Pass-Through Costs

Pass-through costs are expenses that your agency incurs as part of client work but that aren't really your agency's costs — they're the client's costs that you're managing on their behalf. The most common examples are media buys (paying Google, Meta, or publishers for ad placements), printing and production costs, stock photography and video licenses, software subscriptions specific to a client project, and third-party tools or services.

The "pass-through" part means these costs flow through your books — they show up as both revenue (when the client pays you) and as an expense (when you pay the vendor). Some agencies bill pass-throughs at cost, acting as a transparent intermediary. Others add a markup — typically 10-20% — to cover the administrative overhead of managing vendors, reconciling invoices, and fronting the cash.

The key accounting distinction is that pass-through costs don't represent your agency's value-add. They inflate your top-line revenue without actually reflecting work your team performed. That's why AGI (agency gross income) subtracts them to show your agency's real revenue.

How you handle pass-through costs affects your cash flow, your client relationships, and your financial reporting. If you're fronting $100,000 in media spend for a client and they pay you net-60, you're essentially giving them a $100,000 interest-free loan for two months. That cash flow gap has killed agencies.

Clearly defining what's pass-through vs. what's agency fee in your contracts also prevents disputes. Clients who see a $200,000 invoice want to know how much went to actual agency work vs. media and production. Transparency builds trust. Ambiguity breeds resentment.