Staffing Client Profitability
Is this client actually profitable once every direct cost is counted?
Why this comes up
Gross margin only counts the most visible cost, worker pay and burden. A client can look like your best account on gross margin and be your worst once program fees, funding cost, servicing time, and credit risk are all actually counted. This engine is the anchor calculation for the real number.
How we calculated this
Client Economic Contribution = Client Billings - Worker Direct Cost - Program Fees - Funding Cost - Allocated Recruiter Cost - Allocated Account Management Cost - Expected Credit Loss - Other Direct Client Cost Contribution Margin = Client Economic Contribution / Client Billings
Worked example: $500,000 client billings, $340,000 worker direct cost, $10,000 program fees, $8,000 funding cost, $15,000 allocated recruiter cost, $20,000 allocated account management cost, $2,500 expected credit loss.
Total Costs = 340,000 + 10,000 + 8,000 + 15,000 + 20,000 + 2,500 = $395,500 Client Economic Contribution = 500,000 - 395,500 = $104,500 Contribution Margin = 104,500 / 500,000 = 20.9%
What this means
- Gross margin on this client, billings minus worker cost alone, would show (500,000-340,000)/500,000 = 32%, a full 11 points higher than the real 20.9% once servicing, fees, funding, and credit risk are counted.
- Allocated recruiter and account management cost are often the biggest gap between gross margin and real contribution; a demanding client consumes real hours that a low-maintenance client of the same size doesn't.
- Use this real number, not gross margin, when deciding whether a client needs repricing, deserves retention investment, or is worth walking away from.
Common mistakes
- Reporting gross margin as if it were the client's real profitability, missing servicing cost, fees, funding, and credit risk entirely.
- Allocating recruiter and account management cost evenly across all clients rather than proportional to actual servicing effort per client.
- Leaving expected credit loss at zero for every client regardless of actual payment risk, overstating profitability on your riskier accounts.
Frequently asked questions
Where do I get allocated recruiter and account management cost for a specific client?
Estimate the actual hours spent servicing this client at your loaded hourly cost; see Account Service-Cost Profitability for a more detailed servicing-cost breakdown.
Should I include funding cost even if I don't factor this specific invoice?
Yes, if this client's payment terms require you to carry working capital, that has a real cost even without formal factoring; see Client Payment-Term Cost.
What if I don't have a reliable expected credit loss figure?
Use Client Credit / Bad-Debt Exposure to compute one from your own historical write-off rate, rather than leaving it at zero by default.
Limitations
Accuracy depends on how well allocated costs reflect actual servicing effort for this specific client; a rough allocation understates the real spread between your best and worst accounts.
Next decision
Learn more
How to Measure Staffing Client Profitability — servicing effort, payment terms, and credit risk all belong in the real number.