Running a marketing agency comes with plenty of financial challenges—paying employees, keeping track of billable hours, and avoiding scope creep. Often, it can feel like you’re not making enough or drowning in costs you can’t escape.
The good news is that most marketing agencies are profitable. And with the right approach, you can quickly boost the amount you keep every month with a few simple tweaks.
But what is a good agency profit margin, and how does your agency compare?
In this post, we’ll explore the average profit margin for marketing agencies and offer tips on how to keep your business financially healthy. Let’s dive in.
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What Exactly Is a Profit Margin?
First things first, let’s talk about what profit margin is.
Profit margin is a way to measure how much profit your company makes for every dollar of revenue. It’s what you keep at the end of the day (before taxes), after all business expenses are paid.
Think of it like this: if you charge a client $1,000 for a project and your profit margin is 20%, you’re making $200 in profit after covering all your costs.
What is an Average Agency Profit Margin?
In 2024, the average profit margin for marketing agencies is around 15-20%.
This means that for every $100 you earn, you should ideally be keeping $15 to $20 as profit. For example, if your agency earns $10,000 a month, a typical profit would be between $1,500 and $2,000.
What is a Great Profit Margin For An Agency?
A great profit margin for a marketing agency is usually around 20-25% or higher. This means you’re doing a great job of keeping costs down and providing valuable services.
However, if your agency profit margin is too high, it might mean your staff is overworked and taking on too many tasks. It’s important to find a balance to ensure your team isn’t stretched too thin.
So, while a high profit margin is good, it shouldn’t come at the cost of your employees’ well-being and the quality of your services.
What’s Too Low?
If your profit margin is below 10%, that’s a warning sign. It likely means you’re struggling to cover your bills and pay your staff comfortably each month.
Low profit margins can indicate that you’re either spending too much or not charging enough for your services.
For example, if your agency makes $15,000 a month but only keeps $1,200 as profit (an 8% margin), it’s a sign that you need to re-evaluate your expenses and pricing.
Signs That Your Agency Profit Margin is Too Low
As experienced agency accountants, we often see a few warning signs that tell us profit margins are too low. Here are a few telltale signs:
- Frequent Cash Flow Problems: If you’re regularly struggling to cover expenses, such as having to delay paying your freelancers because you don’t have enough cash on hand, it’s a clear sign your margins are too low.
- High Operational Costs: If you’re spending a large chunk of your revenue on overheads (such as 30-40%), it can be a sign that your margins are too low. Avoid unnecessary overheads, such as paying high rent for an office space that you rarely use or fill to capacity.
- Underpricing Services: Are you charging less than the value you’re providing? Low profit margins can indicate that your pricing needs to be reevaluated.
- Inefficient Processes: Wasting time and resources on non-billable tasks can also eat into your profit margins. For example, if you spend hours on paperwork or scheduling that could be handled by software, you’re not using your time wisely. Try to streamline your processes so you can focus more on work that brings in revenue and less on time-consuming tasks that don’t.
If you’re seeing signs of low-profit margins in your agency, it’s probably best to speak with an experienced accountant who can help you pinpoint which areas of business need improvement.
The good news is that all is not lost. There are several things you can do quickly to turn your P&L around.
How Can You Improve Your Agency Profit Margin?
At Agency CPAs, we work with our clients on profit margin a lot. At the end of the day, improving your agency’s profit margin is all about making smart choices.
While not a comprehensive list, here are some simple tips to help:
Check Your Prices: Ensure your prices reflect the value of your services. If you’ve added new features or improved your offerings, raise your rates to match. This helps you get paid what you’re worth.
Streamline Your Operations: Make your work processes smoother to save time and money. For example, using project management software can help you keep track of tasks and deadlines, making everything run more efficiently.
Focus on the Right Clients: Work with clients who appreciate the quality of your services and are willing to pay for it. These clients understand your value and don’t argue over prices, ensuring you’re fairly compensated.
Manage Your Expenses: Regularly review your spending and cut unnecessary costs. If your current web hosting service is too expensive, find a more affordable option that still meets your needs. Keeping costs down helps increase your profits.
Evaluate Your Labor: Assess whether you have the right number of employees. Having too many employees can lead to unnecessary payroll costs, while having too few can overwhelm your team and reduce efficiency. Find the right balance to ensure everyone is productive without overspending on labor.
Keep Your Clients Happy: Build strong relationships with your clients. Regularly check in and ask for feedback to show you value their business. Happy clients are more likely to stay with you and refer others, bringing in more business.
How Can You Improve Your Agency Profit Margin?
At the end of the day, keeping a healthy profit margin takes ongoing effort. As staff changes, big costs come up, and employees come and go, it’s important to regularly check your margins to make sure your business stays profitable.
Here at Agency CPAs, we work closely with our clients to improve their profit margins. Our accountants review your profit and loss statements regularly, spotting any unusual expenses and finding ways to improve your bottom line.
If you’re an agency owner and want to increase your profits, working with an experienced agency accountant can make a big difference. If you’re in need of a new agency accountant, we’re always here to help. Simply head to our Getting Started page to get started.
Until next time!
