Glossary
Short, exact definitions of the terms we use with clients.
A binding constraint is the single stage of a business that caps overall throughput. Because work flows through stages in series, improving any stage other than the binding constraint produces no additional output.
Fully-burdened cost is the total hourly cost of an employee including salary, payroll tax, benefits, software, and a share of overhead. It is typically 25% to 40% higher than salary alone.
Agency gross margin is revenue minus the direct cost of delivering the work, expressed as a percentage. A healthy services agency runs 50% to 60%. Below 40% there is no capacity left to fund growth.
Utilization rate is the share of an employee's available hours spent on billable client work. Realistic targets are 65% to 75% for delivery roles and 50% to 60% for leads and account managers.
Delivery capacity is the maximum number of accounts an agency can service at standard, calculated from hours available per role multiplied by realistic utilization, divided by hours each account consumes.
Throughput is the rate at which a business converts inputs into delivered, paid work. In a system of stages running in series, throughput equals the capacity of the narrowest stage, never the average.
An operating cadence is a fixed meeting rhythm with named owners, a standing set of numbers, and a defined escalation path. Its purpose is to surface a gap between plan and actual within days, while there is still time to close it.
Client concentration is the share of total revenue coming from a single client. Above 20% an agency carries meaningful risk; above 30% the owner effectively has a job with extra steps.
Pipeline coverage ratio is the value of qualified opportunities in progress divided by the revenue target for the same period. Three times coverage is the working minimum for an agency; below that, the target depends on every deal closing.
Close rate is the share of qualified sales conversations that become paying clients. A founder-led agency selling a considered service typically runs 20% to 30%; under 15% the sales process is the constraint rather than the pipeline.
Effective hourly rate is an account's monthly fee divided by every hour actually spent delivering it. It is the single fastest test of whether a retainer was priced correctly, because it can be compared directly against your blended cost per hour.
Realization rate is the share of delivered hours an agency actually gets paid for, expressed as a percentage. An agency can run high utilization and low realization at the same time, which is the usual reason a fully booked team produces thin margins.
Scope creep is the gradual expansion of what an agency delivers without a matching change in fee. It is rarely one decision; it is a sequence of small accommodations, each reasonable on its own, that together move an account below its margin floor.
Diagnosis before engagement is the practice of identifying which constraint binds a business before buying help to fix anything. It is what separates an engagement that installs the right system from one that installs a well-built system in the wrong place.
