Client Profitability Calculator

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.

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.

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 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.

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.