Marketing Agency Profitability by Client, Not by Agency: How to Find Accounts That Quietly Lose Money
Executive Summary:
Agency profitability can look healthy at the company level while individual clients, projects or retainers quietly consume more resources than they generate. Tracking hours, project costs and client billing can help agencies understand where their time is going and whether individual accounts are actually profitable.
For agencies managing multiple clients, agency time tracking software can provide visibility into the hours behind client work, while billing and reporting tools can help connect that time to revenue.
Why Agency Profitability Can Be Difficult to See
Agencies can generate revenue from a client without necessarily knowing how profitable that account is. An agency may know what a client pays each month, but understanding the resources required to deliver that work requires a different set of data.
Kaushal Shroff, founder and CEO of digital marketing agency Enspire360, says account costs often hide in the small requests that never make it into a project estimate.
“A client may be happy with the work and still be unprofitable for the agency,” Shroff said. “If every quick request takes a web strategist off another account, that time needs to show up somewhere in your numbers.”
The amount of time employees spend on administrative work or other tasks can affect how much time they have available for client work. For agencies, understanding where those hours go can be part of determining whether an account is actually generating the expected return.
How Marketing Agency Time Tracking Can Reveal Hidden Costs
Shroff said it is important to know which clients are profitable and which types of projects earn a healthy margin.
“Look at your margins by service, not just by client,” Shroff said. “If every website project runs over budget, a bigger pipeline will only give you more projects that run over budget. Fix the estimate or the delivery process before you sell more of them.”
Even when an agency does not bill clients directly by the hour, tracking hours can provide an internal measure of how much labor an account requires. An agency may be meeting its revenue targets while spending substantially more time on a particular client than originally expected.
Agency Retainer Billing Depends on the Hours Behind the Work
A retainer may establish a predictable amount of revenue each month, but the amount of work required to serve that client can change.
An account that initially appears profitable may require increasing amounts of account management, revisions, meetings, reporting or campaign work over time. Comparing the hours spent on an account from month to month can help agency leaders identify when the scope of work has changed.
That makes agency retainer billing closely connected to agency profitability. If an agency knows the revenue associated with a retainer but does not have visibility into the hours required to fulfill it, it can be difficult to determine whether the account remains profitable.
Shroff uses past project work to check estimates and spot scope changes.
“When a retainer starts taking more hours, first find out why,” Shroff said. “Is the client asking for more, or is our process taking longer than it should? Those are two different problems, and they call for two different conversations.”
Shroff said that for an agency, historical project data can provide a basis for future estimates. If an agency knows how much time similar work has required in the past, that information can potentially inform how future projects and retainers are structured.
Client Invoice Detail Can Help Connect Work to Revenue
Time tracking is only one part of understanding agency profitability. Agencies also need to communicate the work being performed to clients. On invoices, Shroff recommends enough detail to connect the charge to work the client recognizes.
“Clients should be able to see what the team worked on and why it mattered,” Shroff said. “A list of hours alone does not tell that story, but a vague line item like ‘marketing services’ does not help either.”
For agencies, marketing agency invoicing can involve more than sending a total amount due. Depending on the client and billing arrangement, invoice detail can help explain the work behind the charge.
Why Consistency Matters Across an Agency
Shroff said consistent time categories matter as an agency grows, and that as agencies grow, another challenge is making sure employees and teams record and categorize their work consistently.
“If one person logs client meetings as account management and another puts them under campaign work, the report can point you toward the wrong fix,” Shroff said. “Keep the categories simple and teach everyone to use them the same way.”
Shroff said consistent time and project data can make it easier to compare work across clients and teams. He believes that visibility can be particularly useful when account managers need to make decisions about staffing, scope or the amount of work being performed for a client.
What Agency Leaders Can Learn From Client-Level Data
Client-level data can help agency leaders examine:
- How much revenue does each client generate?
- How many hours does the agency spend servicing the account?
- How much time is spent on account management and administrative work?
- Are projects staying within their expected scope?
- Is the amount of work changing over the course of a retainer?
- How does the time spent compare with the revenue generated?
According to Shroff, instead of asking only whether the agency is profitable, leaders can begin examining which clients, projects and services are contributing to that profitability and which ones may require a closer look.
How Time Tracking Software Can Help Agencies Track Client Work
For agencies that want more visibility into client-level work, time tracking software can connect employee hours with specific clients, projects and activities.
Enter Your Hours’ time and billing software allows businesses to track time across clients, projects, activities and workers and move that information into the invoicing process. The platform also supports filtered reporting and billing across multiple clients and projects.