The Agency Glossary

Agency gross income (AGI), sometimes called net revenue, is total revenue minus pass-through costs such as media and ad spend, subcontractors, and lic

EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It is a measure of an agency’s core operating profitability that st

Gross margin, also called delivery margin, is the share of a project or client fee left after the direct cost of the people who delivered the work, me

Net profit margin is the share of an agency’s net revenue that remains as profit after every cost is paid, including salaries, subcontractors, softwar

Operating margin is the share of net revenue left as profit from core operations, after delivery costs and overhead but before interest and taxes. It

Overhead is the ongoing cost of running an agency that is not tied to delivering a specific client’s work: rent, software, admin and non-billable staf

Pass-through costs are expenses an agency pays on a client’s behalf and bills at or near cost, without a markup that counts as agency income. The most

Revenue per employee is an agency’s trailing 12-month revenue divided by its full-time-equivalent headcount, including the owner. It shows whether the

Annual recurring revenue (ARR) is the value of an agency’s recurring retainer and contract revenue expressed over a full year. It is simply MRR multip

Average revenue per client (ARPC) is the average recurring revenue an agency earns from each active client over a period, usually a month or a year. R

Monthly recurring revenue (MRR) is the predictable income an agency can count on each month from active retainers and other recurring contracts, norma

Net revenue retention (NRR) measures how much recurring revenue an agency keeps and grows from its existing clients over a period, after upsells, down

A retainer is an ongoing agreement where a client pays an agency a fixed recurring fee, usually monthly, for an agreed scope of work or a set amount o

Billable hours are the hours a team member spends on work that can be charged to a client, as opposed to internal, administrative, or business-develop

Billable utilization rate is the share of a person’s available working hours that goes to billable client work. It shows how much of the labour capaci

A blended rate is a single average hourly rate an agency charges across a mixed team, instead of billing each role at its own rate. It simplifies quot

Capacity planning is the practice of matching an agency’s available billable hours to its committed and forecast work, so the team is neither overload

Effective hourly rate is the revenue an agency actually keeps per hour truly worked on an engagement, found by dividing the fee earned by every hour s

Realization rate is the effective hourly rate expressed as a percentage of the rate you quoted, showing how much of your intended price you actually c

Client churn rate is the percentage of clients, or of recurring revenue, that an agency loses over a period, usually measured monthly or annually. It

Client lifetime value (LTV) is the total gross profit a single client produces over the whole time they stay with the agency. It combines their averag

Client retention rate is the percentage of clients an agency keeps over a period, the inverse of churn. It measures how well the agency holds onto its

Customer acquisition cost (CAC) is the total sales and marketing money an agency spends to win one new client over a period. Done properly it includes

The LTV:CAC ratio compares a client’s lifetime value to the cost of acquiring them. It tells you how many times over each dollar spent winning a clien

A sales pipeline is the organized view of every potential client an agency is pursuing, sorted by stage from first contact to signed deal. It lets the

Win rate is the share of proposals or pitches an agency sends to qualified prospects that convert into signed clients. It is a direct multiplier on re

A change order is a short, agreed amendment that documents extra work a client requests beyond the original scope, along with its added cost and timel

A kill fee is a pre-agreed amount a client pays if they cancel a project after it has started but before it is finished. It compensates the agency for

Scope creep is the gradual expansion of a project beyond its agreed scope, as a client adds requests, revisions, or new deliverables without a matchin

A scope of work (SOW) is the section of a contract or proposal that spells out exactly what an agency will deliver: the specific tasks, deliverables,

Days sales outstanding (DSO) is the average number of days it takes an agency to get paid after invoicing. A low DSO means clients pay quickly; a risi

A deposit is a portion of the fee an agency collects before starting work, often 25 to 50%. It secures the client’s commitment, funds the early phase,

Dunning is the process of following up on overdue invoices with a series of reminders to get the agency paid. Good dunning is polite, automated, and e

Net terms are the number of days a client has to pay an invoice after it is issued. Net 30 means payment is due within 30 days; net 15 and net 7 are s