# Monthly checklist for the six profit levers of a marketing agency

RevSmith, updated 4 November 2026. The companion to the guide at https://revsmith.in/guides/agency-profitability. Use it with the tracker in `agency-profit-levers-tracker.csv` (https://revsmith.in/templates/agency-profit-levers-tracker.csv), a monthly sheet for the six levers: fill the input rows (I), then work out the measure rows (M) from the formulas; its first row is the column headings. Or copy the tables into any spreadsheet. Nothing here needs RevSmith.

## How to use it

- Run it once a month, in the first week, for the month before, so extra work can still be billed while the client remembers asking for it.
- Set the definitions below once and keep them. A margin that moves because a definition moved tells you nothing.
- Compare each number with your own last three months first. Use the benchmarks second, and only with their population in mind.

## 1. Set these definitions once

| Term | Definition to write down | Why it matters |
|---|---|---|
| Agency gross income (AGI) | Revenue minus pass-through costs: media, freelancers and production you resell | Margin on gross billings swings with media spend; margin on AGI does not |
| Available hours | Contracted hours per billable person, minus public holidays, leave and planned training. Example: 40 hours × 52 weeks = 2,080, minus 280 = 1,800 a year | Counting 2,080 instead of 1,800 turns 65% utilization into 56.3% for the same team and the same work |
| Billable hours | Every hour on client work that you would bill at standard rate, including hours on a retainer beyond what its fee was priced on | Over-servicing then shows up as low realization instead of hiding |
| Standard rate | The hourly rate on your rate card (one blended rate if you have none) | Realization and unbilled scope are both valued at it |
| Cost rate | Salary plus employer costs, divided by available hours, per person or per role | Needed for margin per client |
| Out of scope | Work that is not in the signed scope, not covered by an allowance and not replacing a planned deliverable | Without a rule, every request becomes a judgment call |
| At risk | Your own rule for a client you would not bet on renewing, written down | Keeps the at-risk fee total honest |

## 2. Collect these inputs

| Input | Where it usually comes from |
|---|---|
| Revenue invoiced | Accounting software |
| Pass-through costs | Accounting software, coded separately from your own costs |
| Payroll, including owners' pay | Payroll provider |
| Other overhead (rent, software, insurance, sales and marketing, everything not in payroll or pass-through) | Accounting software |
| Available hours per billable person | Leave calendar and contracts |
| Billable hours per person and per client | Time tracker |
| Fees invoiced and collected per client, net of credit notes, discounts and write-offs | Accounting software |
| Out-of-scope requests (received, priced, given away) and their hours | Request log or project tool |
| Renewal dates and monthly fees | Contracts |
| Clients at risk | Account managers, against the rule above |

## 3. The eight checks

- [ ] **1. AGI** = revenue invoiced − pass-through costs.
- [ ] **2. Operating margin on AGI** = (AGI − payroll − other overhead) ÷ AGI. Write down the three-month trend, not only the month.
- [ ] **3. Utilization** = billable hours ÷ available hours, per billable person and for the team.
- [ ] **4. Realization** = fees invoiced and collected ÷ (billable hours × standard rate), per client. Until the cash is in, use fees invoiced net of write-offs, and correct it when payment lands.
- [ ] **5. Scope control**: out-of-scope requests received, priced and given away; unbilled scope value = unbilled out-of-scope hours × standard rate.
- [ ] **6. Margin per client** = (monthly fee − hours logged × cost rate − direct costs) ÷ monthly fee. Rank every client. Name the bottom three, each with an owner and a next step.
- [ ] **7. Payroll share** = payroll ÷ AGI, and **overhead share** = other overhead ÷ AGI.
- [ ] **8. Renewals** due within 90 days, and the total monthly fees of clients at risk, one total per currency.

## 4. The six levers at a glance

| Lever | Measure | Benchmark (source, population) | First move when it slips |
|---|---|---|---|
| Pricing | Fee ÷ hours the fee was priced on, against your target rate | No agency rate benchmark with a known sample. 97% of 273 US agency leaders planned price rises for 2025 (Ignition, via MediaPost) | Reprice at the next renewal, or cut the scope to fit the fee |
| Utilization | Billable hours ÷ available hours | 66.4% in 2025; high performers 75.0% (SPI Research, 2026; 509 professional services firms, not agencies). SPI's research on professional services firms found 70% to 80% went with the highest profitability, and above 80% with burnout and attrition | Below the band: check there is sold work to fill the hours before pushing people. Above 80%: hire, or cut scope |
| Realization | Fees invoiced and collected ÷ (billable hours × standard rate) | No benchmark with a known sample. Nearest: 4.3% of annual revenue lost to leakage (MGI Research, cited by Accelo; professional services firms; sample not published) | Find the client that moved; check unbilled extra work and write-offs first |
| Scope control | Unbilled out-of-scope hours × standard rate | 57% of 273 US agency leaders lose $1,000 to $5,000 a month to unbilled scope creep, and 30% more than $5,000 (Ignition, 2025) | Price the next out-of-scope request as a change order, and restate the scope with the client |
| Overhead | Other overhead ÷ AGI; payroll ÷ AGI | No benchmark with a known sample; track your own trend | Check software seats and non-billable hires against AGI growth |
| Client mix | Margin per client, ranked | Only 20% of agencies track profitability by client, project or service line (TMetric, 2025; its users and partners) | A client in the bottom three for three months running: reprice, rescope or plan the exit at renewal |

Margin benchmarks for context: the average digital agency earned a 13% after-tax net margin in 2025, against about 15% on average since 2015; studios under 10 full-time staff averaged 19%, and agencies of 50 or more about 8%, both subgroups of unpublished size (Promethean Research, 2026; 119 digital agency leaders, mostly North American, self-selected and self-reported; the 8% as reported by secondary sources). Your check 2 is a pre-tax operating margin on AGI, which usually reads higher than an after-tax net margin for the same agency, so do not compare the two directly.

## 5. Client margin ranking

Copy this table each month. The three rows are an example with a cost rate of $45 an hour, not real clients, ranked by margin %.

| Client | Monthly fee | Hours logged | Cost of hours (hours × cost rate) | Direct costs | Margin | Margin % | Fee ÷ planned hours | Unbilled out-of-scope hours | Renewal date | Owner and next step |
|---|---|---|---|---|---|---|---|---|---|---|
| Example B | $3,200 | 30 | $1,350 | $0 | $1,850 | 57.8% | $160 (20 planned) | 10 | 30 Jun 2027 | Account lead: restate scope; 10 hours over plan |
| Example A | $8,000 | 70 | $3,150 | $400 | $4,450 | 55.6% | $133 (60 planned) | 10 | 31 Mar 2027 | Account lead: price the extra reporting at renewal |
| Example C | $12,000 | 140 | $6,300 | $1,500 | $4,200 | 35.0% | $100 (120 planned) | 20 | 31 Jan 2027 | Owner: reprice or rescope before renewal |
| | | | | | | | | | | |
| | | | | | | | | | | |

Read the last four columns before the margin: a client whose fee per planned hour sits under your target rate has a pricing problem; a client logging far more hours than planned has a scope problem, even when its margin still looks fine.

## 6. Worked example: what five points are worth

An example, not a client. A 15-person agency: 12 billable people with 1,800 available hours a year each, a $150 standard rate, $1,200,000 of payroll including owners' pay, $350,000 of other overhead and no pass-through costs.

Base: 12 × 1,800 = 21,600 available hours; × 65% utilization = 14,040 billable hours; × $150 = $2,106,000; × 85% realization = $1,790,100 collected. Profit = $1,790,100 − $1,200,000 − $350,000 = $240,100, a 13.4% operating margin on AGI.

| Scenario | Utilization | Realization | Fees collected | Operating profit | Margin |
|---|---|---|---|---|---|
| Base | 65% | 85% | $1,790,100 | $240,100 | 13.4% |
| Five more points of utilization | 70% | 85% | $1,927,800 | $377,800 | 19.6% |
| Five more points of realization | 65% | 90% | $1,895,400 | $345,400 | 18.2% |
| Both | 70% | 90% | $2,041,200 | $491,200 | 24.1% |
| Busier, collecting less | 70% | 80% | $1,814,400 | $264,400 | 14.6% |

Extra utilization is money only when the extra hours are sold work. On a fixed retainer, unbilled extra hours lower realization instead: if none of the 1,080 extra hours is billed, fees stay at $1,790,100 and realization falls to 78.9%. In the same agency, a 1% price rise on the same work adds $17,901 a year and a 1% cut in overhead adds $3,500.

## 7. Calculators that go with it

- Utilization: https://revsmith.in/tools/utilization-rate-calculator
- Revenue leakage (unlogged time, free scope work, realization and write-offs): https://revsmith.in/tools/agency-revenue-leakage-calculator
- Margin, AGI per full-time employee and payroll share: https://revsmith.in/research/agency-profitability-benchmarks

## Sources

1. Promethean Research, *State of Digital Services 2026: An Uneven Return to Form*, 2026. 119 digital agency owners and managers, February 2026, mostly North American, self-reported. https://prometheanresearch.com/how-profitable-are-digital-agencies/ (the 8% for 50+ staff as reported by https://agiled.app/statistics/agency-profitability-statistics).
2. SPI Research, *2026 Professional Services Maturity Benchmark*, February 2026, as summarized by Deltek. 509 professional services organizations worldwide, not agencies. https://www.deltek.com/resources/articles/professional-services-billable-utilization-historic-low/ and https://www.deltek.com/resources/articles/professional-services-benchmarks/.
3. SPI Research, "The Truth About Billable Utilization: What Works and What Doesn't", 2025. Professional services firms. https://spiresearch.com/the-truth-about-billable-utilization/.
4. Ignition (proposal and billing software), *2025 Agency Pricing and Cash Flow Report*, 2025. 273 owners and senior leaders of US agencies, April 2025. https://www.ignitionapp.com/2025-agency-pricing-cashflow-report; the 97% as reported by MediaPost, https://www.mediapost.com/publications/article/407097/report-agencies-fail-to-leverage-pricing-strategi.html.
5. MGI Research, as cited by Accelo (a PSA vendor), "What Is Revenue Leakage?". Professional services firms; sample not published on the page. https://www.accelo.com/glossary/what-is-revenue-leakage.
6. TMetric (time-tracking software), 2025 study of its users and partners, as summarized by BlitzMetrics. https://blitzmetrics.com/where-the-retainer-goes/.