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Emails are sent to customers, at some point the customer soft bounced and then they eventually hard bounced. Email Studio will not send them anymore emails. Because this contact had originally successfully received emails, they are in All Subscribers and All Contacts. How is a hard bounced contact treated when it comes to the Contact Limit in SFMC? Thank you.

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I would start here with this article: Contact Definition and Count Determination in Contact Builder

Marketing Cloud can store a contact record in one of several different locations. Contact Builder All Contacts list
Email Studio All Subscribers list
Populations, formerly known as root data extensions, including these examples:
Contacts involved in custom activities via Journey Builder
Contacts added via queries, filters, data extracts, or other data-intensive operations

If the contact exists on All Subscriber they count

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