With newer, more powerful servers they can cram more VPS in to single server.
Usually users rarely have continuous CPU usage on small CPUs like that, so in theory you can cram more VPS in a server, without causing any performance issue to other VPS.
VPS in general is insanely profitable, if you know what you are doing.
The employee aspect will always be there, DO can still make money by not taking outrageous profit margin like AWS and Rackspace.
I run a similar business (fully managed though). I know for certain that hardware and bandwidth costs are the tip of the proverbial iceberg. Remember there's also colocation, power, contracts, networking equipment (2x10G), and DDoS costs.
You don't really charge a client for the bandwidth costs incurred during a DDoS if you choose to absorb the attack. You don't charge a client when a RAID controller fails and you need to restore xTBs of data (xx man hours). Oh and you need to purchase backup nodes, which you're not getting any immediate return on.
You need an office. You need to factor in travel costs. Overtime pay. Health insurance, payroll costs, etc. Ads...
VPS in general is insanely profitable, if you know what you are doing.
The employee aspect will always be there, DO can still make money by not taking outrageous profit margin like AWS and Rackspace.