Methodology
How the profitability estimate is calculated
The model is deliberately simple and transparent. It separates each driver so teams can challenge assumptions before changing pricing, staffing, tools, or delivery process.
Method summary
The calculator is a diagnostic model, not a benchmark claim. It shows which driver appears to deserve investigation before an agency changes pricing, hiring, workflow, or delivery process.
Methodology
Profitability drivers included in the model
The calculator estimates directional profit leakage from user-provided assumptions across gross margin, operating margin, utilization gaps, overhead pressure, write-offs, admin time, and recoverable operational improvement. Outputs should be validated against real finance and project data before decisions are made.
- Revenue and gross margin assumptions
- Billable capacity and utilization gap
- Overhead pressure and operating structure
- Write-offs, overservicing, and scope creep
- Admin leakage and internal coordination cost
- Project overruns and delivery process friction
- Operational next steps and evidence needed
The model starts with user assumptions
The calculator does not import accounting data. It uses the numbers entered by the user, so the output is only as reliable as the assumptions supplied.
- Monthly revenue and gross margin establish the commercial base.
- Direct delivery costs, delivery payroll, overheads, utilization, write-offs, and admin time are separated so each can be challenged.
- The recoverable leakage percentage is a user-controlled planning assumption, not a promised saving.
Delivery cost and margin
Gross profit is monthly revenue minus direct delivery costs and delivery payroll. Gross margin and operating margin are shown as planning percentages when monthly revenue is above zero.
Utilization leakage
Utilization leakage estimates the value of billable capacity below the target. The model multiplies the monthly gap between target and actual billable hours by the blended billable rate.
Overhead pressure
Overhead pressure is calculated as monthly overheads divided by monthly revenue. The band is a planning view, not an accounting benchmark or universal target.
Write-offs, admin, and recoverable leakage
Write-off value uses unbilled or written-off hours multiplied by the blended billable rate. Admin leakage converts weekly admin time into monthly internal cost. Recoverable leakage applies the selected conservative percentage to write-off value, admin cost, and utilization gap value.
How to use the output
Treat the result as a diagnostic map. The largest driver should shape the next question, not automatically trigger a tool purchase or a staffing decision.
Questions teams ask
Why are the outputs directional?
The model depends on user-provided assumptions. It should be used to decide what to investigate, then validated against real finance, time tracking, project, and delivery data.
Will the calculator use industry averages?
No. The current model uses user-provided inputs and planning bands. Future benchmark assumptions should be explicit, configurable, and clearly labelled before they are used.
Can the methodology support different agency types?
Yes. The same drivers can apply across marketing, creative, digital, PR/content, and consulting agencies, but the operating evidence may differ by agency type.
Next step
Check the calculator inputs
Review the calculation model and data requirements before relying on the result for operational decisions.