Most owners know their biggest customers by revenue. Far fewer know their best customers by profit.

But that gap matters. Capacity becomes valuable. If you allocate it to the wrong customers, you can grow turnover while profits stay flat.

Client profitability is about understanding what work really costs to deliver, and where the commercial terms no longer make sense.

Why revenue is a poor way to judge clients

Revenue hides three issues:

· Delivery effort: two £10k clients can consume very different hours and attention.

· Commercial friction: late changes, slow approvals, and meetings add cost without adding income.

· Cash timing: a “good” client on 60-day payment terms can create cash pressure even when margins look fine.

If you’re not ranking customers by profit and cash behaviour, you’re managing blind.

What data you need (and what you can do without)

You can do a useful first pass with what you already have:

· Sales by customer (invoiced revenue)

· Direct costs tied to delivery (subcontractors, materials, project-specific tools)

· Staff cost estimate (even if you don’t track time precisely)

· Credits, write-offs, and discounting

· Payment history (days to pay)

If you don’t have timesheets, don’t stop. Use a simple proxy: the delivery team’s monthly cost divided by realistic billable hours to get an internal hourly cost. It won’t be perfect. It will be directionally right.

Build a simple “profit per client” view

Create a table for the last 3–6 months. For each client, include:

1. Revenue (net of discounts and credits)

2. Direct costs (subcontractors/materials/other job costs)

3. Estimated labour cost (hours x internal cost, or a % allocation)

4. Gross profit (revenue minus direct costs and labour)

5. Gross margin %

6. Cash behaviour (average days to pay; any disputes; churn risk)

This gives you a ranking. You’re looking for the extremes: your top 10 and bottom 10.

The patterns that usually show up in “worst clients”

Unprofitable clients rarely look unprofitable on day one. They become that way over time.

Common patterns:

· Scope creep that wasn’t priced or documented

· Account management drag: lots of meetings, lots of admin, few paid outcomes

· High rework: unclear briefs, slow approvals, repeated changes

· Hidden discounting: “keep them happy” credits, free extras, rushed fixes

· Bad-fit work: you’re doing work you’re not set up to deliver efficiently

Once you see the pattern, the fix becomes clearer.

What to do with the results

This is where owners often overreact. Don’t.

Split clients into four groups:

Group A: High profit, low friction

Protect these relationships. Make sure you’re not underserving them because you’re busy elsewhere.

Actions:

· Lock in renewals early

· Raise service levels where it improves retention

· Ask for referrals when delivery is going well

Group B: High profit, high friction

These clients can be worth keeping if you change how work is delivered.

Actions:

· Tighten scope and approvals

· Move to staged billing or deposits on larger work

· Increase pricing on change requests, not just base fees

Group C: Low profit, low friction

Often the easiest to fix commercially because the relationship is stable.

Actions:

· Review pricing and package deliverables

· Remove non-essential extras

· Adjust the service level to match the fee

Group D: Low profit, high friction

These are the clients that drain your team.

Actions:

· Reset terms and scope with clear options

· Increase price materially, or reduce scope materially

· If neither is acceptable, plan an orderly exit

You don’t need to “fire” clients dramatically. You do need to stop subsidising them.

Quick wins

· Rank clients by gross profit, not revenue, for the last 3 months.

· Identify the top 3 causes of delivery drag (meetings, rework, scope creep).

· Add a change request rule: price it, defer it, or decline it.

· Move large projects to staged billing (cash timing improves fast).

· Review the bottom 10 clients monthly until the list stabilises.

Conclusion

Client profitability analysis gives you control over growth. It helps you decide where to focus sales, where to improve delivery, and where to reset terms.

The aim is a healthier portfolio: profitable work, delivered predictably, with cash arriving on time.

If you want help applying this to your numbers, book a call.