other direct costs. Include subcontractors, travel, materials, or usage-based tools.
- Enter allocated overhead. Add the share of support and operating costs assigned to the service.
- Review both margins. Contribution margin isolates delivery economics; operating margin includes overhead.
Service Margin Estimator
The Service Margin Estimator measures the percentage of service revenue left after direct delivery costs and optional allocated overhead. It provides both contribution margin, before allocated overhead, and operating service margin, after overhead, so teams can distinguish delivery economics from the broader cost of running the business.
Consultancies, field-service companies, studios, and technical teams can use the metric to compare engagements, identify underpriced work, or set margin thresholds. The result depends on how costs are classified and allocated, so use the same definitions when comparing periods, teams, or clients.
Calculator inputs
USD
USD
USD
USD
Result
—
Calculated result
Service profit—
Contribution margin—
Total cost ratio—
Service profit = Revenue − Direct labor − Other direct costs − Allocated overhead
Operating service margin = Service profit ÷ Revenue × 100
Contribution margin = (Revenue − Direct labor − Other direct costs) ÷ Revenue × 100
Revenue must be greater than zero to calculate margin percentages.
What the result means
The main result is operating service margin after all entered direct costs and allocated overhead.
A margin comparison is meaningful only when revenue and cost classification are consistent across the items being compared.
Given: $25,000 revenue, $9,000 direct labor, $2,500 other direct costs, and $3,500 allocated overhead.
Calculation: Service profit = $25,000 − $9,000 − $2,500 − $3,500 = $10,000. Operating margin = $10,000 ÷ $25,000 × 100 = 40%. Contribution margin = $13,500 ÷ $25,000 × 100 = 54%.
Result: The service has a 40% operating margin and a 54% contribution margin.
What is the difference between contribution and operating service margin?
Contribution margin excludes allocated overhead, while operating service margin includes it.
Can service margin exceed 100%?
Not with nonnegative costs and normal revenue; unusual accounting adjustments may produce exceptional values.
How should subcontractor costs be classified?
Treat them as direct costs when they are specifically tied to delivering the service.
What does a negative margin mean?
The service costs more to deliver and support than the revenue it generates.
Should I compare margins across clients?
Yes, provided revenue recognition and cost allocation methods are consistent.