If you don’t have much profit, you can’t grow fast. That sounds obvious, but most agency owners don’t actually know their profit numbers — not the real ones, anyway. They might know their revenue, and they might have a rough sense of expenses, but gross profit and net profit are two different things, and confusing them leads to bad decisions.
Here’s how to calculate both, and why they matter.
Gross Profit: Revenue Minus Delivery Cost
Gross profit = Revenue − Cost to deliver
Take an agency doing $20K/month in revenue. If the team delivering the work costs $4K, gross profit is $16K. That’s the money left over after you’ve paid for the work to actually get done.
Gross profit tells you how efficiently you’re converting revenue into margin on the delivery side. It’s a useful number, but it’s not the full picture.
Net Profit: What’s Actually Left Over
Net profit = Gross profit − Other expenses
Add in the other costs of running the business — software, a phone bill, a car payment, tools, etc. — and the number changes. In our example, if those other expenses total $5K, net profit drops to $11K.
That’s still a decent number on paper. But there’s one more thing most agency owners forget to account for: themselves.
The Number Most Owners Get Wrong: Their Own Salary
If you’re still doing delivery work in your agency — writing, building, managing campaigns, whatever it is — your time has a cost. If you’re paying yourself $8K/month to do that work, that needs to be counted as a delivery cost, not just pulled from “profit.”
Rework the same example with that in mind:
- Revenue: $20K
- Team cost: $4K + your delivery salary: $8K = $12K total delivery cost
- Gross profit: $8K
- Other expenses: $5K
- Actual net profit: $3K
That $3K is what the business actually earns above and beyond paying everyone — including you — to do the work. That’s the number that matters for growth decisions.
What These Numbers Tell You
In this example, the agency is spending 60% of revenue on delivery. That’s common at this stage, but it’s too high. The target — as you work to get yourself out of delivery — is 25–30% delivery costs at most.
The math on why this matters for growth is simple: the less you spend on delivery as a percentage of revenue, the more free cash you have. More free cash means you can invest in marketing. And marketing is what keeps the pipeline full enough to weather a longer sales cycle.
This is why a lot of agencies plateau. It’s not that they lack leads or a decent offer — it’s that there’s not enough margin to fund the marketing that would generate those leads consistently. Thin profit compresses everything downstream.
Know your numbers. They tell you exactly what to fix first.
If you want help working through the financials in your own agency and figuring out where the leaks are, schedule a strategy session and we’ll dig in together.
Watch the original video: How to calculate net profit and gross profit, and why it matters for growth