How to Calculate Your First Client Profitability Report Without Drowning in Data

Jessica had been running her MSP for six years and never once calculated individual client profitability. She knew margins weren't great—around 9%—but figured that's just how things go in this business. When one particularly demanding client started pushing back on a routine price increase, Jessica decided it might be worth digging into the actual numbers.

That weekend completely flipped her world around. She spent hours pulling data from her PSA and QuickBooks, crunching the calculations. What she discovered made her stomach drop. This "high-value" client was actually draining her business dry—$2,300 per month in pure losses once she factored in all the labor and overhead. Sure, they paid $8,500 monthly, but when you looked at the support hours they consumed, the margin came out to negative 27%.

Naturally, she had to analyze every other client after that wake-up call. The results were almost predictable looking back: two of her top five revenue generators were actually money losers. Meanwhile, those small clients she hardly gave a second thought? Several of them were quietly generating solid profits. Eight months later, after making some tough decisions based on actual data, her EBITDA margin jumped to 17%.

It all started with one client profitability calculation. Here's exactly how to run that same analysis for your MSP.

Prerequisites: What You'll Need Before Starting

Before diving into the numbers, you'll need to gather data from a few different places:

From Your PSA System:

• Time entries by client for the last 12 months
• Ticket volume and resolution data broken down by client
• Project hours with their billing rates
• Agreement details and monthly recurring revenue

From Your Accounting System:

• Monthly recurring revenue split by client
• Project revenue by client
• Software licensing costs (Microsoft 365, security tools, backup solutions, etc.)
• Hardware costs you can link to specific clients
• Payroll data for your technical and support staff

Additional Data You'll Need:

• Office lease and utility expenses
• Insurance premiums
• Benefits costs per employee
• Training and certification expenses
• Equipment depreciation

Don't stress if you can't find every piece immediately. Start with basic labor and revenue data—you can always add more detail as you discover where everything lives in your systems.

Step 1: Calculate Your Fully-Loaded Labor Costs

This is where most MSPs trip up from day one: they calculate profitability using base salaries instead of fully-loaded labor costs. The real cost per technician hour ends up being way higher than their hourly wage.

The Fully-Loaded Cost Formula

Base Compensation: Start with the annual salary and add any overtime, bonuses, or commissions they earn.

Benefits Costs: Add health insurance premiums, retirement contributions, life insurance, and whatever other benefits you provide. People often forget the employer's portion of these costs, but they add up fast.

Payroll Taxes: Include employer-paid Social Security (6.2%), Medicare (1.45%), federal unemployment (0.6%), state unemployment (varies by state), plus workers' comp insurance.

Allocated Overhead: Take your total annual overhead costs (rent, utilities, equipment, training, everything) and divide by your employee count to get a per-person allocation.

Example Calculation for a $70,000/Year Technician:

Base Salary:                    $70,000
Benefits (15% of salary):       $10,500
Payroll Taxes (8.65%):          $6,055
Allocated Overhead:             $18,000
                              ---------
Total Annual Cost:              $104,555

Billable Hours per Year:        1,760*
                              ---------
Fully-Loaded Hourly Cost:      $59.41

*Assumes 2,080 working hours minus 320 hours for vacation, sick time, training, and administrative tasks

When MSPs finally crunch these numbers, they typically discover their fully-loaded labor costs run 40-60% higher than base salaries. Pretty eye-opening stuff. This calculation forms the foundation for everything else you'll do in your profitability analysis.

Step 2: Extract Time Data from Your PSA

Now you need to dive into your PSA system and pull out detailed time tracking data. Make sure it's broken down by both client and technician—without that breakdown, your profitability calculations won't tell you much.

Data Points to Extract:

• Client Name/ID
• Date Range (start with your most recent complete month)
• Technician Name/ID
• Hours Worked (both billable and non-billable)
• Work Type (support, project, travel, training)
• Ticket Numbers (helpful for cross-referencing complexity)

Common PSA Export Challenges:

ConnectWise Manage: You can export time entries through Reports > Time Entry Reports. Filter by date range and client, then export to Excel.

Kaseya BMS: Look for the Time Sheet report under Billing > Reports. Set your target date range filters and export the data.

Autotask: Generate a Time Entry report under Reports > Time Entry. Filter by account and date range.

Syncro: Go to Reports > Time Tracking Report and filter by customer and date range.

If your PSA makes exporting this data feel like pulling teeth, you might need to extract it manually. If you have development resources available, the PSA's API might be worth exploring.

Step 3: Calculate Client-Specific Labor Costs

Now it's time to figure out what each client actually costs you. Multiply the hours spent on each client by those fully-loaded labor costs you just calculated.

Basic Labor Cost Calculation:

For each client, add up all time entries and multiply by the right technician costs:

Client A Labor Cost = (Senior Tech Hours × $75/hr) + (Junior Tech Hours × $45/hr) + (Manager Hours × $95/hr)

Example for TechCorp Client:

January Time Breakdown:
- Senior Technician (Sarah): 18.5 hours × $75 = $1,387.50
- Junior Technician (Mike): 12.0 hours × $45 = $540.00
- Service Manager (Lisa): 3.5 hours × $95 = $332.50
                                          ----------
Total January Labor Cost:                   $2,260.00

Advanced Calculation Considerations:

Premium Time: After-hours and weekend calls should be calculated at premium rates (typically 1.5x to 2x regular rates).

Travel Time: Don't forget to include travel time at the technician's hourly rate, plus mileage costs.

Training and Ramp-Up: New techs working on complex clients probably aren't at full efficiency yet, which drives up your actual labor cost.

Step 4: Allocate Cost of Goods Sold (COGS)

COGS includes all the direct costs for software, hardware, and services you're providing to clients. The good news about COGS versus labor? You can usually tie these costs to specific clients pretty accurately.

Software Licensing Allocation:

Most software costs can be allocated based on user count or usage:

Microsoft 365 Business Premium: $22/user/month
CrowdStrike Falcon Go: $8.99/user/month
Acronis Backup: $89/workstation/month

Hardware Allocation:

For hardware purchases, allocate costs based on client-specific deployments:

Client A Firewall Replacement: $2,400 (amortized over 36 months = $67/month)
Client B Server Upgrade: $8,500 (amortized over 48 months = $177/month)

Example COGS Calculation for TechCorp:

Software Licenses:
- Microsoft 365 (25 users): $550/month
- Security Stack (25 users): $475/month
- Backup Solution (25 devices): $125/month

Hardware Amortization:
- Firewall (purchased 18 months ago): $95/month
- Network Switch (purchased 6 months ago): $55/month
                                         -----------
Total Monthly COGS:                      $1,300

Step 5: Build Your Client P&L Statement

Now it's time to pull everything together into a profit and loss statement for each client.

Standard Client P&L Template:

CLIENT PROFITABILITY REPORT
Client: TechCorp Solutions
Period: January 2025

REVENUE:
Monthly Recurring Revenue:           $4,500
Project Revenue:                     $1,200
Additional Services:                   $300
                                   --------
Total Revenue:                       $6,000

DIRECT COSTS:
Labor Costs:                         $2,260
Software Licenses:                   $1,150
Hardware Amortization:                 $150
                                   --------
Total Direct Costs:                 $3,560

GROSS PROFIT:                        $2,440
GROSS MARGIN:                         40.7%

ALLOCATED OVERHEAD (15% of revenue):   $900

NET PROFIT:                          $1,540
NET MARGIN:                           25.7%

KEY METRICS:
Effective Hourly Rate (EHR):         $176.47*
Total Support Hours:                     34
Revenue per Hour:                    $176.47

*EHR = Total Revenue ÷ Total Hours

Step 6: Interpret Your Results and Identify Red Flags

You've got your client P&L statements—now what? Time to make sense of these numbers and spot the patterns that should set off alarm bells.

Profitability Benchmarks:

Excellent Clients (Target for Growth):

• Gross Margin: >50%
• Net Margin: >25%
• EHR: >3x your fully-loaded labor cost

Good Clients (Maintain and Nurture):

• Gross Margin: 35-50%
• Net Margin: 15-25%
• EHR: 2-3x your fully-loaded labor cost

Marginal Clients (Monitor and Improve):

• Gross Margin: 20-35%
• Net Margin: 5-15%
• EHR: 1.5-2x your fully-loaded labor cost

Problem Clients (Urgent Action Required):

• Gross Margin: <20%
• Net Margin: <5%
• EHR: <1.5x your fully-loaded labor cost

Red Flag Indicators:

Declining Trends: When margins drop over a 3-6 month period, you're likely dealing with scope creep or increasing complexity. For strategies to prevent scope creep, check out our guide on creating an ironclad scope of work.

High Project/Low Recurring Ratios: If most of a client's revenue comes from projects rather than recurring agreements, their profitability tends to swing wildly.

Excessive Support Hours: A client requiring more than 1 hour of support per $100 of MRR typically signals standardization problems or training gaps.

Below-Cost EHR: When a client's EHR drops below your fully-loaded labor cost, you're actually losing money every time you work on their account.

Step 7: Common Data Integration Challenges and Solutions

Almost every MSP runs into the same headaches when trying to combine data from their PSA and accounting systems:

Challenge 1: Client Name Mismatches

Problem: Your PSA calls them "TechCorp Inc." but accounting knows them as "Technology Corporation." Solution: Create a mapping spreadsheet to connect the different naming conventions between systems.

Challenge 2: Time Entry Categorization

Problem: Time entries are inconsistent. Is this contract work? Project work? Hard to tell. Solution: Establish stricter time entry procedures moving forward, then go back and categorize historical entries using ticket numbers or work descriptions.

Challenge 3: Multi-Location Clients

Problem: Your PSA tracks each location separately, but accounting bills everything under one parent company. Solution: Choose your approach: analyze profitability by location or combine everything under the parent company.

Challenge 4: Shared Resource Allocation

Problem: How do you distribute costs like insurance or enterprise licenses across multiple clients? Solution: Allocate based on revenue percentages, or run calculations both ways (with and without allocated overhead) to see the range.

Template: Your First Client Profitability Spreadsheet

Here's a simple Excel template structure to get started:

Sheet 1: Client Summary

| Client Name | MRR | Project Rev | Total Rev | Labor Cost | COGS | Gross Profit | Gross Margin | Net Profit | Net Margin | EHR |

Sheet 2: Labor Cost Calculation

| Technician | Hourly Rate | Jan Hours | Feb Hours | Mar Hours | Total Hours | Total Cost |

Sheet 3: COGS Allocation

| Client | Software Costs | Hardware Amort | Other COGS | Total COGS |

Sheet 4: Time Entry Raw Data

| Client | Date | Technician | Hours | Work Type | Description |

Taking Action on Your Results

After running your first client profitability analysis, you'll likely uncover some uncomfortable truths. Here's what to do with those insights:

For Highly Profitable Clients:

• Document what makes them successful (service model, tech stack, client behavior patterns)
• Use these characteristics to guide your sales and marketing efforts
• Consider introducing premium services to maintain those healthy margins

For Marginally Profitable Clients:

• Identify why they're consuming excessive support time
• Implement standardization where you can
• Consider renegotiating contracts so pricing aligns with your actual costs

For Unprofitable Clients:

• Calculate the true cost of keeping them on board
• Create rehabilitation plans with specific deadlines
• Be prepared to part ways if improvements don't materialize

The Ongoing Process: Making This Sustainable

Don't treat client profitability analysis like a one-time project. The MSPs achieving those impressive 19%+ EBITDA margins in 2025 have built this into their regular operations:

Monthly Reviews: They calculate profitability for every client monthly using standardized templates.

Trend Analysis: They track how profitability changes over time, identifying relationships that are improving or deteriorating.

Process Integration: Profitability considerations become part of sales, onboarding, and account management.

Team Education: Everyone learns to recognize and address factors that impact client profitability.

Your First Step: Pick One Client

Trying to analyze your entire client portfolio at once? That's a fast track to overwhelm. Start with one client—maybe that one you suspect isn't as profitable as they appear. Work through this process step by step and figure out what they're actually worth to your business.

You'll either confirm they're a keeper worth replicating, or you'll uncover the hidden costs that have been quietly draining your margins. Either way, you'll have real data to guide your business decisions.

When industry margins typically hover around 8-12%, understanding client-level profitability isn't just helpful—it's essential for survival. The MSPs thriving in 2025 aren't just working harder. They're being strategic, focusing their energy on relationships that genuinely drive results.

After you've got client profitability reporting down, check out our early warning system for at-risk accounts to catch declining relationships before they tank. Want to evaluate your whole portfolio systematically? Our 80/20 rule analysis shows you the distribution patterns.

Next up: "Problem Client Scorecard: A Free Template to Grade Your Client Base" gives you a framework for evaluating every client and figuring out who deserves your A-game versus who needs immediate intervention.

Frequently Asked Questions

How do you calculate MSP client profitability?

To calculate MSP client profitability, start by figuring out your fully-loaded labor costs, then pull time data from your PSA, allocate direct costs like software licenses and hardware, and build a client P&L statement showing revenue minus all allocated costs.

What is a fully-loaded labor cost for MSP technicians?

Fully-loaded cost means adding everything: base salary, benefits (usually around 15% of salary), payroll taxes (8.65%), plus allocated overhead. Most MSPs discover their fully-loaded costs run 40-60% higher than base salaries, often hitting $95-125/hour for experienced techs.

What is an Effective Hourly Rate (EHR) for MSPs?

EHR equals Total Revenue divided by Total Hours spent on a client. It shows what you're actually earning per hour of work. When your EHR reaches more than 3x your fully-loaded labor cost, you're looking at solid profitability.

What are the red flags for unprofitable MSP clients?

Watch for these warning signs: EHR below 1.5x your fully-loaded labor cost, gross margins under 20%, profitability declining over 3-6 months, or clients requiring more than 1 hour of support for every $100 of monthly recurring revenue.

How often should MSPs calculate client profitability?

Top-performing MSPs run client profitability analysis monthly to stay on top of trends. You might want to start with quarterly analysis, then move to monthly once your processes and templates are working smoothly.

What data do I need from my PSA for profitability analysis?

Extract time entries by client and technician, ticket volume and resolution data, project hours with billing rates, and agreement details. You'll want at least 12 months of historical data to spot meaningful trends.

Can I calculate client profitability without expensive software?

Absolutely—just use Excel with data from your current PSA and accounting systems. Basic templates can reveal plenty before you consider specialized profitability analysis tools.