Overhead
The ongoing costs of running an agency that are not tied to delivering a specific project - rent, software, admin salaries and the like.
For example, an agency's overhead includes office rent, design and project tools, the bookkeeper and the office manager. These costs continue whether or not a particular project is running, and they sit between gross and net margin.
Why it matters to agencies: overhead is the gap between a healthy gross margin and a thin net margin - the cost of simply existing. Keeping it lean and proportional to revenue is what lets delivery profit actually reach the bottom line, which is why owners watch the overhead ratio closely.
Agency overhead - non-billable costs like admin, rent, software and non-billable staff - often lands around 15-30% of revenue; watch it climb as you scale.
- Confusing overhead with the cost of delivery.
- Letting software and tool sprawl creep up unchecked.
- Hiring overhead ahead of the revenue to support it.
What is overhead in an agency?
The ongoing costs of running an agency that are not tied to delivering a specific project - rent, software, admin salaries and the like.
What counts as overhead?
Costs not tied to a specific project - rent, software subscriptions, admin and management salaries, insurance and general running costs.
What is the difference between overhead and cost of delivery?
Cost of delivery is the billable time spent on client work; overhead is everything else needed to keep the agency running.
How does overhead affect profitability?
It is subtracted after gross margin to reach net margin, so high overhead can turn a profitable-looking delivery operation into a thin bottom line.