[thinkingeric]

Thanks for sharing your thoughts. This kind of analysis is required for any service business. Having done so for our company, I have the following observations on 'What to do?":

Scale -- Bingo! The goal is to make the fixed overhead (incl employees) an increasingly smaller percentage of revenue. But to handle the increased revenue (ie, workload) you have to concentrate on increasing efficiency/productivity. This has a lot of influence on decisions about process. Obviously, the more routine those processes are, the cheaper (and more easily replaced) the labor can be. Also, if the work is done under a fixed price contract, you can achieve a greater effective hourly rate if you are efficient and manage risk well.

Charge more -- "charging more pushes away your existing client base". This is not such a bad thing if you have your eye on 'scaling' (ie bigger projects). Bigger clients have deeper pockets (although they also have more unique needs, which introduces more risk).

Build a product -- See Nassim Taleb's discussion about 'scalable work' in "The Black Swan". The odds aren't good that this will pay off.