Resources
Agency Profitability Glossary
Every key term agency leaders need to understand profitability, operations, and performance, defined clearly in one place.
Agency Business Coach
An Agency Business Coach is a partner who works alongside agency leaders to help them improve the way they run and grow their business. They generally fall into two categories: Generalists, who provide a holistic view to help diagnose challenges across the entire business, and Specialists, who bring deep expertise to solve a specific, known […]
Agency Gross Income (AGI)
Agency Gross Income (AGI) is a financial metric that represents the actual revenue an agency retains from its client work, after subtracting all pass-through expenses and third-party costs.Sometimes referred to as “net revenue” or “adjusted gross income,” AGI reflects the money available to cover internal costs like salaries, overhead, and profit. It differs from total […]
Average Billable Rate (ABR)
Average Billable Rate (ABR) is a financial metric that represents the average amount of revenue generated per hour of client work. Sometimes referred to as an Effective Hourly Rate (EHR) It reflects the average rate an agency earns when delivering services that are charged to clients, and is typically used as a simple way to […]
Average Cost‑Per‑Hour (ACPH)
Average Cost-Per-Hour (ACPH) is a financial metric that represents the average cost of an hour of labor in a given segment of the business. It only includes the fully loaded cost of employment for the segment being measured, including benefits, and other alternative forms of compensation. This metric is essential for evaluating the cost of […]
Blended Rate
Blended rate is a pricing model where an agency charges one rate that encompasses multiple people, roles or types of work. Instead of billing different rates for each individual component of a project, the agency applies one consistent rate across all work performed. This rate is often calculated based on the weighted average of all […]
Client Concentration
Client concentration refers to the degree to which a business’s revenue is dependent on a small number of clients. In agencies, this typically means that a significant portion of revenue—often 25% or more—comes from a single client or a small cluster of clients. While landing a large account may seem like a win, high client […]
Delivery Hours
Delivery hours refer to the total number of hours that agency team members spend working directly on client deliverables. These are the hours that contribute to the creation and execution of services promised in a contract—such as strategy development, design, development, copywriting, account management, and execution. Unlike administrative or internal time (which is not focused […]
Gross Capacity
Gross capacity refers to the total number of hours purchased from your team in a given time period based on their employment contract. It represents the total capacity being paid for across a team in a given period of time, for the purpose of calculating other useful metrics such as Average Cost per Hour and […]
Overservicing
Overservicing refers to the practice of providing more work, time, or value to a client than what was originally scoped, agreed upon, or compensated for. This often occurs in service-based businesses—especially agencies—when teams go above and beyond to please clients, resolve project challenges, or make up for internal inefficiencies. While sometimes done with good intentions, […]
Pass-Through Expenses
Pass-through expenses refer to costs associated with third party vendors on client engagements. Rather than paying for these expenses directly, clients pay the agency, who then pays the vendor. In this way, these expenses are related to income that is “passing-through” the agency, but ultimately is not intended for the agency. Common examples include stock […]
Salary Allocation
Salary allocation in the Parakeeto framework refers to the process of allocating salaries to overhead categories such as Administration and Sales & Marketing. In the context of agencies, overhead allocation allows leadership to understand the true cost of running Delivery and earning client revenue vs the cost of supporting the overhead functions in the business, […]
Scope Creep
Scope creep refers to the gradual expansion of a project’s goals, tasks, deliverables, or features beyond what was originally agreed upon—without corresponding adjustments to timeline, budget, or resources. It often starts subtly, such as a client requesting “just one more quick change,” and grows to include significant additions that weren’t part of the original scope […]
Time & Materials (T&M)
Time & Materials (T&M) is a billing model where clients are charged based on the actual time spent and materials used to complete a project. Instead of a fixed project price, the client pays for the number of hours worked—usually at agreed-upon hourly rates—along with any direct expenses incurred. This model offers flexibility for both […]
Utilization Rate
Utilization is a critical metric meant to measure the percentage of time purchased from a given segment of employees in an agency that have been utilized for revenue-earning activities. This metric provides an accurate lens for leadership teams on how efficiently their labor is being used to earn revenue for the company, after accounting for […]
Value-Based Pricing
Value-based pricing is a pricing strategy where services are priced according to the perceived or actual value they deliver to the client, rather than the cost of time, materials, or effort involved. Instead of charging based on hours worked, resources used, or deliverables created, agencies using value-based pricing focus on the business outcomes they help […]