margin-analysis

name	Margin Analysis
description	Use this skill when computing per-client or per-service-line margin for an MSP: revenue from PSA billing/accounting invoices minus cost from Pax8/Sherweb wholesale pricing plus estimated labor from PSA time entries where available. Handles missing cost data by flagging it rather than guessing.
when_to_use	When ranking clients or service lines by profitability, or investigating whether a client is profitable at all. Use when: margin analysis, client profitability, which clients make money, unprofitable clients, cost to serve, margin by client, margin erosion, service line profitability, contract margin, realized rate.

Margin Analysis

Overview

Revenue is visible in every PSA and accounting system; cost is not. MSPs routinely know what they bill a client but not what it actually costs to serve them, because cost has two very different components with very different data quality: cost of goods (marketplace subscription costs from Pax8/Sherweb — usually complete and precise) and cost of labor (technician time actually spent — usually incomplete, because not every MSP enforces disciplined time entry against every ticket).

This skill computes margin at the client or service-line level using whatever cost data is actually available, and is explicit and conservative about what it could not compute — a margin number built on a guessed labor cost is worse than no margin number, because it will be trusted and acted on.

Margin = Revenue − Cost
Margin % = (Revenue − Cost) / Revenue × 100

Revenue = billed amount from PSA/accounting invoices for the period
Cost    = marketplace wholesale cost (Pax8/Sherweb) + estimated labor cost
          (PSA time entries × loaded technician rate, when available)

Connected Systems

System	Role	Required?
PSA (Autotask/HaloPSA/ConnectWise/Syncro) or accounting (QBO/Xero)	Revenue — billed amount per client/service line	Yes (at least one)
Pax8 / Sherweb	Cost of goods — marketplace wholesale cost per subscription	Optional — recommended
PSA time entries (Autotask/HaloPSA/ConnectWise/Syncro)	Cost of labor — hours logged per client, for estimating labor cost	Optional

Revenue is the only hard requirement. Everything else is a cost input that improves accuracy but is not mandatory — this skill must still produce useful output with only revenue and zero cost data, by explicitly reporting "cost data unavailable" rather than fabricating a margin figure.

Workflow

Step 1: Discover what's connected

Call conduit__search_tools and search for "invoice", "subscription", and "time entr" to determine which revenue and cost sources are live for this org. Proceed with whatever combination exists.

Step 2: Pull revenue per client

Pull billed amounts for the analysis period from whichever accounting/PSA billing source is connected (qbo__list_invoices, xero__list_invoices, or the PSA's invoice/billing-item search tool). Sum to a per-client revenue total for the period. Where service-line-level margin is requested rather than whole-client margin, keep revenue broken out by line description/service rather than collapsing to a single total.

Step 3: Pull cost of goods (if connected)

Pull active subscriptions from Pax8/Sherweb (pax8__list_subscriptions or the Sherweb equivalent) for the same client, and sum wholesale unit cost × quantity to a per-client cost-of-goods total for the period. This is the most reliable cost input available — treat it as ground truth once fetched.

Step 4: Estimate cost of labor (if time-entry data is connected — treat as an estimate, always)

Pull time entries for the client for the period from the PSA (autotask__search_time_entries or the connected PSA's equivalent). Sum logged hours. Multiply by a loaded technician rate to estimate labor cost.

The loaded rate must come from context, not be invented:

• If the user or prior context supplies a blended/loaded hourly rate, use it.
• If the PSA exposes a billing rate or cost rate per resource, use that as the best available proxy and say so.
• If no rate is available from any source, do not invent one. Report hours logged as a fact, mark estimated labor cost as "not computed — no loaded rate available," and exclude it from the margin calculation rather than silently defaulting to an arbitrary number.

Time-entry data is inherently an underestimate of true cost-to-serve when time tracking discipline is inconsistent — note this caveat in the report whenever labor cost is included, so the reader doesn't over-trust a number built on incomplete logging.

Step 5: Compute margin, flagging what's missing

For each client (or service line):

• Full data (revenue + COGS + labor) — compute margin and margin % normally.
• Revenue + COGS only — compute a "gross margin (excludes labor)" figure and label it as such. Do not present it as full margin.
• Revenue only — do not compute a margin figure. Report revenue and state "cost data unavailable — margin cannot be computed" rather than guessing or omitting the client from the report entirely.

Never interpolate a missing cost component from portfolio averages or silently skip a client with incomplete data — both produce a false sense of coverage. Every client in scope appears in the output, with its data-completeness state explicit.

Step 6: Rank and flag

Sort clients by margin % ascending (worst first) among those with a computed margin. List clients with incomplete cost data in a separate section, not interleaved with ranked results, so the ranking itself is never built on an apples-to-oranges mix of full-margin and gross-margin-only figures. Flag any client with negative margin (operating at a loss) prominently regardless of where they sort.

Report Format

═══════════════════════════════════════════════════════════════════
MARGIN ANALYSIS
Period: [Month/Quarter Year]
Cost inputs available: COGS [✓ / not connected] | Labor [✓ / not connected]
Generated: [Date]
═══════════════════════════════════════════════════════════════════

RANKED — FULL MARGIN (Revenue − COGS − Labor)
  1. [Client] — Revenue $[X] − COGS $[X] − Labor $[X] = Margin $[X] ([X]%)
  ...
  N. [Client] — Margin $[X] ([X]%)  ⚠ NEGATIVE MARGIN — operating at a loss

RANKED — GROSS MARGIN ONLY (Revenue − COGS, labor not available)
  [Client] — Revenue $[X] − COGS $[X] = Gross Margin $[X] ([X]%)
  [Note: excludes labor cost — not directly comparable to full-margin clients above]

COST DATA UNAVAILABLE
  [Client] — Revenue $[X] — no COGS or labor data connected; margin not computed

SUMMARY
  Clients with full margin computed:   [N]
  Clients with gross margin only:      [N]
  Clients with no cost data:           [N]
  Clients operating at a loss:         [N]
═══════════════════════════════════════════════════════════════════

Graceful Degradation

Missing / Unavailable	Handling
No accounting/PSA billing connected	Cannot run — no revenue source. State this explicitly.
No Pax8/Sherweb connected	Compute margin on labor only if available, or report revenue-only; never omit COGS silently from a "full margin" label.
No PSA time entries connected	Compute gross margin (revenue − COGS) and label it as such; do not present as full margin.
No loaded/blended labor rate available anywhere	Report hours logged as a fact; exclude labor cost from margin math rather than guessing a rate.
Client has revenue but zero rows in every cost source	Report revenue and mark "cost data unavailable" — do not drop the client from the report.

Related Skills

• agreement-reconciliation — confirm billed revenue is accurate before trusting it as a margin input
• license-true-up — confirm marketplace cost inputs reflect actual provisioned/deployed seats, not stale subscription data
• shared/skills/billing-reconciliation — margin math reference for Pax8-cost-vs-sell-price comparisons at the subscription level