Review client profitability without fooling yourself

Start with your PSA report, then reconcile it

If your PSA already has a contract or agreement profitability report, use it. Autotask documents revenue, cost and profitability reporting within its contract/billing report groups.^[4] ConnectWise PSA and HaloPSA are other systems you may use; check the reports available in your version rather than assuming the names or definitions match.

The manual workbook is a reconciliation worksheet, not a replacement PSA or a claim that PSAs lack profitability features. Compare the report's included revenue and labour with posted accounting records, vendor invoices and your actual time coverage. Check whether senior escalation was logged, bundled tool costs were assigned, credits landed in the right period and resale was separated. A configured PSA may already handle some or all of those costs. Record the differences instead of building a second unexplained number.

Conduit's client-profitability recipe is a useful boundary example: its basic workflow ranks revenue and adds company-level margin context, rather than allocating client labour costs.^[3] Read the source fields and definitions before trusting a report title.

Define one client scope and one period

Choose a closed month and the client or agreement covered. Reconcile agreement revenue, additional-service revenue, pass-through revenue and pass-through vendor cost. Use a consistent posted revenue basis, net of credits and excluding sales tax, agreed with the finance owner. A payment received on an old invoice belongs to a different question from this month's cost to serve.

Keep each labour hour in either agreement work or additional service, once. Include escalation, vendor coordination, client documentation and account work under that scope. Work included in a fixed agreement still costs time even though it has no separate invoice.

Autotask's TimeEntries fields distinguish ticket/task references, contract, work date, hours, role and nonbillable status.^[5] Map equivalent fields in your system and check export permissions, duplicates, late entries and category changes. Blank time coverage is an evidence gap. Owner-delivered service also needs an appropriate cost assumption rather than a convenient zero.

Adam Hannemann's pricing and margin articles discuss delivery cost and agreement economics.^[1][2] The method here uses the explicit cost boundary below, with no universal target percentage.

Use one definition: assigned gross margin

For this review:

• Service revenue = agreement revenue + additional-service revenue.
• Total revenue = service revenue + pass-through revenue.
• Assigned labour cost = each role's scoped hours × its loaded hourly cost, summed once.
• Bundled tool cost = seats × documented blended cost per seat + fixed tool allocation.
• Assigned direct costs = labour + bundled tools + direct subcontractors + pass-through vendor cost.
• Assigned gross margin = total revenue − assigned direct costs.
• Assigned gross margin percent = assigned gross margin ÷ positive total revenue × 100.

Document what loaded labour includes, such as pay, employer taxes and benefits, and the paid-hour basis. Record shared-cost allocations so the same activity or vendor bill cannot be charged in full to several clients. General overhead is excluded unless your chosen method explicitly assigns it; document any such assignment and avoid counting it again. This is a scoped management calculation, not company net profit or a statutory accounting definition.

Worked fictional row

Service revenue is $4,800; pass-through revenue and cost are both $0. There are 60 labour hours at an assumed loaded cost of $45 per hour, $600 bundled tools and $0 subcontractors.

Labour cost is $2,700. Assigned gross margin is $4,800 − $2,700 − $600 = $1,500, or 31.25% of total revenue. Service effective hourly rate is $4,800 ÷ 60 = $80. The $45 assumption is fictional, not a market wage or charge rate. The CSV example uses these same fields and definitions.

Blended margin and denominator effects

The workbook's assigned gross margin percent is blended: its denominator includes pass-through revenue. It does not calculate a separate service-only gross-margin KPI.

In a second fictional example, service revenue of $10,000 and labour, tools and subcontractor costs of $6,000 leave $4,000 before pass-through. With no resale, the assigned gross margin is 40%. Add $10,000 of resale with $10,000 of vendor cost: margin dollars remain $4,000, but the blended percentage becomes 20%. Delivery performance did not change; the denominator did. Do not compare that blended figure with a service-only target.

Service effective hourly rate uses service revenue and all scoped labour hours. Agreement effective hourly rate uses agreement revenue and agreement hours. Zero hours gives an unavailable ratio to investigate, not an infinite success. Missing costs or an unknown evidence basis leave the workbook's core result insufficient rather than silently turning unknown into zero.

Investigate the row, then choose an action

Look for repeated faults, unsupported exceptions, project work absorbed by the agreement and unbilled additional service. Absorbed after-hours and project diagnostics are subsets of agreement hours and can overlap; adding them again double-counts labour. Unbilled additional work needs a scope, authorization and billing-cutoff check before you assume money is recoverable.

Distinguish a temporary recovery incident from recurring demand. If the agreement includes the work, high effort can be an estimating or delivery problem rather than client scope creep. Correct the record, investigate a cause, review an exception or prepare a renewal conversation with a named owner.