Turnover is vanity, profit is sanity.
It’s a phrase you’ve probably heard before, but let’s be honest, how often do you actually live by it? Too many digital agencies chase revenue like it’s the only metric that matters, when in reality, it’s just a big, shiny distraction. The real game? Profitability. Because if you’re making seven figures in revenue but taking home scraps, you’re basically running a high-stress, high-effort charity for your clients.
Let’s cut through the noise and talk about what a healthy profit margin looks like for your agency, where you might be haemorrhaging money, and how to turn things around.
What’s a Healthy Profit Margin for a Digital Agency?
💰 Gross profit margin: 50–60%
This is what’s left after you cover direct costs like freelancers, salaries for billable team members, and project-specific software. If your gross margin is under 50%, you’re either undercharging or over-delivering (or both).
💰 Net profit margin: 15–30%
This is the real bottom line – what you keep after covering all costs, from rent to software, taxes, and payroll. If you’re hitting 20% or more, you’re in a good place. If you’re scraping 5%–10%, you’re working too hard for too little.
Now, a quick caveat: comparing margins without context is a dangerous game. A lean, remote-first SEO agency will naturally have different margins than a full-service agency with an office in central London. The key is making sure your margins make sense for your business model.
Common Profit Margin Killers
🚨 Underpricing Services
💰 – Agencies often price too low because of fear, competition, or just poor cost calculations.
💰 – Low pricing attracts the worst kind of clients: demanding, high-maintenance, and unwilling to pay what you’re worth.
💰 – Quick check: Are you charging at least 3x what you pay your team members? If not, you’re in trouble.
🚨 High Operational Costs
💰 – Offices, software, bloated marketing spend – it all adds up.
💰 – Cutting costs blindly is a mistake. Instead, use the zero-based budgeting method: assume every cost needs justification from scratch.
💰 – Not sure where to start? Audit your software stack. You’d be surprised how many redundant tools you’re paying for.
🚨 Over-Reliance on Low-Margin Work
💰 – Saying yes to every client leads to a bloated, low-margin workload.
💰 – Review your client list and identify the bottom 20% in profitability. If they’re draining your time and resources, consider letting them go.
💰 – Niching down lets you charge more and deliver more efficiently.
🚨 Poor Resource Allocation
💰 – Too many non-billable hours kill your profit.
💰 – Scope creep is the silent killer of margins. If clients keep sneaking in extra requests, push back or charge for it.
💰 – Track project profitability. If you don’t know which projects make the most money, you can’t fix the ones that are killing your margins.
How to Improve Your Agency’s Profit Margins
📈 Optimise Pricing for Profit
- Move to value-based pricing. Charging for the outcome, not the effort, means higher profits.
- Raise your prices. If you haven’t increased rates in the last year, you’re already behind.
- Introduce tiered pricing. Offer different packages so clients self-select into profitable engagements.
⚡ Increase Efficiency Without Overworking Your Team
- Automate repetitive tasks. Zapier, Make, and AI tools can save hours every week.
- Streamline processes. Document SOPs for common tasks so work gets done faster and consistently.
- Use freelancers strategically. They reduce fixed costs and give you flexibility during busy periods.
✂️ Reduce Operational Waste
- Audit expenses regularly. If you don’t need it, cut it.
- Invest smartly. The right tools (e.g., better PM software) can save you time and increase profits.
- Example: One agency cut 20% of their software spend just by consolidating tools and removing unused subscriptions. That’s pure profit added back.
🔄 Improve Client Retention & Lifetime Value
- Retaining clients is cheaper than finding new ones. Focus on increasing retention rather than constantly chasing new business.
- Upsells and cross-sells. If you offer SEO, why not add content marketing? If you build websites, offer ongoing maintenance.
- Fire unprofitable clients. If they’re draining time, underpaying, and making your life miserable, cut them loose.
Profit Over Growth, Always
Chasing revenue at the expense of profit is like filling a leaky bucket. You might feel like you’re growing, but if there’s nothing left at the end of the month, what’s the point?
Take a hard look at your agency’s numbers. Where are you bleeding profit? What needs to change?
Because at the end of the day, a seven-figure agency with zero profit is just a stressful job with extra admin. Fix your margins first, and real growth will follow.