How to Know Which Clients Are Actually Making You Money

Most services firms can tell you their overall gross margin. Very few can tell you the margin on their top twenty clients, or which of those clients would be underwater if you allocated indirect costs accurately. This is not a data problem. The contracts exist, the timesheets exist, the invoices exist. The problem is that assembling that information into a coherent client-level P&L requires someone to decide they want to see it, and seeing it has consequences. Pricing assumptions get exposed. Relationships that leadership has described as "strategic" turn out to be subsidized. The accounts your best people spend the most time on are frequently not the accounts generating the most profit. Most firms prefer the ambiguity.

Cushman & Wakefield identified which service contracts were performing and imposed a set of structural disciplines: minimum scope floors, indexed fees, exit provisions for contracts that couldn't meet them. Net income swung from a loss of $35.4M in FY2023 to a gain of $131.3M in FY2024. By FY2025, revenue had reached a record $10.3B, EBITDA was up 13% to $656.2M, and free cash flow surged to $293M, enough to prepay $300M in debt. -> Cushman & Wakefield

CBRE restructured its GWS segment into formal P&L reporting by contract. The immediate payoff was 12-to-18-month renewal pipeline forecasting, which meant resource allocation decisions, pricing negotiations, and client investment were happening against actual numbers rather than blended assumptions. GWS segment operating profit rose 17% in 2022. GAAP EPS climbed 143% in FY2021. -> CBRE Group

ISS ran the same play at greater organizational complexity. The OneISS strategy, launched in December 2020, required consolidating fragmented regional P&Ls into unified reporting. Before that consolidation, ISS could not reliably see profitability by account, by geography, or by service line simultaneously. Once they could, renewal investment concentrated where it had the highest expected return. Key account retention reached 95% in FY2023, the highest in the company's 120-year history. Organic growth hit 9.7% in the same year. Operating margin moved from 2.5% in 2021 to 5.0% in FY2024, a 250-basis-point improvement over three years. -> ISS A/S

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The most common failure is building the reporting and not acting on it. A firm commissions a client profitability analysis, sees the results, and then finds reasons why the bottom quartile is complicated. The unprofitable client has a relationship with the CEO. The account is in a market the firm wants to grow into. The contract is up for renewal soon and "now isn't the right time." Twelve months later, nothing has changed except that the firm now has data confirming what it was already doing. The analysis becomes a document rather than a decision.

Partial visibility is a related trap. Seeing margin at the segment or division level is better than nothing, but it still allows the worst accounts within each segment to be subsidized by the best. A division with an 18% margin might contain five accounts running at 30% and three running at negative. The segment average obscures both the opportunity and the problem. Segment-level visibility tells you which parts of the business to look at. It does not tell you what to do.

Sales teams resist client-level margin reporting because it reframes their largest accounts as potential liabilities. Account managers resist it because their relationships become legible as economics rather than relationships. Executive sponsors of low-margin clients resist it because it puts them in the position of defending something that can now be quantified. In each case, the resistance is dressed up as strategic nuance: "that client opens doors," "we're investing in the relationship," "the lifetime value is higher than the current numbers show." Some of that is occasionally true. Most of it is not.

Capita accumulated more than 100 acquisitions over two decades without building a consolidated view of contract-level profitability. Overhead could not be accurately allocated, and contracts were priced against cost assumptions that did not hold once examined at the individual account level. During the restructuring review, the hidden margin destruction that had accumulated across years became visible. More than 30 businesses were disposed of in a programme generating £1.3B in proceeds. Their underlying economics only became clear when someone looked at each one individually and stopped letting aggregate numbers absorb the losses. -> Capita

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How to build it:

1. Aggregate revenue by client for the last 12 months. Your billing system has this.

2. Pull direct costs. For most services firms this is headcount time from timesheets or project management systems, plus any direct materials or subcontractors. Allocate these to each client based on actual usage.

3. Agree on an overhead allocation method. Two defensible approaches: allocate as a percentage of revenue (simple, some distortion) or as a percentage of headcount time (more accurate, slightly more work). The methodology matters less than applying it the same way to every client.

4. Build the P&L: revenue minus direct costs minus allocated overhead equals client margin. Express as a percentage of revenue.

5. Rank clients by margin percentage, not revenue. This is the list most firms have never produced.

6. Set a floor. The minimum margin below which a contract gets repriced or exited at the next renewal.

7. Assign a named owner to every account below the floor. Their job is the repricing or exit conversation at renewal. Without a named owner, the list becomes a document.

Steps 1 to 4 are data work. A spreadsheet is enough to start. Steps 5 to 7 are decisions.