Client profitability for small agencies: contribution before overhead, per client, per month

Your fees tell you what a client pays. They don't tell you what the work leaves once it is delivered. For a small agency, the clearest way to see that is contribution before overhead, calculated per client, per month.

This guide explains what the measure is, the four inputs you need, how to read the result, and where it stops being useful.

What contribution before overhead means

Contribution before overhead is what a client's work leaves after the cost of delivering it, before any shared running costs.

In the Client Profitability Tracker, the calculation is:

• Net fees = fees billed − credits / refunds
• Total delivery cost = external direct delivery costs + (delivery hours × hourly delivery cost)
• Contribution before overhead = net fees − total delivery cost

Two ratios sit alongside it:

• Contribution margin = contribution ÷ net fees, when net fees are positive
• Contribution / delivery hour = contribution ÷ delivery hours, when hours are not zero

This is the same idea accountants call contribution margin: revenue minus the costs that move with the work. As AccountingTools puts it, total contribution is what is "available to pay for fixed expenses and to generate a profit." For an agency, those fixed expenses are your overhead: rent, software, insurance, bookkeeping, and time nobody can bill.

Why look at it per client, per month

Agency-wide figures hide the pattern that matters. A healthy month overall can include one client whose work barely covers its own hours.

Per client shows you which relationships carry the business and which ones ride on it. Per month keeps the numbers close enough to the work that you still remember why a figure looks odd. It also lines up with how most agencies bill: retainers renew monthly and project invoices land in a given month.

A monthly view also gives you a trend. One weak month for a client can be a launch or a one-off rewrite. Three weak months in a row is a pricing or scope question.

The four inputs you need

You need four things for each client project, for each month.

1. Net fees. Fees you actually billed for the month, before sales tax or GST, minus any credits or refunds. Don't include work you have done but not yet invoiced.
2. External direct delivery costs. Money paid to others to deliver that client's work: freelancers, contractors, stock licenses bought for the job, printing. Shared costs such as your design software subscription stay out.
3. Delivery hours. Hours your own team spent delivering that client's work in the month.
4. Internal hourly cost. What an hour of your team's time costs you, not what you charge for it. See how to set an internal hourly cost rate for the calculation.

Most small agencies already have all four. Fees come from your invoices, external costs from supplier bills, and hours from a timesheet or a careful estimate.

A worked example (fictional)

Fictional example. Alder Street Studio is not a real business. The clients and figures below are illustrative and are not a customer result.

Alder Street Studio is a five-person design agency that bills in US dollars. It uses one internal hourly cost of US$55 for all staff. Here is August:

Client (fictional)	Net fees	External costs	Delivery hours	Labor cost at US$55	Contribution	Margin	Per hour
Brightwater Dental	US$9,000	US$600	70	US$3,850	US$4,550	50.6%	US$65.00
Oakline Outdoors	US$13,500	US$3,200	120	US$6,600	US$3,700	27.4%	US$30.83
Merrow Legal	US$4,500	US$0	78	US$4,290	US$210	4.7%	US$2.69
Tidewell Software	US$6,000	US$1,800	30	US$1,650	US$2,550	42.5%	US$85.00
Total	US$33,000	US$5,600	298	US$16,390	US$11,010	33.4%	US$36.95

Oakline Outdoors billed US$14,000 and received a US$500 credit, so its net fees are US$13,500.

The studio's first reaction was that Oakline was its best client. It paid the most. On contribution, Brightwater and Tidewell do more with fewer hours. Merrow Legal is the surprise: a steady US$4,500 retainer that took 78 hours and left US$210.

How to read margin, and why per hour matters too

Margin tells you how much of each fee dollar is left after delivery. Contribution per delivery hour tells you what each hour of your team's time produced. You need both.

Tidewell has a lower margin than Brightwater, 42.5% against 50.6%. But Tidewell produced US$85 per delivery hour, the highest of the four, because most of its cost was a freelancer rather than your own team. If your team's hours are the scarce resource, per hour is often the better guide to where to put them.

Oakline shows the opposite case. Its dollar contribution is large, but at US$30.83 an hour it is the second-weakest use of team time. A big client is not always a high-contribution client.

Some practical reading rules:

• Compare clients with each other, not with a benchmark from another agency. Your overhead and cost structure are your own.
• Look at three months, not one. Merrow Legal might have had an unusual month. If it looks the same in September and October, the retainer is underpriced for the scope. When to reprice, rescope or drop a client covers what to do next.
• Treat a negative result as information. A client with negative contribution cost more to deliver than it paid that month. That is a valid result, not an error.
• Check the hours first when a number surprises you. Most odd results come from hours logged against the wrong client.

Common misreads

Treating contribution as net profit. This is the most common mistake. Alder Street's US$11,010 is not what the studio made in August. Rent, software, insurance, accounting fees and tax still come out of it. If the studio's overhead is US$8,200 a month, only about US$2,810 is left before tax, and that is still a rough management view, not an accounting figure.

Counting staff cost twice. If your internal hourly cost already spreads full salaries over delivery hours, don't subtract those salaries again as overhead. Decide once where staff cost lives and keep it there.

Using your billing rate as the hourly cost. Your billing rate is what the client pays. The hourly cost is what the hour costs you. Using the billing rate makes every client look like it breaks even.

Leaving out owner time. If you deliver client work yourself, give your hours a cost. Otherwise the clients you work on personally will look better than they are.

Mixing billed and unbilled work. Contribution uses fees actually billed in the month. If you invoice a project at the end, it will look negative until the invoice month. Read project clients over the project's life, not one month at a time.

When to talk to your accountant

Contribution before overhead is a management measure. It helps you decide where to spend time, which retainers to reprice and which work to turn down. It is not a tax figure, a statutory margin or a cash forecast.

Bring your accountant in when you need:

• Net profit after overhead, depreciation and tax
• Figures for a tax return, a lender or an investor
• Advice on sales tax or GST, payroll or how revenue should be recognized
• A cash-flow view, since billed fees and cash received are not the same

A monthly contribution report does make that conversation shorter. You can show which clients carry the business, and ask better questions about the rest.

Where the tracker fits

The Client Profitability Tracker does this calculation for you in Excel 365 desktop. You enter one row per client project per month in the Work log: fees billed, credits, external costs, delivery hours and hourly delivery cost. The Summary shows net fees, delivery cost, contribution before overhead, margin and contribution per delivery hour by client for the month you pick. Rows with missing or inconsistent inputs are marked Review and left out of the totals until you fix them. It also handles fees and costs in different currencies, using rates you enter once a month.

If you bill and pay in one currency, a free lite edition with the same contribution calculations and no exchange-rate sheet is planned, with no release date yet. Setup steps for the tracker are in its setup guide.

Sources

• AccountingTools, "Contribution margin definition," https://www.accountingtools.com/articles/contribution-margin (accessed Sep 28, 2026)