Cost of delivery
also known as cost of services · cost of goods sold
The direct cost of producing client work - mostly the billable time of the people doing it, plus any project-specific expenses.
For example, a $20,000 project that takes 90 hours of staff time costing $11,000 has a cost of delivery of $11,000. Subtracting it from the fee gives the gross profit, which is what tells you if the project was actually worth doing.
Why it matters to your firm: cost of delivery is the number you subtract from revenue to see real project profitability, and the foundation of gross margin. Tracking it per project - via time tracking - reveals which work and clients are profitable and which quietly lose money despite looking busy.
Direct delivery cost - the people and tools doing the work - typically runs ~35-50% of the fee for a healthy gross margin; much above that and margin suffers.
- Leaving out non-salary delivery costs like tools and subcontractors.
- Not tracking it per client, so loss-making accounts hide.
- Confusing it with overhead.