Most agencies believe growth means “more clients.”
In reality, growth often means better clients — the ones that produce strong margins, predictable cash flow, and work your team actually enjoys delivering.
The truth is simple: not all clients or services are created equal.
Some are quietly fueling your profits. Others are slowly bleeding them.
When you combine the Pareto Principle with your Labor Efficiency Ratio (LER), you’ll see exactly where your agency’s profit really comes from — and how to double down on it.
The Pareto Principle of Profit
The Pareto Principle, or the 80/20 rule, suggests that 80% of results come from 20% of causes.
In agency finance, that usually looks like this:
- 80% of profit comes from 20% of clients.
- 80% of headaches come from another 20%.
Once you see those numbers in black and white, the path forward becomes obvious:
Keep the high-margin 20%.
Fix or release the low-margin 20%.
And align your marketing, pricing, and team around the clients that actually create profit.
Step 1: Identify Your Profit Pockets
Start by ranking your clients by gross profit, not revenue.
Revenue can mislead — a $500K client with razor-thin margins is worth less than a $150K client with strong efficiency.
Example:
| Client | Revenue | Direct Labor | Gross Profit | Gross Margin % |
| Client A | $500,000 | $375,000 | $125,000 | 25% |
| Client B | $200,000 | $80,000 | $120,000 | 60% |
| Client C | $150,000 | $37,500 | $112,500 | 75% |
In this example, Clients B and C deliver most of the profit on a smaller share of revenue.
That’s your 80/20 in action.
The insight: Revenue doesn’t pay the bills — margin does.
Step 2: Layer in LER (Labor Efficiency Ratio)
Once you’ve ranked clients by gross profit, add another lens — Labor Efficiency Ratio (LER) — to understand which clients produce the highest return on your team’s time.
Formula:
LER = Revenue ÷ Direct Labor
LER measures how much revenue your team generates for every dollar spent on direct labor.
Higher LER means stronger leverage and healthier margins.
Example:
- Client A: LER = 1.3 → for every $1 in labor, $1.33 in revenue is generated (low leverage).
- Client C: LER = 4.0 → for every $1 in labor, $4.00 in revenue is generated (elite performance).
The takeaway: focus less on who pays you the most and more on who pays you best.
Step 3: Analyze by Service Line
Your client mix tells half the story. Your service mix tells the rest.
Every agency has one or two services that quietly drive most of the profit.
To find them, segment your P&L by service type — SEO, Paid Media, Web Design, Strategy, etc.
Then calculate LER and gross margin for each service line:
| Service | Revenue | Direct Labor | LER (Revenue ÷ Direct Labor) | Gross Margin % |
| Paid Media | $1,200,000 | $428,571 | 2.8 | 64.3% |
| SEO | $800,000 | $216,216 | 3.7 | 73.0% |
| Web Dev | $1,000,000 | $833,333 | 1.2 | 16.7% |
Interpretation:
- Paid Media (2.8 LER): Good efficiency; protect scope and systemize delivery.
- SEO (3.7 LER): Excellent leverage; double down on this service.
- Web Dev (1.2 LER): Margin drag; reprice, streamline, or replace.
This is how you identify where to double down, refine, or replace.
Step 4: Act on the Data
Once you’ve mapped your clients and services by LER and margin, you’ll see clear patterns.
Here’s how to act on them:
1. Double Down on High-LER Clients
These are your most efficient, profitable accounts.
Protect them, deepen relationships, and replicate them in your marketing.
2. Reprice or Restructure Mid-LER Clients
If clients fall between 2.0 and 3.0 LER, small pricing or process adjustments can dramatically improve performance.
3. Retrain or Release Low-LER Work
When LER falls below 1.5, you’re losing profit.
Ask why — pricing, process, or fit — and make a decision quickly.
Sometimes the best way to increase profit is to say no to the wrong kind of work.
Step 5: Shape Your Positioning Around Profit
Your best clients often share common traits — industry, size, communication style, or tech stack.
Use your LER and margin analysis to build a clear ideal client profile and service focus.
Examples:
- If SaaS or e-commerce clients consistently show LER > 3.5, focus marketing there.
- If one service underperforms, repackage or phase it out.
- If smaller retainers yield higher LER, productize and scale them.
Aligning positioning around high-LER work simplifies marketing, improves delivery, and stabilizes profit.
Step 6: Track It Quarterly
Client and service efficiency change over time.
Review LER and gross margin monthly.
Ask:
- Which clients are trending up or down in LER?
- Which services are becoming more efficient or costly?
- Are new hires or tools improving output?
This rhythm keeps your focus on profitability, not just top-line growth.
The CFO Mindset
A CFO doesn’t just chase growth — they chase profitable growth.
By pairing Pareto analysis with LER, you’ll see exactly where your 80% of profit comes from.
The goal isn’t to serve everyone.
It’s to scale what works best.
Find your profit pockets.
Double down on them.
And let the rest go.
Key Takeaways
- 80% of profit often comes from 20% of clients.
- Rank clients and services by gross margin and LER (Revenue ÷ Direct Labor) to find your profit pockets.
- Double down on high-LER clients and services.
- Reprice, retrain, or release low-margin work.
- Use these insights to shape marketing and positioning around your most profitable niches.
About Argento CPA
Argento CPA partners exclusively with high-performing marketing agencies that want clarity, strategy, and profitability — not just compliance.
We specialize in fractional CFO services, financial strategy, and profit improvement systems that turn financial data into confident decisions.
Our team helps agencies:
- Track profit by client, service line, and department
- Calculate and interpret LER to uncover margin leaks
- Build 12-month forecasts and pricing models
- Improve cash flow and operational efficiency
- Reposition around ideal, high-value clients
Our approach is practical, fast, and collaborative — built for founders who want to understand their numbers and scale smarter.