Over the years, we’ve worked with many marketing agencies, and one common challenge we hear repeatedly? Low profit margins.
As an agency owner, you’re out there landing great clients and executing impressive campaigns, but when it’s time to review the financials, those margins often don’t reflect the hard work you’ve put in.
The good news? Low agency margins don’t have to be a dead end. We’ve helped agencies turn their situations around, and in this article, we’ll explore practical strategies that have proven successful in the past.
Let’s start with where your profit margin should be.
What’s the Ideal Profit Margin of an Agency?
In 2024, the average profit margin for most marketing agencies falls between 15% and 20%.
This means for every $100 your agency brings in, you’re ideally keeping $15 to $20 as profit after covering all your expenses.
High-performing agencies often target margins closer to 20-25%, which gives them more room to reinvest and maintain financial stability.
While it might be tempting to push for higher margins, it’s important not to sacrifice your team’s well-being or the quality of your services in the process.
Sustainable growth is about finding the right balance between making money and keeping your team happy and motivated to help your agency thrive.
On the other hand, if your profit margin drops below 10%, it’s usually a sign of high overhead costs, underpricing, or taking on too many low-value projects that drain resources.
Check out our 5-minute YouTube video on agency profit margins for more info.
Strategies to Improve Low Agency Margins
So, what can you do about it? Here are a few of the things we recommend:
Upsell and Cross-Sell
Take a page from grocery stores that place those tempting impulse buys at checkout. You can do the same with your agency services by pinpointing needs you can fulfill easily.
For example, if you’re managing a client’s social media, why not offer a monthly analytics report or a small ad campaign as an add-on?
Cross-selling works wonders too—if a client is already using your email marketing, they might also appreciate help with their blog content. Package these options as “add-ons” in your proposals or during client check-ins, and you’re opening up new revenue streams.
Outsource When Possible
Freelancers and third-party vendors can be fantastic for project-based or specialized work. Outsourcing lets you scale up without the full-time costs, freeing you up to focus on the high-value activities that really drive your agency forward.
Think about outsourcing tasks like social media scheduling, content writing, or PPC management.
Plus, with overseas outsourcing becoming more popular, you can tap into a broader talent pool while keeping costs down.
Automate for Efficiency
Thanks to AI, automation tools are exploding onto the scene. While we recommend keeping subscription costs under 10% of your revenue, it’s understandable that trying out different tools requires some investment.
The key is to find the ones that truly work for you. When implemented effectively, these tools can save you a lot of time and money in the long run, allowing your team to focus on high-impact, creative work that really matters.
Productize Your Services
Productized services are simple, repeatable offerings that help you deliver value without the extra hassle.
Instead of creating custom plans for each client, think about offering clear packages with set deliverables.This way, your team can do the same work for different clients without spending extra hours on customization.
By streamlining your services, you’ll save time and improve your profit margins while still meeting your clients’ needs.
Control Costs Carefully
One of the best ways to improve margins is to monitor your spending regularly. It might sound boring, but it pays off. Here’s a rough guide of what we recommend:
- Subscription costs (5–10% of revenue):
> Run a Quarterly “Tech Purge”: Take a moment to do a quarterly tech check. Look for any software you’re not using—if it’s just sitting there collecting digital dust, it’s time to cancel or downgrade. Try to find all-in-one tools that can handle multiple tasks, so you don’t have to pay for a bunch of separate subscriptions.
- Sales & Marketing (10–15% of revenue):
> Implement Referral Incentives with Existing Clients: Think about implementing a referral program for your happy clients. Offer them a discount or bonus for bringing in new business. This strategy leverages your existing relationships and is often more cost-effective than spending money on ads or expensive lead-generation tactics.
- Facilities (5% of revenue):
> Go Green: A few small changes can make a big difference in your utility bills (and help the planet, too!). Swapping in LED lighting and setting up an automatic thermostat can keep your office bright and comfortable without the hefty costs. For an easy win, remind the team to power down their devices at the end of the day or to work more on laptops—they use much less energy than desktops.
Focus on the Right Clients
Don’t be afraid to turn away the wrong clients. Clients with big dreams and tiny budgets can quickly wear down margins.
While they may have exciting ideas, their limited budgets can lead to scope creep, unrealistic expectations, and an overextension of your team’s resources.
By focusing on clients who are willing to invest in quality work, you’re setting the stage for productive, balanced partnerships that allow your team to deliver great results without the stress. \
Focus on Client Retention
It costs far more to acquire a new client than to keep an existing one, so retention is key—but again, it’s all about retaining the right clients.
Simple efforts—monthly check-ins, quarterly reviews, and personalized updates—can go a long way.
Plus, satisfied clients are more likely to engage in those upsells and cross-sells we mentioned earlier!
Leverage Your Team’s Specialties
Have team members with niche skills—SEO, data analytics, content strategy? Put them to work!
Start by pinpointing their strengths with a quick skills inventory and watching where they naturally shine. Client feedback and tough projects often reveal true talents.
Make it fun by adding quick “skill spotlights” in team meetings so everyone knows who to tap for specific expertise.
And if someone has a knack for something valuable, like data analysis, consider investing in advanced training. You’ll build high-value service offerings and keep your team energized by playing to their strengths!
Adjust Your Utilization Rate
Utilization rate measures the percentage of an employee’s available work hours spent on billable tasks.
For example, if a team member works 40 hours in a week and spends 30 of those hours on billable client work, their utilization rate is 75%.
A low utilization rate can eat into profitability because you’re paying for idle time.
Ideally, an agency should aim for a utilization rate of 75–85%. You can learn more about billable hours in our previous blog.
Hire Strategically
Avoid over-hiring to prevent increased fixed costs, but also make sure you’re not stretching your current team too thin.
When you hire, look for versatile talent who can fill multiple roles or tackle a variety of projects. This approach boosts your agency’s flexibility and profit margins.
Need Help Implementing these Strategies?
Knowing how to improve your margins is one thing, but actually putting those strategies into action? Not so much.
If you want to boost your margins without the extra hassle, we’re here to help.
At Agency CPAs, this is what we specialize in. Simply use the calendar below to book an introductory call with our team to find out how we can help.
Until next time!
