Client Profitability Calculator

What client profitability measures

Client profitability is what a client relationship earns after the cost of delivering it. Revenue alone hides the answer: a large retainer can lose money if it absorbs more hours than it pays for, while a smaller client with a clear scope can be one of your best accounts.

The formulas

• Labour cost = team hours × average hourly cost
• Gross profit = revenue − labour cost − direct costs; gross margin = gross profit ÷ revenue
• Net contribution = gross profit − (labour cost × overhead %)
• Effective hourly rate = revenue ÷ team hours
• Break-even hours = (revenue − direct costs) ÷ (hourly cost × (1 + overhead %))

Working out your hourly cost

Divide what an employee costs you per month (salary, benefits, taxes, equipment) by the hours they are actually available for work, not their contracted hours. Use a blended average for the team on the account, or run the calculator once per role for a sharper picture.

What to do with the result

• Effective rate below your billable rate: hours are going in that are not being billed. Check scope changes and revision rounds.
• Hours close to break-even: renegotiate scope or price before the next period, not after it.
• Healthy gross margin, weak net contribution: the account is consuming senior or management time. Look at who is logging the hours.