The short answer
Compare a client's revenue with all attributable delivery time and costs, including review, follow-up and corrections. Use a consistent definition of contribution and keep it separate from net profit and cash collected. Diagnose repeated losses by scope, collection, rework or pricing before choosing the remedy.
Choose a measure and name it accurately
Start with client contribution: revenue for the period minus attributable delivery costs. That is not automatically net profit. Shared rent, management, sales and other overhead may still need to be deducted. Label exactly which costs are included so the team does not compare a direct contribution percentage with a fully allocated margin.
Use revenue and work from the same service period. An annual invoice can arrive before much of the annual work happens. Comparing its full amount with one quiet month's time would inflate the result. Apply the firm's consistent revenue and cost allocation method.
A transparent monthly example
Fictional Client A, amounts excluding VAT
| Item | Calculation | Amount |
|---|---|---|
| Service revenue | Agreed monthly service | €600 |
| Preparation cost | 8 hours × €25 loaded cost | €200 |
| Review cost | 1 hour × €40 loaded cost | €40 |
| Other attributable cost | Documented client-specific costs | €80 |
| Client contribution | €600 − €200 − €40 − €80 | €280 |
| Contribution margin | €280 ÷ €600 | 46.7% |
This example has not deducted all firm-wide overhead, so €280 is contribution, not final profit. Loaded hourly cost should reflect the chosen employment-cost basis, not a sales billing rate. Keep the basis consistent across people and periods.
Include the time that is easy to miss
Record document chasing, review, corrections and recurring client questions against the engagement where appropriate. Otherwise a demanding client can look profitable because only posting time is recorded. Distinguish client-caused extra work from internal rework; the response is different even when both reduce contribution.
If Client A needs four additional preparation hours, cost rises by €100 and contribution falls to €180, or 30%. Check whether this is a one-off event or a repeated pattern. Use several representative periods before making a structural pricing decision.
Choose an action that matches the cause
From finding to decision
| Finding | Investigate | Possible response |
|---|---|---|
| Repeated late inputs | Request clarity and client access | Improve collection and agree responsibilities |
| Growing transaction volume | Scope limits and counting rules | Re-scope the package |
| Heavy review corrections | Training and source quality | Fix the preparation process |
| One-off historic cleanup | Whether it is in the engagement | Agree a separate project |
Do not improve the margin by suppressing necessary review. Look at quality, delivery risk and overdue fees alongside contribution. A strong contribution with unpaid invoices is a cash-collection problem; low contribution on fully paid work is a delivery-economics problem.
A monthly client economics review
Before a pricing or scope decision
Before a pricing or scope decision
- Revenue and costs refer to the same service period.
- VAT and pass-through amounts are treated consistently.
- Preparation, review and relevant communication time are captured.
- Hourly costs use the same stated basis.
- Shared overhead is disclosed as included or excluded.
- One-off events are separated from recurring patterns.
- The proposed response identifies its cause and owner.
Claister can relate invoiced revenue and tracked-hour cost for people with permission to manage team time. The quality of that view depends on complete time records and the firm's cost inputs. Use the fixed-fee calculation and scope approval process when the result calls for a commercial change.
Questions
No. Contribution may exclude shared overhead and other firm-level costs. Name the cost basis before comparing percentages.
Investigate the cause first. One-off setup, unusual corrections and timing differences can distort a single period.
About this article
Author: Claister
Published by Claister, the company building the accounting practice management software discussed on this website.
Design partner: Natalija Miadzelic
Editorial review: Natalija Miadzelic · Accountant · Approved
Editorial policyAccounting firm capacity, fees and profitability
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