# How to Know When to Fire a Client: Client Profitability

> How to know when to fire a client: measure profitability per client, read the warning signs, then reprice or exit cleanly under TPB and ATO rules.

**Source:** https://agentive.au/blog/client-profitability-which-client-to-let-go/ · **Published:** 2026-11-03 · **Author:** Dr. Ash Khalilian

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Short Answer

**You know it is time to fire a client when their effective hourly rate stays well below your practice target after you have tried repricing or rescoping, and the behaviour behind it keeps repeating: late records, fee disputes, slow payment or pressure to cut corners. Measure first, offer a fair fix, then exit in writing.**

Last reviewed: November 2026

Key takeaways

-   Client profitability in an accounting practice is best measured as an effective hourly rate: fees actually collected divided by all hours spent, including emails, chasing and rework.
-   A client whose effective rate sits well below the practice target for two or three quarters is a candidate for repricing, rescoping or exit.
-   Most unprofitable clients should be offered a revised fee or scope before they are let go, because many are mispriced rather than difficult.
-   The Tax Practitioners Board recommends letters of engagement that cover fees, document arrangements and how the engagement can be ended.
-   Lodging a final return does not remove a client from an agent's ATO client list; the agent must remove the client and their own details from the client's record.
-   Agentive's view is that you should fire clients for behaviour and reprice them for economics, because automation can fix the second but not the first.

Every practice owner knows the client whose name in the inbox makes the team sigh: records late, receipts missing, every invoice questioned. The question is whether that client is unprofitable or just unpleasant, and whether the answer is a new price or a polite goodbye. This guide gives Australian accountants, bookkeepers and BAS agents a way to measure it, the signals that justify an exit, and the steps to end an engagement properly. It also covers where [a dedicated AI Employee](/ai-employee/) changes the maths, because some clients are only unprofitable because of the manual work around them.

## How do you measure client profitability in an accounting practice?

Measure each client's effective hourly rate: the fees you actually collected from them over a period, divided by every hour your team spent on them in the same period. That single number cuts through the noise. A large fee can hide a terrible rate, and a small fee can be some of the best work in the practice.

Three details make the number honest. First, use collected fees, not billed fees: write-offs, discounts and unpaid invoices all reduce real profitability. Second, count all the time, not just chargeable work. Emails, calls, chasing missing statements, rework and partner review all belong to the client. Third, use a long enough period. Two or three quarters, or a full year, gives a fairer picture than one quarter distorted by a year-end.

### A worked example

The figures below are a hypothetical example, not data from a real practice. Suppose a small bookkeeping and BAS practice needs $180 an hour across the team to cover wages, software, rent and a reasonable profit.

-   Client A pays $9,000 a year and takes 30 hours of work. Effective rate: $300 an hour.
-   Client J pays $3,600 a year and takes 40 hours of work, much of it chasing statements and correcting coding the client did themselves. Effective rate: $90 an hour.

Client J is paying half of what the practice needs per hour. On these figures, the same 40 hours spent on work at the target rate would earn $7,200 instead of $3,600. Client J is not a $3,600 client; Client J is a $3,600 loss of opportunity every year. That is the number to bring to the conversation, not the feeling in the inbox.

## What are the signs it is time to let a client go?

The clearest sign is a low effective rate that stays low after you have tried to fix it. On its own, a low rate is a pricing problem. Combined with repeated behaviour that you cannot change, it becomes a relationship problem. The table below separates the two, because they call for different responses.

| Signal | Usually means | Best first response |
| --- | --- | --- |
| Effective rate well below target | Mispriced, or scope has grown | Reprice or rescope with a clear date |
| Records always late or incomplete | Process problem on the client side | Set a cut-off and a fee for late or catch-up work |
| Every invoice disputed | Unclear scope, or a client who sees you as a cost | Fixed fee with a written scope |
| Fees paid late, repeatedly | Cash flow stress, or low priority | Upfront or direct debit billing |
| Staff dread the file | Disrespect, or unrealistic demands | Partner conversation, then exit if it continues |
| Pressure to cut corners on tax | A professional risk to you | Decline the request in writing; exit if it recurs |

The last row is different from all the others. The Tax Practitioners Board's [Code of Professional Conduct](https://www.tpb.gov.au/code-professional-conduct) requires registered tax and BAS agents to act honestly and with integrity, to act lawfully in the best interests of the client, and not to knowingly obstruct the proper administration of the taxation laws. A client who keeps asking for something you cannot do is not a pricing problem. No fee makes that client profitable.

## Should you reprice a client before letting them go?

Yes, in most cases. Agentive's view is simple: fire clients for behaviour, reprice them for economics. A client who is pleasant, pays on time and simply takes more work than the fee covers has not done anything wrong. The practice priced the job on assumptions that turned out to be false. That is fixed with a conversation, not a termination letter.

Bring the numbers. Show the client what the work involves, and which tasks come from late or incomplete records. Then offer two options: a revised fee that reflects the real work, or a reduced scope at the current fee, such as quarterly instead of monthly reporting. Give a date from which the new arrangement starts.

Some clients will accept. Some will improve their own processes once they see the cost. Some will leave on their own, which is a clean outcome for both sides. If a client refuses both options and the effective rate stays low, you now have a documented, fair reason to end the engagement. Our guide on [pricing accounting work once AI handles compliance](/blog/what-should-accountants-charge-when-ai-does-compliance/) covers the move from hourly to value and fixed-fee models in more depth.

One special case deserves a note. A client whose books are years behind is often unprofitable for the first engagement only. Price the catch-up separately from the ongoing work, as covered in our guide to [bookkeeping cleanups and catch-up work](/blog/messy-books-where-to-start-catch-up-or-start-fresh/), and judge the client on the ongoing rate rather than the first year.

## What should a letter of engagement say about ending the relationship?

It should say how either side can end the engagement, what happens to documents, and how fees are calculated and paid. The Tax Practitioners Board's guidance on [letters of engagement](https://www.tpb.gov.au/letters-engagement) recommends a written agreement before you start providing tax agent or BAS services. Among the matters the TPB suggests covering are how fees are calculated, the frequency of billing and the timeframe for payment, any arrangements for keeping the client's documents or making copies of them, arrangements for terminating the engagement, and mechanisms for resolving disputes. The TPB notes that disputes about fees are very common.

The same guidance says ongoing engagements should be reconfirmed or reviewed regularly, preferably annually, and that a new letter may be needed when the terms or scope of the engagement change. That annual review is the natural moment to reprice: a routine point to say the work has grown and the fee is changing, which is far easier than raising it mid-year with an unhappy client.

## How do you end an engagement with a client properly?

End it in writing, finish or clearly hand over any work in progress, return what belongs to the client, and clean up your ATO records. Most complaints about an exit come from loose ends rather than the decision itself. The checklist below is a practical sequence for Australian tax and BAS agents. It is general information, not legal advice.

1.  **Check the letter of engagement.** Follow its termination and notice terms, and note any document or fee arrangements it sets out.
2.  **Write to the client.** State the date the engagement ends, what work you will complete before then, and what you will not. Keep the tone factual and brief.
3.  **List upcoming deadlines.** Tell the client which lodgments and payments are coming due, so nothing is missed in the gap before a new agent starts.
4.  **Return the client's documents.** Source documents the client gave you should go back to them. Get the client's permission before sending anything to a new agent.
5.  **Issue a final invoice.** Bill for work completed to the end date, as agreed in the engagement terms.
6.  **Remove your details from the client's ATO record.** Contact details, addresses, bank details and your name as an authorised contact, across all of the client's roles.
7.  **Remove the client from your ATO client list.** Use Online services for agents or the Practitioner lodgment service, and remove them from your Favourite clients list.
8.  **Close the file and keep your records.** Archive the records of the services you provided, for at least the period the Code Determination requires.

Two steps on that list trip practitioners up most often. The first is confidentiality. The Code says that, unless you have a legal duty to do so, you must not disclose information about a client's affairs to a third party without the client's permission. A new agent asking for the file is a third party until the client says otherwise, so ask the client to authorise the transfer in writing.

The second is the ATO client list. The ATO's [client list FAQs](https://www.ato.gov.au/tax-and-super-professionals/for-tax-professionals/prepare-and-lodge/lodgment-program-framework/lodgment-program-framework-frequently-asked-questions/clients-and-your-client-list) say that lodging a final return or completing a non-lodgment advice does not remove a client from your list, and that the ATO may keep contacting you if your agent number is still attached to one of the client's roles. The [Online services for agents guide to My practice](https://www.ato.gov.au/tax-and-super-professionals/digital-services/online-services-for-agents/online-services-for-agents-user-guide/my-practice) sets out the removal steps, notes the client list can take about 15 minutes to update, and points out that removing a client from your client list does not remove them from your Favourite clients list.

## Can you hold a client's records until they pay?

Only in narrow circumstances, and rarely the ones practitioners expect. The TPB's guidance statement [TPB(GS) 07/2011 Claiming a lien over client property](https://www.tpb.gov.au/tpb-gs-07-2011-claiming-lien-over-client-property) explains that a tax practitioner may be able to claim a particular lien over client property for outstanding professional fees, but only over property they have expended labour on and made more valuable. The guidance gives a general ledger, balance sheet and draft income tax return prepared by an accountant as examples a lien could attach to, and notes it could extend to a software data file the practitioner has worked on.

Source documents are a different matter. Subject to any agreement to the contrary, the TPB says documents such as ledgers, receipts, invoices and journals, correspondence between the ATO and the client, and notices of assessment are likely to belong to the client. Documents provided only to help you do the work, which you have not made more valuable, generally cannot be the subject of a lien. The TPB also encourages practitioners to seek legal advice before exercising a lien. In practice, holding records rarely gets a bill paid faster and often turns a fee dispute into a complaint. Clear payment terms and current billing do more.

## What records must you keep after a client leaves?

You must keep records of the services you provided for at least five years. The TPB's page on the [obligation to keep proper client records](https://www.tpb.gov.au/obligation-keep-proper-client-records) explains that, under section 30 of the Tax Agent Services (Code of Professional Conduct) Determination 2024, registered tax and BAS agents must keep records that correctly record the services provided to each client, including former clients. The records must be retained for at least five years after the service was provided, and show the nature, scope and outcome of the service, the information considered, and advice received from and provided to the client.

The obligation applies to services completed from 1 July 2025 for practitioners with 100 or fewer employees, and from 1 January 2025 for other practitioners. For a client you are letting go, that means the file notes behind the decision matter too. A short, dated note recording the profitability review, the repricing offer and the client's response is useful both for this obligation and if the client later complains. Practices using AI for client work should be able to show the same trail for what the AI did; our guide to [AI audit trails for accounting work](/blog/ai-audit-trail-proving-what-your-ai-actually-did/) covers what that looks like.

## Can AI make an unprofitable client profitable?

Sometimes, when the problem is hours rather than behaviour. Go back to Client J in the worked example. Much of the 40 hours was chasing statements and correcting coding. That is exactly the kind of repetitive work dedicated AI is suited to. [Agentive's AI for accounting firms](/ai-employee/accounting-firms/) codes transactions, reconciles Xero and MYOB, reads invoices and receipts from email, Dext or Hubdoc, chases missing receipts and signatures, and drafts BAS working papers for a registered agent to review and lodge.

If a meaningful share of a client's hours is that kind of work, the effective rate can move without changing the fee. That is why Agentive recommends running the profitability review again after automating, before deciding to exit. The [use cases for accountants](/ai-employee/use-cases/accountants/) show which tasks are usually handed over first.

What AI cannot fix is behaviour. A client who disputes every invoice, ignores deadlines or asks for something you should not do will cost the same partner time however efficient the back office becomes. The judgement about whether to keep that client, and the conversation that follows, stays with people. Where the routine work runs also matters when it covers every client in the practice: Agentive's AI Employee runs single-tenant on AWS in the Sydney region, client records are stored in Australia and are never used to train models for another firm, and every action it takes is logged. For the broader picture of how firms are using it, see [how Australian accounting firms use AI Employees in 2026](/blog/how-australian-accounting-firms-use-ai-employees-in-2026/).

## Measure, offer a fix, then decide

Knowing when to fire a client is about the pattern, not the bad week. Work out each client's effective hourly rate. Separate the mispriced clients from those whose behaviour you cannot change. Reprice or rescope the first group at the annual engagement review. For the second, end the engagement in writing, return what belongs to the client, clean up the ATO client list and keep your records. And if the real problem is the manual work around a client rather than the client, start by taking that work off your team's desk with [the AI Operation Engine for finance](/ai-employee/finance-skill/).