Pass-Through Costs
Agency glossary · Updated July 2026
Definition
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 common examples are paid media and ad spend, subcontractor fees, and third-party software or licenses bought for the client.
Why it matters
Pass-through costs flow through the agency’s books but are not really its revenue. Counting them as income overstates growth and average deal size, and hides the true margin, especially for PPC and media-heavy agencies.
How to handle it
Tag pass-through costs separately from fee income so you can report on agency gross income. Ad spend, media buys, and freelancer or contractor costs are the usual culprits.
What is a pass through cost?
A pass through cost is money you spend on the client's behalf and recover from them without adding margin: ad spend, stock images, print, a domain, a plugin licence. It moves through your accounts rather than belonging to them. The reason it matters is that pass through costs make revenue look bigger than the business is. An agency billing $50,000 a month where $30,000 is ad spend is a $20,000 agency, and any margin figure that counts the full $50,000 is wrong.
See it in AgencyKit
Track this the easy way
AgencyKit runs your proposals, contracts, invoicing, time tracking, and retainers in one place, so numbers like this stay live instead of buried in spreadsheets.
Start a free trial