Client profitability for agencies

An agency's main cost is its people, and people work across several clients at once. Unless salary, benefits and overhead are allocated the same way every month, a retainer that looks healthy on revenue can lose money on delivery. Most agencies find out late, from a spreadsheet someone rebuilt by hand.

1. 1
   Cost each employee. Salary, benefits and employer costs become one monthly figure and one hourly figure.
2. 2
   Split their month. Record how each person's time is divided across clients, as a percentage or estimated hours.
3. 3
   Read the margin. Each client shows revenue, cost and contribution margin, with what drives it.

Agency Root starts with each employee's direct monthly cost:

Salary + benefits + employer insurance + bonuses + employee-specific expenses

Productive hours come from the employee's work schedule, minus weekends and public holidays. Cost changes are effective-dated, so a raise this month does not rewrite the months already closed.

An owner's salary is included when the owner works in operations.

Indirect costs are grouped into categories such as rent and utilities, connectivity, office operations, company-wide software, professional services, general marketing and non-billable roles.

• Overhead hourly rate = total monthly overhead ÷ total company productive hours
• Fully loaded hourly cost = employee direct monthly cost ÷ employee productive hours + overhead hourly rate

See the formula with numbers: how to calculate an agency employee's hourly cost.

Each month you record how each employee's time is split across clients. Agency Root flags any capacity left unallocated.

Client contribution margin = recognized client revenue − client labor cost − freelancers − production − transportation − client tools − other direct client costs

Media spend can be included or left out per client, because many agencies pass media through without treating it as service revenue.

The result is a client profitability table, with value and margin percentage, comparison between periods and a breakdown of what makes each client profitable or loss-making.

Company expenses are recorded with category, vendor, receipt and an optional client. Employees submit reimbursement requests with a receipt photo, which follow your approval path. Expenses are part of every plan.

The financial dashboard answers the questions an owner actually asks:

Agency Root calculates break-even revenue from your monthly cost base and shows how many clients, at your average contribution, are needed to cover it. Collections and outstanding amounts are tracked separately from recognized revenue, so profit on paper is never confused with cash.

A finance owner can close a month. A closed period is locked, and reopening it requires an authorized role and a recorded reason.

Agency Root is a management dashboard, not a statutory accounting ledger and not a payroll engine. Financial inputs are entered manually or imported from Excel. Reports export to PDF, Excel and CSV for your accountant or your accounting system.

Once the real cost of an hour is known, pricing stops being guesswork. The commercial engine uses the same fully loaded cost to price services from real cost and margin.