By István-Tamás Schneller, Founder, Auroranexis · Updated · 9 min read
In most service businesses, the clients who pay the most are not automatically the ones who earn you the most. A large client who calls every day, changes scope every week and needs urgent fixes at night can be worth less than a smaller client who simply pays and lets you work.
A client profitability analysis tells you which is which. You do not need an accounting system or a finance team for a first version — a spreadsheet and three months of data are enough. This guide walks through the calculation, a worked example, and what to do with the result.
Client profit is the revenue you receive from a client minus the direct cost of serving that client. Client margin is that profit as a share of the revenue.
The loaded hourly cost is what one hour of your team's time really costs you — not the salary alone. Add salary, employer costs and a fair share of overhead such as rent, software and management time for one person, and divide by the hours that person can actually spend on client work in a year.
Example
Two clients, one month, with the loaded hourly cost from above rounded to €45. The numbers are illustrative; use your own.
Two clients, one month
Client B pays less but earns more than Client A. Without the analysis, most teams would treat Client A as the more important account.
When a client turns out less profitable than expected, the cause is rarely the planned work. It is usually one of these:
Pick a period. Use the last three months. One month is too noisy; a year hides recent changes.
List revenue per client. Take what you actually invoiced in the period, not the contract value.
Collect hours per client. Use time tracking if you have it. If not, ask the team for honest estimates and start tracking from now on.
Add direct costs. Licences, subcontractors and anything else you pay only because of this client.
Calculate profit and margin. Apply the formula above for every client and sort the list by margin.
Look at effort signals. Next to each client, note the number of incidents and unplanned requests. They usually explain the outliers.
Group your clients into four groups and treat each group differently:
A price conversation goes better with evidence than with opinions. Instead of saying that the client is "a lot of work", show what changed: how many unplanned requests there were, how many incidents, how much time they took compared with what the contract covers. Then offer options — a higher fee, a smaller scope, or extra services billed separately — so the client can choose.
Repeat the analysis every quarter. Profitability changes when clients grow, change their team or start using your service differently, and you want to notice before renewal, not after.
Subtract the direct cost of serving a client — hours spent multiplied by your loaded hourly cost, plus client-specific tools and third-party costs — from the revenue you received from that client in the same period.
It depends on your industry, pricing model and overhead. Compare your clients with each other first; the spread between your best and worst clients is usually more useful than an outside benchmark.
It makes the result much more reliable, but you can start with honest estimates from the team for the last three months and introduce time tracking for the next quarter.
Quarterly is a good rhythm for most service businesses, and always before a contract renewal or price change.
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