Agency & Pricing
Client Profitability Calculator
Your biggest client is not automatically your most profitable one. This counts the servicing time nobody bills for, the account management overhead, and the pass-through costs, so you can see which relationships actually pay.
Result
FormulaClient gross margin = ((annual revenue - ((delivery hours + servicing hours) × cost per hour + direct costs)) ÷ annual revenue) × 100
Worked example
A client paying $180,000 a year takes 720 delivery hours and 180 unbilled servicing hours at a $95 blended cost, plus $14,000 in pass-through costs. Total cost is $99,500, leaving $80,500 of gross profit, a 44.7 percent margin and a $200 effective rate. The unbilled servicing alone costs $17,100.
What to watch for
Servicing hours are the ones nobody logs: the unplanned call, the rushed deck, the weekly status meeting that runs long. On difficult accounts they routinely reach 25 percent of delivery hours and they are invisible until you measure them.
Run this across every client once a year and you will usually find the distribution is lopsided, with a minority of accounts carrying the profit. That is normal. What matters is acting on it rather than filing it.
A structurally unprofitable client has three exits: reprice at renewal, reduce the scope to what the fee supports, or resign the account. Doing nothing is a decision to have your good clients subsidize the bad one.
Frequently asked questions
How do I track unbilled servicing time?
Give every client a non-billable time code and require it to be used. It takes a quarter of nagging to get clean data and it is the single highest leverage reporting change most agencies can make.
What margin means a client is worth keeping?
It depends on your overhead, but below roughly 30 percent gross a client usually stops covering its share of the business once you allocate overhead. Reprice or reduce scope before you consider resigning.
Should strategic value ever override the numbers?
Occasionally, and only with an expiry date. A logo or a case study can justify a thin margin for a defined period. Write down when the discount ends, or it never does.
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This calculator runs entirely in your browser. Nothing you enter is sent to a server, logged, or stored. Figures are for planning and do not constitute financial advice. See disclosures.