Accounting for agencies and studios
Agency economics come down to one question: which clients and which people are actually profitable. That is invisible in a standard profit and loss, because the largest cost is salaried time and the revenue arrives as retainers and project fees that rarely line up with the month the work was done.
What this trade does to a set of books
Retainers are collected before they are earned
A quarterly retainer received up front is deferred revenue, not a good month. Recording it on receipt makes one month look excellent and the next two look broken.
Client profitability is invisible
Without time against clients, a demanding account and an easy one look identical on the profit and loss. The demanding one is usually the one being renewed at the same rate.
Pass-through costs distort revenue
Media spend, print, and contractor costs billed onward inflate revenue and make margin look far worse than it is unless they are separated from fee income.
Contractor status is a real risk
Agencies lean on freelancers, and misclassifying someone who works like an employee carries back taxes and penalties.
Included for agencies and studios
- Retainers recognized as earned, not as received
- Revenue split between fee income and pass-through costs
- Client and project profitability using time against billings
- Contractor payments, W-9s, and annual 1099 filing
- Utilization tracked against salaried capacity
- Multi-state registration when staff or clients cross state lines
Asked by owners in this trade
How should a retainer be recorded?
As deferred revenue when it arrives, recognized as it is earned across the period it covers. A quarterly retainer collected in January is not January revenue: it is a liability that converts to revenue over three months as the work is delivered. Recording it on receipt produces one excellent month followed by two that look like a collapse, which makes every trend unreadable.
How do I work out which clients are actually profitable?
You need time recorded against clients, even roughly. Fee revenue per client is easy; the cost side is salaried people whose time is not naturally attributed anywhere. Once time is allocated, effective hourly rate per client falls out, and the answer is frequently that the largest account is among the least profitable because scope has expanded without the fee moving.
Should pass-through costs like media spend count as revenue?
They should be visible but separated from fee income. An agency placing significant media looks like a much larger and much lower-margin business if pass-throughs are buried in revenue. Reporting gross billings and net fee income separately means your margin reflects the work you actually sell, which is the number that should drive pricing and hiring.
We also work with contractors and trades, clinics and medical practices, and restaurants and retail.
