Analyze client profitability

Direct answer

For this review, show how to measure client profitability from billed revenue, account management time, delivery cost, write-offs, and senior attention.

Why this question comes up

The biggest client by revenue may be the worst client by margin. This guide turns that concern into a review that can be repeated with a defined period, consistent inputs, and a visible trail back to the records.

Records to gather

• Revenue by client for the period
• Direct delivery cost: time, contractors, licences bought for that client
• Allocated overhead with the allocation basis documented
• Payment history — late payment carries a real financing cost
• Scope changes, discounts, and write-offs by client

Review workflow

1. Attribute direct cost before allocating anything. Time and pass-through cost that clearly belong to a client should be assigned directly. Only genuinely shared cost needs an allocation basis.
2. Pick one allocation basis and state it. Revenue share, headcount, or hours are all defensible. Switching between them changes who looks profitable, so pick and disclose.
3. Include the cost of servicing, not just delivering. Meetings, revisions, account management, and slow approvals are real cost that rarely reaches a project code.
4. Factor in payment behaviour. A client paying at 75 days is financing their operations with your cash.
5. Rank by margin percentage and absolute margin. A high-percentage small client and a low-percentage large one need different decisions.

What a useful answer should include

• Revenue, direct cost, allocated cost, and margin per client
• The allocation basis, stated and applied consistently
• Servicing cost included, not just delivery cost
• Both margin percentage and absolute margin per client
• Average days to payment per client
• Any client whose margin is negative once fully loaded

Common failure modes

• Ranking clients by revenue. The largest client is frequently not the most profitable, and sometimes the least.
• Skipping servicing cost. Account management and revision cycles can consume the entire margin on an otherwise healthy engagement.
• Changing the allocation basis between periods. Profitability appears to shift when only the method moved.
• Ignoring payment terms. A thin-margin client who pays in 15 days may be worth more than a better-margin client at 90 days.

Community context

The linked community posts show why people search for this topic and which parts create confusion in practice. They are anecdotal. Use the reference sources and your organization’s policies for accounting treatment, tax, compliance, and final decisions.