Net Revenue

Net Revenue is a company-wide profitability figure, calculated as:

Net Revenue = Gross Revenue − Consultant Fees − Direct Expenses

This article explains how Net Revenue is calculated, why it's structured this way, and how it differs from Net Fee — a related but distinct term.

The Calculation

Net Revenue starts with your firm's total Gross Revenue (all income across all projects) and subtracts two categories of cost:

• Consultant Fees — amounts paid or owed to subconsultants.
• Direct Expenses — reimbursable, project-related expenses such as printing, travel, or other pass-through costs.

What remains is Net Revenue — the portion of revenue that reflects your firm's own work, independent of money that passed through to consultants or covered direct project costs.

In P&L terms, Consultant Fees and Direct Expenses sit in Cost of Goods Sold, and Net Revenue is the resulting Gross Profit line:

Total Income (Gross Revenue)
Cost of Goods Sold
   Direct Expenses
   Consultants
Total COGS
Gross Profit (Net Revenue)

Direct labor is intentionally not included in COGS. Keeping direct labor as a separate expense line (rather than folding it into COGS) is what allows the overhead factor to be calculated correctly — see Overhead Calculation for more detail.

Why Net Revenue Is the Right Denominator

Measuring profitability as a percentage of Gross Revenue can be misleading, because it doesn't account for how much of that revenue simply passed through to consultants. A $500,000 project with $300,000 in consultant fees is not comparable, profitability-wise, to a $500,000 project with no consultants — yet a gross-revenue-based percentage would treat them the same.

Net Revenue normalizes for this by removing consultant fees and direct expenses, leaving only the revenue tied to your firm's own labor and overhead. This makes Net Revenue the correct basis for measuring company-wide profitability across projects with very different consultant loads.

Net Revenue vs. Net Fee — Don't Confuse These

Net Revenue and Net Fee are related but not interchangeable:

• Net Revenue is a company-wide figure. It's calculated from your overall Gross Revenue, minus consultant fees and direct expenses, across all projects.
• Net Fee is a per-project or per-phase figure. It's the fee your firm keeps after subtracting consultant fees from the Gross Fee on that specific project — it does not factor in direct expenses.

In short: Net Fee lives at the project/phase level and only nets out consultants. Net Revenue lives at the company level and nets out both consultants and direct expenses. Because both terms use "net" to mean "after consultants," it's easy to use them interchangeably — but they answer different questions and are calculated differently, so they shouldn't be substituted for one another in reporting or conversation.

Best Practice

Use Net Revenue when evaluating overall company profitability or comparing performance period over period — it's the number that correctly accounts for both consultant pass-throughs and direct expenses. Use Net Fee when you want to know what a specific project or phase is worth to your firm after consultant costs, without pulling in direct expenses. Keeping these two terms distinct avoids misreading your firm's actual profitability.

Summary

Net Revenue is calculated as Gross Revenue minus Consultant Fees minus Direct Expenses, and represents company-wide Gross Profit — the correct denominator for measuring overall profitability across projects with varying consultant loads. It is distinct from Net Fee, which is a per-project figure equal to Gross Fee minus Consultant Fees only, with no adjustment for direct expenses.