Why your agency is busy and still not profitable

The pattern is specific enough to diagnose from the outside. Revenue is fine. The team is fully booked and slightly overworked. Everyone is busy enough that nobody has time to ask why the bank balance never moves. At the end of the year the accounts show a margin that does not match how hard the year felt.

The usual advice is to raise utilization. In an agency that is already fully booked, that advice has nowhere to go.

Utilisation is usually already fine

Most agencies in this position are running utilization somewhere between 70 and 80 percent, which is healthy. Pushing it to 90 buys a few points of margin and costs you the slack that absorbs a difficult month. It also tends to show up as turnover about two quarters later.

If your team is booked and your margin is thin, the hours are not the problem. The rate those hours were sold at is.

Check realization, not utilization

Take one account. Add up every hour anyone put against it last month, including the account manager's calls, the QA pass, and the ops lead unblocking it. Load those hours at fully-burdened cost, which is salary multiplied by 1.25 to 1.4 and divided by roughly 1,700 productive hours a year.

Now divide the fee by those hours. That is your effective hourly rate on the account. Compare it against your blended cost rate.

Most agencies doing this exercise for the first time find two or three accounts where the effective rate is at or below cost. Those accounts were sold at a price that could never have worked, and every hour of good delivery makes the loss slightly larger.

Where the hours actually went

The gap between the hours you quoted and the hours you spent has a small number of usual causes:

• Scope that grew without a conversation. A round of revisions became three. A monthly report became a weekly call.
• Account management nobody costed. The most common single omission. It is real delivery time and it rarely appears in the quote.
• Rework from unclear briefs, which shows up as delivery inefficiency in your numbers and as a sales problem in reality.
• The founder. Hours you spend rescuing an account are the most expensive hours in the business and the least likely to be recorded anywhere.

The margin floor that makes the decision for you

Set a gross margin floor of 40 percent per account and check it quarterly. Below 40 percent there is no capacity left to fund hiring, which means growth has to come out of profit or out of you.

For every account under the floor, you have three options and only three: re-price it, re-scope it so the delivery matches the fee, or release it. Re-scoping is usually the easiest conversation, because the price stays the same and you are being honest about what fits.

Work the list from worst margin upward. Give ninety days on any re-price, and tie the reason to scope rather than to your costs. Clients do not care about your costs, and leading with them reads as an apology.

Then fix the thing that caused it

Correcting the accounts you have is remedial work. It stops mattering the moment the next one is sold at a number somebody guessed at.

Price the next proposal from your own costed model: hours at fully-burdened cost, divided by the target margin, checked against the market afterwards rather than before. The retainer pricing method covers the arithmetic in full.

What it looks like when it works

SOAR With Us went from £80k to £700k a month over 34 months, with every new account priced from a costed model before it was sold. Growth added profit instead of consuming it, which is the entire difference between the two versions of a growing agency.

If you want the check run against your own accounts, the diagnostic walks the same sequence.

Read next

• Agency mastermind or one-to-one consulting: how to choose between them
• How to price an agency retainer so it survives contact with delivery
• Why agency growth eats margin, and how to price so it doesn't