Professional Services Intelligence Brief
How to Investigate Unprofitable Client Relationships
Your largest clients may not be your most profitable ones. Measuring what each relationship really earns, after the cost of serving it, is the first step to deciding what to do about the weakest.
Short answer
To investigate an unprofitable client, assign the cost of serving each client (time, rework, special handling, collection effort) and compare it with fees collected, then rank clients by net profit; the resulting whale curve usually shows a few clients earning more than 100 percent of total profit and a tail that loses money. Lake Ridge Bank’s description of the method reports that the top 20 percent of clients may generate 150 to 180 percent of profits while the bottom 20 percent lose 50 to 80 percent of them.[1] Before ending a relationship, find the cause: pricing, scope, behavior or fit, and consider repricing or restructuring first.[2]
Why can a large client be an unprofitable one?
A client is profitable only if the fees it pays exceed the full cost of serving it, and cost to serve is rarely visible in the accounting system. Revenue and gross margin are inadequate for judging individual customer profitability, according to Pragmatic Institute, because two customers with the same gross margin can consume organizational resources at very different rates.[3] In a professional services firm the hidden costs are mostly people’s time: partners pulled in at short notice, repeated revisions, slow responses that stretch projects, extra reporting, disputed invoices and late payment.
Size makes this worse, not better. Lake Ridge Bank notes that a company’s largest customers usually fall at one of the two extremes of the whale curve; servicing large clients can require special orders, deep discounts and extraordinary demands on delivery, so the biggest client may be the least profitable relationship.[1] Pragmatic Institute makes a similar point, saying that many executives believe their largest customers are their most profitable, which frequently is not the case once true cost to serve is attributed.[3]
How do you measure the profitability of each client?
Build a client profitability table for the last twelve months. For each client, record fees invoiced, fees collected, write-downs and discounts, hours worked by person and the fully loaded cost of those hours, plus any direct expenses you absorbed. Then add a share of overhead using a simple, consistent rule, such as overhead per delivery hour. The result is net contribution by client.
Pragmatic Institute describes the principle as activity-based costing: assign the real cost of the activities each client triggers, separating costs that are fixed, semi-fixed and variable, so that you can tell which clients are profit makers, profit neutrals or profit takers.[3] You do not need a complex system to begin; a spreadsheet that ties timesheets to invoices is enough for most firms, and the discipline of tracking hours and tasks for each client is what makes the analysis possible.[2]
| Group | What it means | Typical response |
|---|---|---|
| Profit makers | Fees well above cost to serve | Protect, deepen and learn what makes them work |
| Profit neutrals | Fees roughly cover cost to serve | Look for efficiencies and price discipline |
| Profit takers | Cost to serve exceeds fees | Diagnose, then reprice, restructure or release |
How do you read a whale curve?
Rank clients from most to least profitable and plot cumulative profit as you add each client. The line rises steeply as profit makers are added, peaks, then falls as unprofitable clients are added, ending at the firm’s actual total profit. Lake Ridge Bank describes a typical pattern in which the top 20 percent of clients generate between 150 and 180 percent of profits, the next 60 percent are about break-even and the last 20 percent lose 50 to 80 percent of the organization’s profits.[1] The shape is called a whale curve because the plotted line resembles the head and torso of a whale.
The size of the gap between the peak of the curve and the final point shows how much profit is being given away by serving the unprofitable tail. Treat the percentages as illustrative rather than a rule for your firm, because each firm’s client base is different; the point of drawing the curve with your own data is to see your own shape.
What causes a client to be unprofitable, and what should you do?
Find the cause before choosing a remedy. Deltek advises assessing the relationship holistically before divesting: is the client genuinely unwilling to spend more, or simply unaware of the other services you offer, have their needs changed, and has your own focus drifted away from them?[2] The usual causes are pricing that never kept pace with the work, scope that expanded without a change order, a client who needs far more support than the engagement assumes, slow payment, and work that no longer fits your strengths.
| Cause | Evidence in the data | Response |
|---|---|---|
| Underpricing | Effective rate well below standard on every project | Reprice at renewal; move to value or fixed pricing with a defined scope[2] |
| Scope creep | Hours consistently exceed estimates; change requests unrecorded | Define scope in writing, track hours against it, bill changes[2][4] |
| High service burden | Heavy partner time, many revisions | Restructure the service, assign a lower-cost team, set service levels |
| Slow payment | Long collection lockup | Change terms, bill earlier, require deposits |
| Poor fit | Low growth potential, low strategic value | Release respectfully after repricing options are exhausted[2] |
Deltek also recommends managing expectations from the start, ideally during negotiation and before the contract is on the table, by explaining how you create value and clarifying the triggers that would tip the relationship into unprofitability.[2] If, after these steps, the relationship still cannot create value for both parties, Deltek says the firm should end it, delivering the news in a way that minimizes adverse consequences.[2]
How should you decide whether to keep or release a client?
Profit is not the only test. Deltek notes that investing in a customer base is a strategic decision that should not rest solely on profitability.[2] A client that loses money today may open doors, provide references, fill slack capacity or be about to buy higher-margin services. Score each unprofitable client on current profitability, ease of service and growth potential, and consider the effect on the team and on capacity.
Keep a record of the discussions you have, the repricing offered and the response. If you do release a client, do it in a planned, respectful way, give notice consistent with the engagement terms and professional rules, hand over files properly and use the freed capacity to serve better-fit clients. Where regulated professions are involved, check your professional body’s rules on terminating a client relationship before acting.
Frequently asked questions
What is a whale curve?
A chart that ranks customers from most to least profitable and plots cumulative profit. Its shape resembles a whale because profit rises to a peak, then falls as unprofitable customers are added.[1][3]
How do I know if a client is unprofitable?
Compare fees collected with the fully loaded cost of the hours and expenses the client consumes, plus a fair share of overhead. Revenue and gross margin alone will not show it.[3]
Should I fire an unprofitable client?
Not before diagnosing the cause. Deltek recommends reassessing the relationship, managing expectations and keeping records first, and ending the relationship only if it still cannot create value for both parties.[2]
How common is it for firms to drop customers?
Deltek reports that, according to Harvard Business Review, 90 percent of surveyed executives had seriously considered divesting customers and 85 percent said they already had.[2]
Can scope creep make a client unprofitable?
Yes. PMI’s 2018 Pulse of the Profession found that 52 percent of projects completed in the prior twelve months experienced scope creep or uncontrolled changes,[4] and Deltek advises tracking hours and tasks for each client to catch it early.[2]
What to do next
- Build a client profitability table for the last twelve months.
- Plot a whale curve of net contribution by client.
- Diagnose the cause for each client in the unprofitable tail.
- Decide for each whether to reprice, restructure or release, and record the decision.
Optional · interactive example
See it in an interactive example.
Firm Economics Dashboard: a service-line dashboard with utilization and realization, a scenario simulator for hours, rate and cost, evidence-linked answers from APIS, and a sample brief, all on synthetic data.
The experience below is built on a synthetic firm, “Demo Advisory Partners,” analyzed by service line. It has no client-level or engagement-level records, so service lines are used to show the method. Nothing in it is real.
- In the service-line table, sort by Contribution margin. Which line has fallen the most?
- Select Technology Consulting and compare its growth in hours with its change in realized rate.
- Ask APIS which service lines warrant a closer review.
Understand Your Firm’s Economics and Growth Opportunities
Two Pillars helps professional services firms investigate profitability, capacity, pricing and growth using the firm’s own data and a structured assessment process. A good first step is a firm economics review that follows your own hours from capacity to cash, by client, service and person, and shows where margin is lost.
Sources
- Lake Ridge Bank, Customer Profitability Beyond the 80/20 Rule with the Whale Curve (March 29, 2023). Accessed October 2026.
- Deltek, 3 Ways to Manage Unprofitable Clients (January 31, 2023). Accessed October 2026.
- Pragmatic Institute, Maximizing Profitability with a Whale Curve (Bauder). Accessed October 2026.
- Project Management Institute (PM Network), Scope Patrol: Scope Creep Is on the Rise as Stakeholder Expectations Increase (Elton, July 2018). Accessed October 2026.
Sources checked October 2026. This guide is general information for the leaders of professional services firms and is not legal, accounting, tax or financial advice. Figures and rules are cited to the sources below and may have changed since they were accessed, so confirm anything you rely on against the current source. Two Pillars & Co is independent of the organizations cited. See our editorial policy.