Margin Leakage is the gradual loss of profitability on a client project between the signed price and the final cost of delivery. It represents the gap between estimated margin at proposal time and actual margin achieved at completion.
Common sources of margin leakage include Timesheet Under-reporting (staff hiding overruns), rate compliance failures (sales discounting individual roles), and unbilled revision loops. Plug leaks by reviewing resource blends and rate compliance weekly.
Margin Protection Checklist
- Audit Rate Compliance: Compare quoted rates against master rate cards before deal sign-off.
- Enforce Timesheet Integrity: Require all actual hours to be logged, even overruns, so commercial truth is visible.
- Review Resource Blends: Check that actual staffing seniority matches the blended rate structure quoted.
- Automate Margin Tracking: Use indicators to flag planned-vs-actual margin divergence.
How do you detect margin leakage early?+
By tracking planned-vs-actual hours and billing milestones weekly. If application progress is at 30% but budget consumption is at 50%, margin leak is occurring.
Why is time tracking critical for fixed-price deals?+
Even if the client pays a fixed price, your cost of delivery is variable (staff hours). Tracking time on fixed-price projects is the only way to measure actual margin and estimate future deals accurately.