Agreement profitability tells you whether a managed services contract earns its keep. The most useful starting measure is direct margin: the agreement's revenue minus the costs that can be traced to it.
01The formula
Direct margin = recurring revenue minus vendor costs minus labor. For example, an agreement with $1,430 of monthly revenue, $748 of vendor costs and $527 of labor leaves $155, a direct margin of 10.8%.
Overhead is deliberately left out. Direct margin answers whether the agreement covers what it costs to deliver, before shared costs.
02What to include
- Vendor costs. Distributor licences, cloud consumption, backup storage and security per-seat costs.
- Labor. Support and project hours at a consistent internal cost rate.
- Revenue. Recurring agreement revenue, kept apart from one-off project billing.
Profitability in Revtein
Revtein builds the margin of every agreement from revenue, vendor costs and labor, says when the data is incomplete, and helps you decide the new price before the…
See how it works03When data is incomplete
04Using the number
- Rank clients by direct margin, lowest first.
- Open the lowest and look at how the margin is built: is it vendor cost, labor, or an old price?
- Test a price or scope change before committing. A 10% price increase on that example agreement would lift the monthly price to $1,573 and the margin to 18.9%.
- Record the decision and carry it into the renewal.
Revtein's Profitability workspace builds this per client, service and agreement, with a pricing lab that saves nothing until you decide.
