Agency Profitability Model
Analyze the financial health of your firm. Calculate AGI (Agency Gross Income), Delivery Margin, and Net Profit to benchmark against industry standards.
P&L Inputs (Monthly)
Profit Waterfall
Financial Health Check
Net Profit: $20,000 (20.0%)
Delivery Efficiency
Your Delivery Margin is 47.1%. Target is 60%+. Warning: Your delivery costs are too high relative to your fees.
Overhead Load
Overhead consumes 23.5% of your AGI. Keep this under 25-30%.
Real Revenue
While you invoiced $100,000, your real agency income (AGI) is $85,000. Base your hiring decisions on AGI.
Execution Steps
Enter 'Total Monthly Revenue' (Invoiced amount).
Enter 'Pass-Through Costs' (Ad spend, white-label partners, printing).
Enter 'Delivery Staff Costs' (Salaries of people doing the work).
Enter 'Overhead' (Rent, software, sales, admin salaries).
Review the Waterfall Chart to see where your margin is leaking.
Pro Strategy
- Don't calculate margin on Gross Revenue if you have high pass-through costs (like media buy). It inflates your sense of scale.
- If Delivery Margin is low, check your 'Utilization Rates'. Are staff billable enough? Or is 'Scope Creep' eating hours?
- Keep Overhead under 20-25% of AGI. If it's higher, you are top-heavy with admin or expensive offices.
Core Concepts
AGI (Agency Gross Income)
Revenue minus Pass-Through costs. This is the 'Real Revenue' your agency actually keeps to pay for operations. Benchmarks should be based on AGI, not Gross Revenue.
Delivery Margin
(AGI - Delivery Staff Costs) / AGI. The gold standard target is 60%+. If lower, you are over-servicing or under-pricing.
The 20% Rule
Healthy agencies aim for a Net Profit of 20-25% of Revenue. Below 10% is risky; above 30% is exceptional.
What is Agency Profitability Model?
This tool models the standard Agency P&L structure. It separates 'Pass-Through' revenue (which inflates the top line) from 'AGI' (the actual operating budget). It uses a waterfall visualization to show how revenue is consumed by different cost centers to arrive at EBITDA.
Best For
- • Monthly financial reviews.
- • Planning annual hiring budgets.
- • Valuing an agency for sale.
Limitations
- • Assumes constant costs (monthly view).
- • Does not split out utilization rates per employee.
- • Ignores cash flow timing (payment terms).
Alternative Methods
Service Margin Calc
Analyzing profitability per specific service line.
Hourly Rate Calc
Bottom-up pricing based on individual costs.
Industry Applications
See how this methodology generates real revenue uplift in different sectors.
Media Buying Agency
Revenue was $10M but struggling to pay rent.
Analysis showed $8M was pass-through ad spend. AGI was only $2M.
Dev Shop
Low profitability (5%).
Found Delivery Margin was 35%. Senior devs were doing junior work.