Understanding your marketing agency's profitability is not just about looking at overall profit, it's about analyzing how each client and each service contributes to the bottom line. Calculating P&L (Profit and Loss) by client and by service allows you to identify which areas are most profitable and where you could adjust to improve your margins. In this guide we explain how to do it step by step.
What is p&l and why calculate it by customer and service?
The P&L, or income statement, details revenues and costs to determine net profit or loss. When you calculate it by customer and by service, you get a clear view of:
- Most profitable customers: those who generate the highest profits after covering their costs.
- Most profitable services: which areas of your business provide the highest profit margin.
- Opportunities for improvement: where to optimize costs or adjust prices.
Steps to calculate the p&l per customer and per service
1. identifies revenue per customer and service
First, determine how much money each customer and each service generates in a specific period (monthly, quarterly, etc.). Divide the revenue as follows:
- Per customer: sums all payments received from a client, whether for one-time projects or recurring services.
Example:- Customer A: $10,000/month
- Client B: $5,000/project
- By service: classifies income according to the services offered, such as social media management, SEO, web design, among others.
Example:- SEO: $15,000/month
- Advertising: $20,000/month
2. records direct costs
Direct costs are the expenses that you can allocate specifically to a customer or service. This includes:
- Labor: labor hours dedicated to the customer or service, calculated according to the hourly rates of the equipment.
- Tools and software: costs of platforms such as Google Ads, design tools, etc., used specifically for the client or service.
- Outsourcing: if you outsource any part of the work, such as writing or design.
Example of direct costs per customer:
- Customer A: $5,000 in labor hours + $500 in tools.
- Client B: $2,000 in subcontracting + $300 in tools.
Example of direct costs per service:
- SEO: $8,000 in team work + $2,000 in SEO tools.
- Advertising: $10,000 in advertising expense + $3,000 in equipment management.
3. considers indirect costs
Indirect costs cannot be assigned to a specific customer or service, but should still be included. This includes:
- Office rental.
- Administrative salaries.
- Internal marketing.
- General expenses (internet, utilities, etc.).
Distribute these costs proportionally among customers and services according to criteria such as revenue generated or time spent.
4. calculates the p&l per customer and service
Now that you have the revenues, direct and indirect costs, calculate the P&L:
P&L = revenue - direct costs - allocated indirect costs
Example per customer:
- Customer A: $10,000 (revenue) - $5,500 (direct costs) - $1,000 (indirect costs) = $3,500 net profit.
- Customer B: $5,000 (revenue) - $2,300 (direct costs) - $500 (indirect costs) = $2,200 net profit.
Example by service:
- SEO: $15,000 (revenue) - $10,000 (direct costs) - $2,000 (indirect costs) = $3,000 net profit.
- Advertising: $20,000 (revenue) - $13,000 (direct costs) - $2,500 (indirect costs) = $4,500 net profit.
5. analyzes the results
Review the data and look for patterns:
- Which customers have higher margins?
- Which services generate the most benefits?
- Where can you reduce costs or renegotiate prices?
This information will help you make informed decisions, such as prioritizing more profitable customers or services and optimizing operations in less profitable areas.
Calculating P&L by client and service not only gives you insight into your agency's profitability, but also allows you to identify opportunities to scale strategically. By understanding which clients and services generate the most profit, you can focus your resources where they really matter, improve margins and grow with a solid foundation. Moreover, with this free template, carrying out this analysis will be even easier.
