Overhead costs are all your agency’s costs that don’t directly generate revenue, yet greatly affect your agency’s profitability.
Typical expenses that fall into any agency’s overhead bucket are rent, utilities, cleaning services, office supplies. However, unlike different industries, agencies and service providers have many variable costs that are inevitable for their long-term growth. To make sure marketing and sales activities, event and networking organization, training, education, and similar expenses don’t drain your agency’s profit, it’s key to reconsider whether you should bill these services, i.e. factor otherwise non-billable costs into service rates as overhead costs, too.
Examples of agency costs are facility costs, salaries of non-billable employees, licenses, phone plans, equipment maintenance, travel expenses, and more.
If you monitor your overhead costs (and otherwise non-billable activities) in an agency management system, you can factor your agency overhead rate into your profit calculations.
As we get into how Productive factors overhead costs into profit margin calculations, let’s cover the major expense categories that agencies are faced with: project expenses and salaries.
Project expenses: unique costs for every project. Examples are software licenses, advertising budgets, or travel expenses
Salaries: usually your agency’s biggest expense, and the main reason why high billable utilization rates per employee are paramount