TL;DR
- Target 15-25% net profit margin after all costs including director salaries
- Aim for 65-75% utilisation rate - higher leads to burnout, lower indicates over-staffing
- Profit per head benchmarks: Average £15k, Good £25k, Excellent £35k+
- A 5% utilisation increase goes straight to your bottom line - the fastest win
💡Quick reference summary. Continue reading for comprehensive analysis and context.
Revenue is vanity. Profit is sanity. Cash is reality. Most agency owners know whether they are "doing okay" or "struggling," but few know their exact profit margins or how they compare to UK industry benchmarks.
A £2m agency with 8% margins takes home £160,000. A £1m agency with 20% margins takes home £200,000. The smaller agency owner is better off, works less, and has more options when it comes to exit or growth. This guide shows you how to calculate your agency's profitability and what levers to pull to improve it.
Key Takeaways
The 3 Metrics That Define Agency Profitability
Forget complex financial dashboards. These three metrics tell you 80% of what you need to know about your agency's financial health.
1. Utilization Rate
The percentage of time your team spends on billable work
Billable Hours ÷ Available Hours
65-75%
<60% or >80%
2. Net Profit Margin
What you keep after all costs
(Revenue - All Costs) ÷ Revenue × 100
15-25%
<10% consistently
3. Profit Per Head
Annual profit divided by total headcount
Annual Net Profit ÷ Total Employees
Average: £15k | Good: £25k | Excellent: £35k+
<£10k per head
Calculate Your Agency's Profitability
We built a free calculator that does all the maths for you. Enter your team size, billable rate, utilization rate, overheads, and average salary. The calculator shows you your projected annual revenue, profit, margins, and how you compare to UK benchmarks.
UK Agency Profitability Benchmarks
Based on Benchpress data and industry surveys of UK agencies, here is what healthy looks like:
| Metric | Below Average | Average | Above Average | Excellent |
|---|---|---|---|---|
| Utilization Rate | <60% | 60-65% | 65-75% | 75-80% |
| Net Margin | <10% | 10-15% | 15-20% | 20%+ |
| Profit Per Head | <£10k | £10-20k | £20-35k | £35k+ |
| Revenue Per Head | <£70k | £70-90k | £90-120k | £120k+ |
5 Ways to Improve Agency Profitability
Once you know your numbers, here are the fastest levers to pull:
1. Increase utilization (the fastest win)
A 5-10% increase in utilization goes straight to your bottom line. Review how time is tracked, reduce internal meetings, and ensure your team is focused on billable work. Most agencies have 10% utilization hiding in inefficient processes.
2. Raise your rates
Most agencies undercharge. A 10% rate increase with 5% client loss still nets you more profit. Start with new clients, then gradually increase existing contracts at renewal.
3. Cut scope creep
Track hours by project and client. You will find some clients consume 30-40% more time than you are billing for. Either raise their fees, reduce scope, or let them go.
4. Exit unprofitable clients
Not all revenue is good revenue. Calculate profit per client, not just revenue. Your biggest client might be your least profitable when you factor in the handholding and revisions.
5. Control overheads
Review every monthly expense. Overheads should be 15-25% of revenue. Higher than that, and you are eating into margins unnecessarily.
The £250k Tipping Point
£250k revenue is where profitability typically breaks. Below that threshold, founder time covers gaps. Above it, every inefficiency compounds. If you are billing £200-300k and feeling squeezed, you are not alone. This is the exact point where proper financial systems pay for themselves.
The Bottom Line
Agency profitability is not complicated. Track three metrics: utilization, net margin, and profit per head. Compare them to benchmarks. If you are below average, you know exactly which levers to pull.
The agencies that thrive are not necessarily the biggest. They are the ones that know their numbers and make decisions based on data, not gut feel.
Start by calculating your current profitability. Then read our guides on the 7 metrics every founder should track, agency pricing strategy, and avoiding common cash flow mistakes.
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