Take, for example, my morning coffee which costs $6; with the beans at 80 cents, milk at 50 cents, and the cup at 20 cents, the gross margin is 75%. This calculation doesn't include rent, labor, insurance, depreciation, power, water, etc.
However, in my experience preparing IT bids for customers, the Project Gross Margin Analysis Spreadsheet engine often include most of the indirect costs. For instance, a junior project manager might be billed at $2600 per day to the customer, with her on-costs calculated at $2000 per day. But that $2000 per day encompasses everything the employee costs the company, not just her salary and bonus. It's loaded with a share of the office rent, power, IT costs, depreciation for a specific class of laptop, travel, training, insurance, HR, her manager, and the C-Suite expenses. Additionally, a risk factor (contingency) of about 10% to 30% is added, depending on the project's expected challenges, especially for fixed-price contracts. Only then do we arrive at the gross margin. A fully loaded gross margin of 26% on an $86 million contract would be considered reasonable by every company I've worked for, in fact celebrated.
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