How do I track profitability by client?
Client profitability is revenue from a client minus the cost to serve them. Most businesses track revenue by client but not costs, so they’re guessing at which relationships actually make money.
For service businesses, the biggest cost is time. A client paying $5,000 per month seems great until you realize your team spends 80 hours on them. Another client might pay $3,000 for 20 hours of work. The second client is far more profitable per hour, but you won’t know that without tracking time.
Time tracking doesn’t have to be complicated. Tools like Toggl or Clockify work well. What matters is consistency. Everyone working on client projects needs to log time against specific clients, even if it’s just rough estimates at the end of each day.
For professional service firms like consultants, agencies, and architects, this analysis often reveals surprising patterns. The clients you thought were your best might be consuming disproportionate hours. Quick turnaround projects might have better margins than complex long-term engagements that seemed more valuable.
Once you have time data, set up your accounting software to track revenue and direct costs by client. In QuickBooks Online, you can use classes or projects for this. Assign all client income to the appropriate class. Do the same for direct expenses like subcontractor costs, client-specific software, or travel.
Indirect costs like rent and utilities can either be ignored or allocated based on revenue or hours. Ignoring them is simpler and still useful for comparing clients against each other. Allocating gives you a fuller picture but requires more math and assumptions.
Run these reports monthly or quarterly. Compare gross margin percentages across your client base. The data helps you decide which relationships deserve more attention, which need to be renegotiated, and how to price new work going forward. A small business bookkeeper can help configure the tracking structure in QuickBooks so the reports actually show what you need to see.
The goal isn’t perfection. Even rough time estimates and simplified cost allocation will show you which clients are clearly profitable and which ones are draining resources. That’s enough to make better decisions about where to focus your energy.
San Diego's Small Business Bookkeeper
The Next Step:
A Short Conversation
A quick call to tell us about your business. We'll listen, answer your questions, and give you a clear price quote.
More Questions
What is the difference between employees and contractors?
The core difference is control. Employees work under your direction while contractors control how they complete the work. This distinction affects taxes, paperwork, and legal liability.
Read answerHow do I handle retainage in construction accounting?
Track retainage using separate asset and liability accounts in your chart of accounts. Record the withheld portion separately from regular receivables since the collection timing is different.
Read answerWhat documents do I need for bookkeeping cleanup?
Bank statements are essential. Credit card statements, prior tax returns, and existing bookkeeping records also help. You probably won't have everything perfectly organized, and that's okay.
Read answerHow do I account for in-kind donations?
Record donated goods at fair market value as both revenue and expense. Donated services can only be recorded if they require specialized skills you would have otherwise paid for. Document the value and how you determined it.
Read answerWhat payroll taxes do I need to pay in California?
California employers pay four state-specific payroll taxes on top of federal requirements. Unemployment Insurance and Employment Training Tax come from your pocket, while SDI and Personal Income Tax get withheld from employees.
Read answerHow do I file payroll taxes quarterly?
File Form 941 with the IRS and Forms DE 9 and DE 9C with California EDD by the end of the month following each quarter. Deposits happen more frequently than filing, so don't confuse making tax payments with submitting the quarterly returns.
Read answer
