Gross margin (agency)
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.
Direct delivery cost means the fully-burdened cost of everyone who touches client work, including contractors. It excludes sales, marketing, and general overhead.
Gross margin is the number that determines whether growth compounds. An agency growing revenue at a falling gross margin is buying revenue with profit.
Covered in depth
Why agency growth eats margin, and how to price so it doesn'tRelated terms