10 Actionable, Practical Tips to Increase Agency Profits (+ FAQs)

Poor profitability is a primary challenge agencies aim to address with Workamajig and other agency management tools.

Many agencies struggle with managing project budgets and often take losses on a project basis. In fact, surveys show that 47% of agile projects experience budget overruns, and 11% fail altogether. Beyond project profitability, agencies also express concerns about their bottom line, especially when faced with repeated losses on multiple projects.

Upgrading to agency management software like Workamajig can enhance financial management, but it's not a magic fix. However, it often triggers a mindset shift, empowering agencies to make decisions based on real-time financial data.

To help with this, we’ve compiled this guide with best practices to increase agency profitability and bolster revenue growth.

We’ll also explain how agency management tools can help implement cost controls and consistently boost profits.

Our post includes:

• 10 tips to improve your agency’s profitability

• Common challenges agencies face

• Important financial metrics to monitor

• Average agency profits & setting attainable goals

To learn more about Workamajig’s solution and best practices, request a free demo.

1. Revisit your agency’s pricing regularly

Most agencies we talk to have contracted rates with existing clients and an established pricing strategy — such as X number of hours times Y hourly rate, based on either employee or service level — and they rarely adjust these rates.

However, behind the scenes, agencies are giving employees annual raises (many saw salary spikes post-COVID) and taking on additional operational costs.

If you don’t adjust your billing rates as you increase salaries and expenses, you’re shortchanging yourself.

For example, if you give an employee a 25% pay raise but don’t adjust their billing rate, your margin on any work they produce will be lower.

We understand the hesitation about raising prices, and we've even seen agencies lower their pricing to win deals, hoping for future returns. However, we encourage our clients to assess the value of the work they’re delivering and price accordingly.

Rather than sticking to the old model of hours equaling billable dollars — as law or accounting firms often do — consider the lasting investment value of your work and implement value-based pricing.

For instance, marketing agencies often offer branding or brand management projects to new clients or small businesses, assessing the existing brand and suggesting improvements or creating a unique brand identity from scratch.

This is a major, time-consuming project, and the value of having a strong brand and a partner to manage it is enormous. A solid brand can make or break a business and help it stand out.

However, many agencies charge less for these projects in hopes of securing long-term clients. When you understand the quality and value of your work, charging the appropriate rates is only logical.

Why accept a lower adjusted gross income — especially for a major branding issue — just to hopefully acquire and retain a client? (Hope is not a strategy!)

Here are some tips on increasing your pricing:

• Revisit your pricing strategy for new clients at least once a year, and avoid compromising rates for lead acquisition. Weeding out clients who seek “budget work” can save you headaches later.

• Adjust pricing for existing clients on a case-by-case basis, keeping the profit motive in mind, and gradually increase their rates by a set percentage. Ensure you communicate rate increases when onboarding new clients and have a conversation about new rates annually.

• When adjusting rates (for both new and existing clients), aim for at least a 2% increase, in line with the expected cost of living increase.
  
  

2. Scale your current profitable services (and troubleshoot loss leaders)

To scale profitable services and troubleshoot loss leaders, follow these steps:

• First, identify your core services or project types.

• Next, review the profit and loss statements for each project type to see which ones are profitable and where you’re incurring losses.

• Third, and most importantly, dive into the specifics of each project type to understand why some services generate profit and others result in losses.

Scaling profitable service offerings could include:

• Optimizing processes: Streamline workflows to reduce the time or resources needed. If you can complete a service in five hours instead of ten while charging the same fee, your profit margin increases significantly.

• Prioritizing high-margin work: When you have a mix of projects, prioritize the high-profit ones over the loss leaders to maximize immediate returns.

• Specializing in your expertise: Focus on industries where you have the most experience and success. For example, if you work primarily with agricultural businesses, build a reputation as an expert in that field. Network through existing clients, attend industry events, and update your branding to reflect your specialization.

Troubleshooting loss leaders is less straightforward and requires a case-by-case approach.

While many agencies may choose to cut non-profitable services without further analysis, we hesitate to recommend eliminating loss leaders entirely. They can be worthwhile in the short term if they have historically led to profits later on.

When evaluating loss leaders, ask yourself:

• Is this an introductory type of service that generates profits later? If so, are the initial losses worth the potential gains? If your answers are “no” and “no,” cut the service.
  

• Is this a service you’re inexperienced in? You may need additional training or skilled staff. If you lack the necessary resources, consider cutting the service.
  

• Does it make sense to continue offering this service? This speaks for itself.
  
  

3. Add new revenue streams or enhance existing services

Most full-service agencies have a variety of revenue streams to enhance or diversify. The first step is to review existing revenue streams to identify opportunities for growth.

Look for emerging service demands, then evaluate their potential value and decide whether to create a separate revenue line. Also, identify write-offs to manage them effectively and improve this analysis.

This task typically falls on project managers, as they manage project intake, assess client service demands, and customize templates for each unique project.

Project managers should plan with foresight, identifying opportunities to add or enhance services.

Note: Your financial team or accountant must understand your business to help set up the accounting for these new revenue streams.

4. Improve lead conversion rates

This is easier said than done, so here are a few tips to help client acquisition:

First, review past opportunities to understand the deals you’ve won and what brought them to a close. Conversely, analyze the deals you’ve lost and pinpoint where and why they fell through. Identify the reasons behind both wins and losses.

When reviewing leads, consider:

• Do we offer the services this client needs? This may seem basic, but it’s essential to consider supply and demand. If there's no match between the client's needs and your offerings, you risk losing the deal. Also, assess the general demand for your services — are people actively seeking what you offer, or are you making assumptions?

• Do we know someone at this prospect? A significant amount of agency business comes from word of mouth. Consider where your leads are coming from and whether these are strong connections.

These questions can help you identify whether you’re attracting suitable leads, refine your targeting, and even develop new targeting strategies.

Beyond networking and word of mouth, most agencies utilize some form of digital marketing to earn new business — whether it’s search engine PPC ads, content marketing, SEO, or social media. However, they may lack proven strategies to reach the right audiences effectively.

If you’re consistently attracting leads that aren’t a good fit (or vice versa), your targeting likely needs adjustment.

Another key factor to consider is your sales team’s performance. It might not be your offerings or targeting at fault but the quality of interactions with your team. You may have a standout closer, while others struggle with sales techniques.

Review sales conversations to better understand the client journey and their experience with your team. This will help you identify where to focus your troubleshooting efforts.

5. Prioritize client retention & improve client management

While winning new customers is exciting — and very important for new or scaling agencies — acquiring new business and onboarding clients comes at a cost.

Average acquisition costs range from $50K to $400K, which makes client retention so critical. If you've expended resources to acquire a client, it’s important to make sure that investment pays off.

Here are a few tips to improve client relationships and keep them on board:

• Set realistic expectations. Making false promises often leads to budget overruns and dissatisfied clients. Be upfront about what your agency can deliver. Underpromise and overdeliver.

• Design airtight, detailed contracts. Ensure clients know exactly what you’re delivering and the timeline. This prevents confusion and keeps clients informed along the way.

• Innovate and stay current. Keep up with industry developments to show clients you're thinking both short- and long-term. This demonstrates your ability to support them through trends and technologies.

• Become a true business partner. Don’t just be another vendor. Support your clients’ big-picture goals and ongoing success. Build relationships with key players in the organization, offering insight and guidance beyond the project itself.

• Adapt your approach. Use your best judgment when interacting with clients. Some prefer strictly business, while others are more laid-back. Meeting them where they’re comfortable helps build strong relationships.

6. Develop clear, scalable processes & ensure everyone knows their role

Wasted time is a significant reason for budget overruns, failing projects, and poor profitability. If your team members don’t know where to spend their time or what’s expected of them, getting projects off the ground and over the finish line will take significantly longer than planned.

To keep project teams running smoothly, managers need to:

• Clearly assign roles and responsibilities. Everyone should know what types of projects or tasks they’re responsible for and have a (somewhat) consistent schedule.

• Establish clear, easy-to-follow, repeatable processes for all projects and procedures.

This second bullet brings us back to what we discussed in #2 — reviewing the details of projects to understand why they’re successful or not. Once you know your processes for each project type, you can identify ways to fine-tune and improve your approach (e.g., reduce the time spent or resources required at certain phases).

Then, you must communicate processes and ensure all staff members are in the loop. Share resources on “agency best practices” or “agency how-to’s” so everyone knows the procedures and who to ask when they have questions. We also suggest agencies create an evolving project processing manual, especially when there is constant staff turnover.

The most common way to develop (and ensure everyone sticks to) consistent processes is to create templates for all your project or service types. Most agencies already utilize templates in some way but perhaps aren’t taking full advantage of their benefits.

Templates let you outline workflows, specify time allotments and general timelines, and assign resources so everyone knows what goes into bringing a successful and profitable project “to life.” Project managers can use these as a starting point and general guideline for project planning so nobody goes rogue.

On that note, you must ensure your agency management system can evolve with your changing processes. It should offer highly flexible templates and the tools to support your processes and project phases.

7. Increase employee utilization & realization rates

“Increase employee utilization rates” is a standard tip most agencies already implement. It involves analyzing billable vs. nonbillable hours, creating utilization plans, and prioritizing billable work by assigning employees to client projects instead of non-revenue-generating tasks like administrative duties or professional development.

However, write-offs — when employees spend more time than estimated on client work but can’t bill for it — are a frequent challenge. These often arise from insufficient training or, more commonly, scope creep. Key deliverables may require rounds and rounds of feedback you don’t plan for, or clients may ask for drastic changes after you’ve already spent the total number of budgeted hours on a task.

To address this, agencies must focus not only on utilization rates but also consider realization rates to ensure they can bill for the hours spent on client work.

One way to do this is to develop more accurate project plans; another is to improve change management and establish a process for out-of-scope requests.

Look back at past project plans — especially ones that have gone off course — and identify:

• Areas where you need to give your employees more wiggle room.

• Types of deliverables that typically require lengthier feedback processes.

Project managers frequently underestimate the time it’ll take to complete tasks and receive the final sign-off on projects (though this planning fallacy is partly human nature). Instead of planning for best-case scenarios, you should account for hiccups along the way and adjust project timelines accordingly.

Read more: What is a scope management plan? (With examples & tips on creating one)

8. Review & minimize redundant costs

“Reduce operational and overhead costs” is a common piece of advice — but it’s often obvious. Most agencies already review expenses quarterly or annually to identify unnecessary spending.

To make these reviews more effective, carefully evaluate the return on investment (ROI) for each expense.

For example, COVID fundamentally changed how many agencies work. Agencies that weren’t already remote had to adapt to working from home and collaborating across locations.

When it came time to return to the office, many agency owners weighed the benefits of bringing everyone back versus the financial advantages of embracing a fully remote operation.

Facilities expenses — such as rent, cleaning, and utilities — are often significant. If your team can function effectively without meeting in person, maintaining an office space becomes harder to justify.

Another valuable piece of advice here is to look for and eliminate redundant costs in monthly expenses.

For example, agencies often use several software tools for operations: project management software, time tracking tools, accounting platforms like QuickBooks or Xero, and more. However, switching to a comprehensive agency management platform can consolidate these tools into one, reducing software costs.

To identify such opportunities, have someone who understands your agency’s operations, finances, and accounting review your tech stack. They can suggest alternatives and uncover ways to save. After all, you can’t leverage new solutions if you don’t know what’s available.

Redundant expenses can also hide in your marketing budget or vendor relationships. Review these areas to find optimization opportunities, like reducing ad spend or negotiating better vendor rates.

Finally, focus on your team — the largest expense for most agencies. If you’re overly concerned with smaller costs, such as subscriptions or travel, without addressing team efficiency, you’re missing a critical opportunity for improvement.

One last tip: Consider using a rebate card to pay vendors. Agencies often spend thousands (or hundreds of thousands) of dollars with vendors. Using a card that offers cashback ensures you’re not leaving money on the table.

9. Implement agency-wide cost controls

Regular financial check-ins at the agency level can help you adjust budgets and enforce stricter cost controls. To achieve this, we recommend:

• Creating departmental budgets.

• Conducting quarterly reviews of actuals versus budgets.

• Revising budgets quarterly to forecast year-end financial outcomes more accurately.

At the project level, focus on:

• Reviewing past project plans to improve the accuracy of new estimates.

• Incorporating safe contingency percentages.

• Managing scope creep (as discussed earlier).

• Monitoring project budgets in real-time to track expenses as they’re incurred, rather than calculating them post-project.

Another effective control measure is using purchase orders with vendors. These lock in prices upfront, ensuring you can anticipate expenses and avoid surprises when invoices arrive.

10. Leverage agency management software to support & automate processes

Agencies relying on traditional, manual processes — like tracking project expenses in Excel and other project management systems while managing invoicing and payments in separate accounting software — often face persistent cost management and profitability challenges.

Effective financial management requires integration, not silos; project, resource, and financial management must work together seamlessly.

As previously noted, agency management software offers that comprehensive solution. These differ from the typical Trello, Asana, or Jira project management tools that focus primarily on task management; they combine more functionality and are specifically developed for agency workflows.

Workamajig is a top-rated agency management software with a robust feature set, including:

• Project planning tools: Templates, budgets, estimating, and customizable intake forms streamline project kickoffs and provide deeper insights into client requests.

• Project management: Real-time project monitoring and budget tracking help manage labor hours, costs, and timelines. Alerts notify managers of potential overruns, allowing intervention before exceeding budgets or deadlines.

• Resource planning and utilization reports: Time tracking and utilization reports allow you to monitor workloads, compare non-billable vs. billable hours, schedule staff strategically, and optimize resource usage.

• CRM: Manage leads through the sales funnel, analyze close rates, and review past opportunities to refine acquisition strategies.

• Client management portals: Simplify stakeholder communication and maintain comprehensive records of requests and completed projects.

• Full GL accounting software: Integrated accounting supports standard processes, including cost controls, while complying with GAAP, GDPR, and HMRC regulations.

• Financial reporting dashboard: Offers customizable and ready-to-use reports like P&L (by client, service, project, or campaign), GL and cash flow reports, revenue forecasting, cash projections, and key metrics tracking. Data can also be exported for external tools.
  
  

Additional features include automated invoicing, internal proofing, collaboration tools (for internal and external users), and integrations with business applications like media buying software, calendar systems, and email accounts.

Workamajig includes all the tools to manage projects, people, and finances under one roof — helping streamline workflows, keep project teams organized, and condense your tech stack (while avoiding redundant expenses).

We provide personalized setup and onboarding so we can configure Workamajig to your specifications and show you the “Workamajig way” for managing agency finances in our system. We’ll review templates, estimates, budgets and budget monitoring, the ins and outs of our accounting system, the full financial reporting dashboard, and more.

You can learn more about our system by requesting a free demo.

Further reading: Most comprehensive all-in-one agency software: Top 3 picks

Common challenges & pitfalls that hurt agency profitability

Here are some of the primary pitfalls that hurt agency profitability:

#1. Not integrating agency finances into the project workflow

If you’re managing finances in a silo, you can’t track expenses or labor hours in real-time. Instead, you're aggregating data at the end of each week or when a project wraps — only to discover later that you've exceeded budgets or need to write off billable time.

This is why agency management software with integrated accounting and financial reporting is essential. It helps mitigate profitability issues and enables teams to manage finances more strategically.

#2. Not tracking employee hours accurately

Agencies often rely on time-tracking apps or traditional spreadsheets to record employee hours. While these tools may be simple or free, they don't allow managers to efficiently or accurately link hours to specific projects or tasks. For example, you might see that an employee worked four hours on a Tuesday but have no idea what those hours were spent on.

Without this insight, estimating time for new projects or properly recording write-offs becomes difficult, making it hard to refine processes or prevent employees from exceeding estimated time allotments.

Agency management software typically includes native timesheets and time tracking, allowing employees to log hours directly onto task cards within project workflows. This way, managers can see exactly which tasks the hours correspond to when reviewing project details or employee productivity reports.

These systems also update project timelines and budgets in real time as hours are added, offering accurate labor cost tracking by storing employee hourly rates and comparing actuals to estimates as the project progresses.

Read more: How to track creative project management hours

#3. Spending billable time on new business without tracking the ROI of your efforts

As discussed earlier, onboarding new clients requires a significant investment. While that’s inevitable, it’s crucial to track both the short- and long-term ROI of these efforts. Once clients are onboarded, measure whether the resources spent on acquiring them translate into sustained value.

If you notice that clients are frequently dropping off after a few months, or if you’re spending more time on new client acquisition than on client retention, it might be time to reassess your priorities. Shifting focus could help prevent wasted resources on new clients who may not stay long-term.

#4. Issuing employee salaries that don’t generate profits or are unsustainable

It’s essential to revisit your agency’s billing rates when increasing employee salaries to avoid losing money on labor hours. This advice also applies when hiring new talent. You must issue salaries that align with the profits they can generate and that you can realistically sustain.

For example, if you hire someone at $100K/year, you can set a billing rate that covers their labor, overhead, and profit. However, hiring someone at $250K/year may make it difficult to set a billing rate that covers their full cost, potentially resulting in a loss on the work they produce.

Even if a candidate has exceptional experience and skills, bringing them on board without being able to charge their appropriate billing rate could harm your agency’s profitability.

#5. Relying on traditional, manual methods for managing operations instead of using software to streamline processes

Agencies juggle many moving parts, making it difficult to track all project details and information when using multiple solutions. Some agencies track employee time or project costs in separate spreadsheets, manage clients and project requests through email or CRM, and use project management software for client work.

However, as discussed earlier, this approach leads to disorganization, poor visibility in project workflows, redundant costs, and profitability issues.

Upgrading to a modern agency management tool requires an upfront investment, but the long-term benefits of these solutions far outweigh the costs. For example, one of our clients, Toolbox Creative, increased project profitability by 937% after switching to Workamajig.

You can learn more about how clients use Workamajig to run profitable agencies below:

• How Ten Adams uses Workamajig to drive business insights & profitability

• Transformed revenue operations at Ruffalo Noel Levitz with Workamajig

• How financial performance improved when JPL partnered with Workamajig

Bonus: Not having the right person managing your agency’s tech stack

An extension of #5 above — during our sales conversations with agencies, they’ll often talk about their existing tech stack and how they’re currently using systems. A big takeaway is that many agencies don’t fully understand the capabilities of their tools. As a result, they may be paying for features they aren’t using or aren’t aware of.

That’s why onboarding and training are a key part of our solution. It’s not just about the agency management software; it’s also about personalized training to help you use Workamajig effectively.

To fully leverage the benefits of your agency’s tech stack, you need an informed person at the helm. The person managing systems and making software purchasing decisions should undergo training with each provider to fully understand what they’re paying for and how to leverage all the features.

This ensures the greatest ROI from your software investments and helps identify redundant solutions, allowing you to streamline your tech stack.

Key performance metrics to monitor

Here are the most valuable financial KPIs to measure agency profitability and improve margins:

• Client P&L (by month) — track time at cost and overhead to determine which clients generate profits and where you're losing money.

• Labor costs, relative to your adjusted gross income (AGI), by month in the client P&L — measure staff time against monthly AGI to understand time at cost.

• Project type P&L — identify which project types are profitable and which are loss leaders.

• Employee utilization and realization — track annual hour goals per employee.

• Write-offs by client, reason, and employee (by month) — identify patterns in write-offs and areas that could have been billed.

• Write-ups by client, reason, and employee (by month) — track where you can capture value-added work.

• Work-in-progress (WIP) — monitor unbilled time and production costs. The longer work remains unbilled, the less likely you'll be able to bill for it.

• Deferred revenue — review monthly to realize revenue as it's earned.

• ROI on time spent on pitches vs. AGI won — set limits for admin or non-billable tasks to control hours spent on pitches and other non-revenue-generating work.

Average agency profits & how to set realistic, attainable goals

The 50/30/20 rule is a helpful guideline for setting realistic, attainable goals:

• 50% of adjusted gross income (AGI) should cover labor costs and salaries.

• 30% of AGI should cover overhead.

• 20% of AGI should be profit.

While you can adjust the 50/30 percentages based on your agency's specific needs, aiming for a 20% profit margin is a solid target. This is generally viewed as a healthy and achievable goal for most agencies.

Getting started with Workamajig

With over 30 years of experience supporting creative agencies and in-house teams, we specialize in process optimization, increasing agency revenue and profits, and fostering overall growth.

Our all-in-one agency management software, Workamajig, offers advanced tools and automation to streamline workflows, improve visibility throughout the project lifecycle, and boost team productivity. We can customize Workamajig to meet your agency's evolving needs and processes, ensuring both short- and long-term success.

To learn more about Workamajig’s capabilities and financial management solutions, request a free demo with our team.

You can also explore additional resources below:

• Workamajig Industry Sage Expert Insights (WISE Insights) with Vince Dong

• Agency Cost Management Tools & Best Practices

• Best Project Management Tools for Creative Agencies