Your agency might be making money, but where is it all going? If you’re constantly chasing revenue yet struggling with profitability, you’re not alone. Many digital agency owners focus so much on bringing in business that they forget to track what’s leaking out. And spoiler alert: a healthy profit margin isn’t just about earning more, it’s about spending smarter.
Let’s break down where your money is really going, where it shouldn’t be going, and how to optimise costs without cutting too deep.
The Costs of Running an Agency
Running a digital agency isn’t just about selling services. It’s about delivering them efficiently while keeping your operational engine running. Here’s where your cash is being eaten up:
💵 Direct Costs (Cost of Service Delivery)
💰 – Salaries and contractor payments (arguably your biggest expense)
💰 – Software and tools required for client work
💰 – Service execution costs (e.g. paid media, design assets, hosting)
🏢 Operational Costs (Keeping the Business Running)
💰 – Office rent, utilities, insurance
💰 – Admin software (CRM, accounting, communication tools)
💰 – Marketing and sales expenses
🕵️ Hidden & Overlooked Costs
💰 – Employee perks and benefits
💰 – Training and development
💰 – Unused or underutilised subscriptions
Some of these are essential, some not so much. But where do agencies typically waste money? Let’s dig in.
Common Areas Where Agencies Overspend
🛠 Too Many Software Tools – Agencies love a shiny new tool. The problem? Half of them sit unused, with the team defaulting to the same handful of go-tos.
How to fix it:
✅ – Audit your software subscriptions quarterly. If a tool hasn’t been used in two months, it’s on the chopping block.
✅ – Implement the “one-in, one-out” rule: if you bring in new software, something else has to go.
✅ – Check for overlap. Do you really need three project management tools?
👥 Overstaffing or Poor Hiring Decisions – Hiring too fast is a common agency pitfall. Yes, you need people to deliver work, but headcount shouldn’t scale ahead of revenue.
How to fix it:
✅ – Use freelancers and contractors for fluctuating workloads before committing to full-time hires.
✅ – Assess employee utilisation. If someone is consistently under 70% billable time, they’re underused.
✅ – Hire strategically, not reactively. Don’t just fill gaps; build a lean, high-performing team.
🏢 Expensive Office Space & Unnecessary Overheads – Do you really need that fancy office in central London? Many agencies are still paying for space they barely use.
How to fix it:
✅ – Consider a hybrid model, downsizing to a co-working space for in-person meetings while running remotely.
✅ – Negotiate your lease. Many landlords are open to deals, especially post-pandemic.
✅ – Cut unnecessary perks (free snacks are great, but they won’t save your P&L).
📢 Inefficient Marketing Spend – Agencies often throw money at lead gen without knowing if it’s actually working. If you’re spending a fortune on ads and cold outreach but not tracking ROI, you’re burning cash.
How to fix it:
✅ – Measure everything. Cost per lead, conversion rates, customer lifetime value.
✅ – Cut or optimise underperforming channels. If your PPC campaigns aren’t delivering ROI, stop running them just because “that’s what agencies do.”
✅ – Prioritise organic growth. Content marketing and referrals often have a better return than paid channels.
How to Optimise Costs Without Cutting Too Deep
📊 Zero-Based Budgeting: A Smarter Way to Review Expenses – Instead of tweaking last year’s budget, start from zero and justify every expense. Ask:
✅ – Do we need this, or just want it?
✅ – Is there a cheaper or better way to achieve the same outcome?
✅ – What’s our return on this spend?
📝 Renegotiating Contracts & Subscriptions – You’d be surprised how many providers will lower prices if you just ask.
✅ – Software companies often have unadvertised discounts or will price-match competitors.
✅ – Long-term vendor relationships can be leveraged for better rates.
✅ – Review contracts regularly. If you’ve been on the same pricing plan for years, you’re probably overpaying.
🤖 Outsourcing & Automation for Cost Efficiency – Not everything needs to be done in-house, and not everything needs a human touch.
✅ – Automate repetitive tasks (e.g. reporting, invoicing, email sequences).
✅ – Outsource non-core functions like bookkeeping, admin, or even some design work.
✅ – Focus your team on high-value activities that truly require expertise.
Spend Smarter, Not Just Less
Profitability isn’t about slashing costs to the bone; it’s about spending where it truly matters. Track your expenses, cut the waste, and invest in areas that drive real growth.
Start with a simple cost audit today. You might be shocked at what you find – and how much you could be saving.