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Free Margin Tool

Client Profitability Calculator

Find out which clients actually make you money. Enter revenue, hours, and delivery costs per client and get a true margin ranking with keep, raise, or fire bands.

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Your Team Cost

Wages plus payroll taxes, benefits, and an overhead share, divided by productive hours. Many service firms land between $50 and $100.

Your Clients (monthly figures)

Your Margin Ranking

Enter your loaded hourly cost and at least one client with revenue to see the ranking.

The ranking uses your estimates of hours and costs. Verdicts are directional bands, not client-by-client advice.

Worked example

Four agency retainers ranked by true margin

Illustrative example, not a client outcome. A marketing agency with a $70 loaded hourly team cost enters one month of revenue, hours and direct costs for its four retainer clients.

Inputs

Worked example inputs
Loaded hourly team cost$70
Client A$8,000 revenue, 40 hours, $1,200 direct
Client B$12,000 revenue, 110 hours, $2,500 direct
Client C$4,500 revenue, 18 hours, $0 direct
Client D$3,000 revenue, 35 hours, $400 direct

Calculator output

Worked example calculator output
#1 Client C$3,240 margin, 72%, $250/hr: Keep and grow
#2 Client A$4,000 margin, 50%, $200/hr: Keep and grow
#3 Client B$1,800 margin, 15%, $109/hr: Fire or restructure
#4 Client D$150 margin, 5%, $86/hr: Fire or restructure
Total monthly revenue$27,500
Total client margin$9,190
Blended margin33%

The largest account, Client B, ranks third: 110 hours at $70 plus $2,500 of freelancers leaves $1,800 of margin on $12,000. Clients B and D use 145 of the 203 monthly hours but produce only $1,950 of the $9,190 total margin.

Methodology

How this calculator works

For each client, the calculator subtracts loaded labor and direct costs from revenue, then sorts clients by margin percentage and assigns a band.

Formulas

  • Labor cost = hours x loaded hourly team cost.
  • Client margin = revenue - labor cost - direct costs. Margin % = margin / revenue.
  • Effective hourly rate = revenue / hours.
  • Bands: 50% or more keep and grow, 25% to under 50% raise price or cut scope, under 25% fire or restructure.
  • Blended margin = total margin / total revenue across the clients entered.

Assumptions

  • You supply the loaded hourly cost. The $60 default and the $70 in this example are Taxstra planning assumptions, not a published wage rate.
  • The 25% and 50% band thresholds are Taxstra planning assumptions for a service firm, since the margin still has to cover overhead, owner pay and taxes.
  • All figures are monthly and use your own estimates of hours and costs.

What it ignores

  • General overhead not tied to a client, owner profit and taxes.
  • Payment timing, collections and write-offs.
  • Strategic value a client may carry beyond its margin, such as referrals.

Educational, not individualized tax advice.

How the Ranking Works

Revenue minus what the client really costs you

For each client, the calculator computes the true cost of service: hours spent on the client multiplied by your loaded hourly team cost, plus any direct costs (subcontractors, per-client software, materials, travel). Revenue minus that cost is the client's monthly margin, and margin divided by revenue is the margin percentage the ranking sorts on.

The loaded hourly cost input is doing the heavy lifting, so estimate it honestly. Raw wages understate the truth badly: payroll taxes add roughly 8% to 10%, benefits more, and every productive hour also has to carry a share of rent, admin, and firm software. That is why a $40-an-hour employee typically costs $60 to $80 per productive hour, and why a solo owner should use the rate their time is worth on their best work, not their payroll figure.

The effective hourly rate column (revenue divided by hours) is a useful cross-check. Two clients can pay identical fees while one consumes three times the hours; effective rate exposes that instantly and is often the fastest way to explain a repricing conversation internally.

Key Insight

The pattern to expect

In most service firms that run this exercise for the first time, a version of the 80/20 rule appears: a minority of clients generate the large majority of true margin, and a few clients at the bottom are actively subsidized by the rest. The blended margin on your P&L hides both facts.

The Three Bands

Keep and grow, raise or rescope, fire or restructure

Keep and grow (50%+ margin). These clients pay for your overhead, your profit, and your mistakes elsewhere. Protect them: over-communicate, ask what else they need, and study what makes them profitable (scope discipline, fit with your strengths, sane expectations) so you can find more like them.

Raise price or cut scope (25% to 50%). Usually mispriced rather than bad. The fee lagged your costs, or the scope quietly grew. The playbook: a direct price increase at renewal, a scope reset that moves extras to paid add-ons, or delivery changes that cut hours (junior staffing, templates, fewer meetings). Even a 15% price move often lifts these clients a full band.

Fire or restructure (below 25%). These clients consume capacity your best clients would happily pay for. Restructure first if the relationship has value: a substantial repricing, a fundamentally smaller scope, or a productized version of the service. If they decline, a graceful exit with a referral is not a loss; it is a capacity release. A client at a negative margin is paying you less than it costs to serve them, which means you are paying to keep them.

BandKeep and grow
Margin after labor + direct costs50% or more
Default moveProtect, expand, replicate
BandRaise or rescope
Margin after labor + direct costs25% - 50%
Default moveReprice at renewal, reset scope
BandFire or restructure
Margin after labor + direct costsBelow 25%
Default moveMajor reprice, productize, or exit

Why the thresholds sit where they do: the margin computed here still has to fund everything below the client line, general overhead not allocated to clients, owner profit, and taxes. A 30% client-level margin can round to zero by the time it reaches your bottom line.

A Worked Example

Four clients, one uncomfortable surprise

A hypothetical marketing agency has a loaded team cost of $70 per hour and four retainer clients. Client A pays $8,000 a month and takes 40 hours plus $1,200 of ad-platform seats: cost $4,000, margin $4,000, exactly 50%. Client B pays $12,000, the flagship account, but takes 110 hours and $2,500 of freelancers: cost $10,200, margin $1,800, just 15%. Client C pays $4,500 for a templated service taking 18 hours: cost $1,260, margin $3,240, a 72% machine. Client D pays $3,000, takes 35 hours and $400 of tools: cost $2,850, margin $150, 5%.

The ranking upends the agency's instincts. The "biggest client" (B) ranks third at 15%, effective rate $109 an hour against a $70 cost. The small templated client (C) is the crown jewel at 72% and $250 an hour effective. Total margin is $9,190 on $27,500 of revenue, a 33% blend that looked acceptable on the P&L while concealing that half the team's hours earn almost nothing.

The moves write themselves. Client B gets a scope reset: meetings cut, revision rounds capped, and a 20% renewal increase, which together push it toward 35%. Client D gets converted to the templated service Client C buys, or exited. And the agency's sales effort refocuses on finding two more Client Cs, which would add more margin than a fifth full-service retainer at Client B economics.

Acting on the Results

From ranking to repricing without losing good clients

Verify before you act. One month of estimated hours is a screenshot, not a film. Before a hard conversation with a bottom-band client, sanity-check the hours across two or three months and make sure the month you sampled was not distorted by a one-time project.

Sequence the repricing. Start with the middle band, where a standard renewal increase is routine and low-risk, before tackling the bottom band, where the increase needs to be large enough to matter. Anchor every increase to scope ("here is what the engagement now includes") rather than to your costs, which clients rightly consider your problem.

Watch the tax and cash side of the shuffle. Exiting clients and repricing changes the shape of your income within the year, which can move your quarterly estimated tax payments and, at certain profit levels, change whether entity-level planning (like an S corporation election) makes sense. A margin cleanup that lifts profit by $50,000 is exactly the moment to revisit the plan with a CPA rather than discover the tax bill in April. That intersection of margin strategy and tax strategy is what our fractional CFO service and business tax planning are built for.

Watch Out

Do not average your way out of the problem

A tempting response to this analysis is a small across-the-board increase. It feels fair and avoids conflict, but it under-charges the clients who are bleeding you and over-charges the ones subsidizing them, the exact clients you can least afford to annoy. Price the bands differently; that is the entire point of knowing them.

FAQs

Common client profitability questions, answered

How do you calculate client profitability?

Client profitability = client revenue minus the fully loaded cost of serving that client. The cost has two parts: labor (hours spent on the client multiplied by your loaded hourly team cost) and direct costs (software licensed per client, subcontractors, materials, travel). Divide the resulting margin by revenue for a margin percentage, which is what makes clients comparable across different sizes.

What is a loaded hourly cost and how do I estimate mine?

Loaded hourly cost is what an hour of your team actually costs, not just wages. Take total compensation including payroll taxes and benefits, add a share of overhead (rent, software, admin), and divide by realistic billable-capacity hours, not 2,080. A rough shortcut many service firms use: fully loaded cost runs 1.5x to 2x raw hourly wages once overhead is allocated. A $40/hour employee often costs $60 to $80 per productive hour.

What is a good profit margin per client?

For most service businesses, a healthy client sits at a 50%+ margin after labor and direct costs, because that margin still has to cover general overhead, owner profit, and taxes below the line. Clients between 25% and 50% are usually salvageable with a price increase or scope reduction. Below 25%, and especially below zero, the client is consuming capacity that better clients would pay more for.

Should I actually fire unprofitable clients?

Sometimes, but price first, fire second. Most unprofitable clients are mispriced, not inherently bad: the scope crept, the rate never kept up with your costs, or they consume disproportionate support. A 20% to 40% price increase converts many of them into fine clients, and the ones who leave free up capacity. Reserve outright firing for clients who are unprofitable and corrosive: slow payers, scope abusers, or work far outside your focus.

Why does my P&L look fine if some clients are unprofitable?

Because a profit and loss statement aggregates everything. Profitable clients subsidize unprofitable ones inside a single revenue line, and labor cost is not allocated per client at all. A firm with a healthy 15% net margin can easily be earning 40% on its top third of clients and losing money on its bottom third. Client-level analysis is the only way to see the cross-subsidy.

How do I track hours per client without a time-tracking culture?

You do not need perfect timesheets to get useful answers. Have each team member estimate their weekly hours across the top 10 clients for two or three representative weeks, or sample one week per month. Precision matters less than honesty: the goal is to catch the client everyone quietly knows consumes half of a senior person, not to bill to six-minute increments.

What costs count as direct client costs?

Anything you would stop paying if the client left: per-seat software licensed for them, subcontractors and freelancers on their work, materials, shipping, client-specific travel, and referral or platform fees tied to their revenue. General overhead (your rent, admin staff, firm-wide software) stays out of the per-client number; it is covered by the margin threshold instead.

How often should I run a client profitability analysis?

Twice a year is a good baseline, plus any time you plan a price increase, feel capacity pressure, or consider hiring. Hiring is the big one: if the analysis shows 20% of your capacity going to sub-25% margin clients, repricing or exiting them is usually cheaper and faster than adding headcount.

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