How do I calculate client profitability in my agency?
Client profitability is not the amount you billed. It is what is left after you subtract the hours at internal cost, the subcontractors and the licences you pay on that client's behalf. The formula has three lines and can be run every month.
Short answer
- Add up everything you billed that client in the period, retainer included.
- Subtract consumed hours multiplied by the internal cost per role, not by the billed rate.
- Subtract direct costs: subcontractors, licences, hosting and ad spend paid on their behalf.
- What is left is the margin; divided by revenue it gives you profitability as a percentage.
- Repeat monthly and rank clients against each other — the order matters more than the absolute figure.
What the rules say (in brief)
- Billed hours need a supporting record: a timesheet or activity report you can show the client.
- Whether VAT applies to your services depends on your own VAT registration; check it with your accountant.
- Client data in your records falls under the GDPR (Regulation (EU) 2016/679), so keep only what the calculation needs.
- Rights in the deliverables transfer as the contract states, not by default.
Practical examples
- A monthly retainer covering 20 hours: at 26 hours consumed, the effective hourly rate falls by about 23%, because the extra six hours are not covered.
- The biggest client by billing ranks third by margin: A brings in the most, but 96 consumed hours and direct costs leave an 8% margin, against 42% on B and 39% on C.
The same agency, three clients, one month
| Client | Billing type | Hours × internal cost | Direct costs | Margin |
|---|---|---|---|---|
| A — fixed-fee project that overran | Fixed fee | 96 h at internal cost | Licences and ad spend paid for the client | 8% |
| B — monthly retainer | Monthly retainer | 26 h at internal cost | None | 42% |
| C — with subcontracting | Fixed fee | 30 h at internal cost | Subcontractor costs | 39% |
Common mistakes
- Using the billed rate as the cost of an hour — then every client looks profitable.
- Not logging non-billable hours: calls, meetings, small revisions, “just one more tweak”.
- Ranking clients by revenue instead of margin, and keeping the biggest time sink.
How 4webagency helps
- Profitability is computed from the timesheets, so margin comes from logged data, not from memory.
- The client file shows profitability next to the projects and hours behind it.
- Monthly retainers sit alongside their timesheets, so an overrun is visible while there is still time to act.
- Profitability is comparable across clients, so you know which contract to renegotiate at renewal.