Gross Margin by Client: Finding Your Most and Least Profitable Relationships

Total agency margin can look healthy while hiding wide variation at the client level. A firm averaging 45% gross margin may have some clients at 65% and others at 15%. The low-margin clients are subsidised by the high-margin ones — and without knowing which is which, you make pricing, resourcing, and business development decisions blind.

Client-level margin analysis reveals:

• Which clients are genuinely profitable and worth investing in
• Which clients consume disproportionate resource relative to fee
• Where pricing needs to increase at renewal
• Which clients to prioritise for growth vs manage for exit

Client gross margin = (Client revenue − Client direct costs) ÷ Client revenue × 100

Client direct costs:

• Labour: all hours spent on client work × internal cost rate per hour
• Direct subcontractor costs
• Direct expenses (tools, travel, events)
• Platform or technology costs specific to the client

Do this calculation for each client, covering a full 12 months (to smooth seasonal variation). Use your time tracking data for the hours component.

Upload client revenue and cost data to AskBiz as a CSV. Ask: *'Rank my clients by gross margin percentage for the last 12 months.'*

High-margin clients (> 55% for most agencies) are your most valuable relationships:

• Protect them: ensure they receive excellent service and proactive account management. These clients fund everything else.
• Invest in growth: high-margin clients are candidates for expanded scope, additional services, and deeper strategic partnership.
• Understand why they're high-margin: is it because they're well-scoped, easy to work with, efficient to serve, or are they simply paying a premium rate? Understanding the reason helps you replicate it with other clients.

Low-margin clients (< 30% for most agencies) require action:

Option 1 — Reprice: increase fees at next renewal to reflect true cost of service. Present with value evidence.

Option 2 — Re-scope: identify why the client is consuming disproportionate hours (excessive revisions? complex stakeholder management? unclear briefs?) and address the root cause — operationally or contractually.

Option 3 — Resign the client: if a client is unprofitable after repricing attempts and is also consuming significant management time and team morale, exiting the relationship (professionally, with sufficient notice) may be the right decision. The resource freed up can be redeployed on better-margin work.

Do not resign a client without first understanding the cause of low margin — sometimes it's fixable.