Cost Analysis

You're not sure what that project really cost. You charged $15k and spent 40 hours plus a contractor and some tools. After the fact, you wonder if you made money. Cost analysis is breaking down the true cost of delivering your services—labor, overhead, tools, your time—so you know what you're actually spending and whether an investment (hire, software, new offer) will pay off.

Same project, two views. Without cost analysis: you guess. You think $15k is "good" because it sounds like a lot. With it: you add your 40 hours at your opportunity cost ($200/h = $8k), the contractor ($2k), the tool ($200), and a slice of overhead. True cost = $10.2k. Margin = $4.8k. Now you know. When you're deciding whether to hire someone at $3k/month, you can ask: what would I do with the 15 hours they free? If those hours are worth $4k, the hire pays for itself. Cost analysis makes that math visible.

How to do it

1. Direct costs per project or per client. Your time (hours × your opportunity cost or salary equivalent), contractor fees, materials, any direct tool cost for that job. Track this per engagement so you see which clients or service types are actually profitable.

2. Overhead. Rent, software, admin, insurance—costs that don't attach to one job. Allocate them across revenue or hours. E.g. $5k/month overhead ÷ 160 billable hours = $31/h overhead. Add that to your labor cost when you calculate true cost per project.

3. Use it for decisions. "If I hire at $3k/month plus labor burden, what do I need to free or generate to break even?" Cost analysis answers that. So does job costing for unit-level clarity.

What breaks

Ignoring your own time. If you don't count your hours at a realistic rate, you'll think unprofitable work is profitable. Your time has an opportunity cost—use it.

Allocating overhead arbitrarily. You don't need perfect allocation. You need directional truth. A simple rule (e.g. overhead per revenue hour) is enough to see which work carries its weight.

Where to go next