Financial Glossary for Agencies
Running an agency means juggling client retainers, contractor margins, utilization targets, and cash flow gaps that can sneak up fast. Here's every financial term agency owners and operators need to know — explained in plain English, not MBA-speak.
30 terms organized by category
Revenue & Pricing Models
Retainer vs Project-Based vs Performance-Based
The three main ways agencies charge clients — a recurring monthly fee, a one-time project price, or a fee tied to results.
Blended Rate
A single hourly rate that averages together the different rates of everyone working on a client's account.
Utilization Rate
The percentage of an employee's total available hours that are spent on billable client work.
Realization Rate
The percentage of billable work your agency actually gets paid for — the gap between what you could bill and what you actually collect.
Effective Rate
The actual hourly rate your agency earns on a project after accounting for all the hours worked — including the ones you didn't bill for.
AGI (Agency Gross Income)
Your agency's total revenue minus pass-through costs — the money that actually stays in your agency to cover salaries, overhead, and profit.
Pass-Through Costs
Expenses your agency pays on behalf of a client — like media buys, printing, or stock photos — that get billed back to them without markup (or with a small markup).
Cost-Plus Pricing
A pricing model where you charge the client your actual costs plus a fixed percentage markup as your profit.
Markup vs Margin
Markup is how much you add on top of your cost; margin is the percentage of the final price that's profit — they sound similar but give you very different numbers.
Project Economics
Scope of Work (SOW)
A document that defines exactly what your agency will deliver, by when, for how much — and just as importantly, what's not included.
Change Order
A formal document that modifies the original scope of work — adding deliverables, extending timelines, or adjusting the budget when the client requests something new.
Bill Rate vs Pay Rate
Bill rate is what you charge the client per hour; pay rate is what you pay the person doing the work — the spread between them is your gross margin on labor.
Freelancer / Subcontractor Margin
The profit your agency earns on work done by freelancers or subcontractors — the difference between what you bill the client and what you pay the freelancer.
Work in Progress (WIP)
The value of client work your agency has started but hasn't finished or billed for yet — it's revenue you've earned on paper but haven't collected.
Unbilled Revenue
Revenue your agency has earned by completing work but hasn't yet invoiced to the client — money that's owed to you but hasn't been billed.
Cash Flow & Operations
Revenue per Employee
Your agency's total revenue (or AGI) divided by the number of employees — the simplest measure of how productive your team is.
Revenue per FTE
Like revenue per employee, but it counts freelancers and part-timers as fractions of a full-time equivalent — giving you a more accurate productivity picture.
Overhead Rate
The percentage of your agency's revenue that goes to non-billable costs — rent, admin salaries, software, insurance, and everything else that doesn't directly deliver client work.
Accounts Receivable Days (DSO)
The average number of days it takes your agency to collect payment after sending an invoice — lower is better for your cash flow.
Capacity Planning
The process of forecasting your team's available hours against incoming work — so you know when to hire, when to use freelancers, and when to stop taking on new projects.
Bench Time
Time when a billable employee has no client work to do — they're available and getting paid, but not generating revenue.
Revenue Backlog
The total value of contracted client work that hasn't been delivered or recognized as revenue yet — your agency's pipeline of guaranteed future income.
Growth & Scaling
Profit Sharing
A compensation structure where employees receive a portion of the agency's profits in addition to their base salary — aligning the team's financial interests with the agency's success.
Earnout
A portion of an agency's sale price that's paid over time, contingent on the agency hitting specific performance targets after the acquisition.
EBITDA (Agency Context)
Earnings Before Interest, Taxes, Depreciation, and Amortization — the standard measure of an agency's operating profitability and the basis for most agency valuations.
Multiple (Valuation)
The number applied to your agency's EBITDA (or revenue) to estimate its total value — a 6x multiple on $500K EBITDA means your agency is worth roughly $3 million.
Client Concentration Risk
The danger of relying too heavily on a small number of clients — if your biggest client leaves and they represent 30% of revenue, your agency is in serious trouble.
Net Promoter Score (NPS)
A simple client satisfaction metric based on one question: 'How likely are you to recommend us?' — scored from -100 to +100, with higher being better.
Churn (Agency)
The rate at which clients leave your agency over a given period — high churn means you're constantly replacing lost revenue instead of growing.
SOW Acceleration
Expanding an existing client's scope of work — adding new services, increasing deliverables, or upselling new capabilities to grow revenue from clients you already have.
Other Business Type Glossaries
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