Mastering Agency Management for Higher Profits

A profit model is your agency’s blueprint for making money. It outlines how you’ll generate revenue, manage costs, and ultimately, turn a profit. Without a clear model, agencies risk running on luck rather than strategy.

Eli Rubel, two-time founder and owner of agencies Matter Made and NoBoringDesign says,

“No one should run an agency business without a profit model because, without it, you’re flying blind. Effectively, you’re hoping for a good result as opposed to planning for one. That’s not strategy.”

But how do you choose the right model for your agency? Here’s an overview of the top options.

Hourly billing works for:

• Consultancy businesses
• Legal firms
• Development agencies
• Accounting firms
• Financial advisors

The downside? Hourly billing caps your earning potential. The only way to grow your agency is to log more hours or increase hourly rates. Neither is infinitely scalable.

Hourly billing may also cause client friction, especially if they question time logs or nickel-and-diming every call. Plus, this profit model incentivizes time spent, not outcomes delivered — which can mismatch value-driven work. Quoting successful consultant Alan Weiss,

“I don’t feel that clients should have to make an investment decision every time my assistance is required.”

An obsession with clocking the most billable hours can also create unhealthy staff dynamics. In accounting firms, it leads to constant overtime and subsequent employee burnout, which is bad news for business.

Still, hourly billing remains one of the most-used agency pricing models because of its undeniable perks: easier project cost estimation, transparent client reporting, and adaptability for shifting scopes.

Brooklin Nash, founder of Beam Content, also prefers this pricing model. He explains,

“We listen to our clients’ needs, present a few options for the scope of work, and confirm deliverables and timelines. That translates into a project total and a monthly invoice amount, with transparent costs on a per-deliverable basis.”

This way, clients benefit from predictability, while agencies optimize their profit margins by improving workflow management efficiency.

Fixed pricing works for:

• Branding and marketing agencies
• Website design and development studios
• UX/UI design projects
• Email marketing agencies
• Photography or videography businesses

Yet, fixed pricing can backfire with scope creep or unclear deliverables. You risk undercharging for complex work or absorbing unexpected costs if timelines stretch. Fixed-price models require tight scoping and airtight contracts. Nash, for example, has clauses stipulating that monthly payments won’t change if there are client-side delays.

Retainers are a good fit when you’re part of a client’s long-term strategy, providing steady output rather than one-off assistance.

Retainers work for:

• Managed services providers
• Content creation studios
• Social media marketing agencies
• PR and communication firms
• Technology implementation partners

Grey Matter, a B2B performance marketing agency, uses retainers for 90% of its projects. According to Managing Director Tony Bradberry, the retainer pricing is based on the typical hours spent on each client project, which Bradberry can estimate precisely thanks to time tracking tools and repeatable agency workflows.

“Selling to a client before fully understanding their problems and what drives growth is difficult. So we switched from preset scope-based retainers to an hourly retainer model,” Bradberry explains.

“Our pricing is now based on the number of hours needed to run one or several of the 20 client playbooks. This lets us customize services while ensuring profitability.”

Project time tracking has also shed light on some revenue trends. Bradberry says they sometimes overserviced clients and, in other cases, did not invest enough effort for the best results. Time insights helped Bradberry adjust service scopes and improve client relationships without sacrificing profitability.

The flip side of retainers is fuzzy expectations. Without a clear list of deliverables or usage boundaries, clients may expect unlimited work, while your team risks getting stretched thin.

It also requires proactive client management. If a client doesn’t fully understand the service model, they may question the value and churn. “When onboarding new clients, we don’t send classical proposals. Instead, we’ll send a capability statement. It explains how our agency operates, how the teams are built, and how the retainers work,” adds Bradberry. This ensures the right client fit and retains key accounts.

TL;DR: Expectation management, time tracking, and regular check-ins are key to keeping retainers working for you.

It’s another spin on the fixed-pricing model but with a greater emphasis on scope control and repeated steps (i.e., you can really do the same thing for pretty much the same number of hours to keep a good profit margin).

Productized services work for:

• Podcast or webinar editing
• Monthly content bundles
• SEO services
• Website management
• Customer support

The obvious downside is there’s not much room for nuance. If a client needs something just outside the box, you either say no (and risk losing new business) or bend the rules (and tamper with margins).

Generally, this service model works best for low(er) ticket offerings when clients know well what they want.

For clients, the appeal is strong: You pay for proven value, not vague promises. Similarly, agencies confident in their craft can increase an average customer bill by profiting from every outcome.

When paired with a performance-based pay structure for staff, the results can be pretty strong.

Noel Land, an Account Development Manager at Convertros, says,

“A 100% commission-based call center model made an astounding difference in urgency, responsiveness, and results. Our team only earns when leads convert, aligning our success fully with client outcomes. This transforms motivation. Agents respond within seconds, never letting valuable leads slip away.”

Perfomance-based pricing works for:

• PPC agencies
• Affiliate marketers
• Lead generation agencies
• Media buying agencies
• Outbound sales agencies

On the other hand, you’re also carrying more risk. You can’t influence all client-side factors (e.g., lack of stakeholder engagement or delayed decision-making), which may sabotage performance. You’ll also need advanced analytics apps to track and attribute all performance results. While the upside of performance-based pricing can be big, so is the gamble.

Similar to performance-based pricing, you still have skin in the game but a bit more risk because you set the price before the work begins based on expected ROI or impact. Effectively, value-based pricing is a fixed price, but it's not directly linked to hours, deliverables, or actual results. Instead, it's anchored in likely future outcomes.

When explaining pricing at Grey Matter, Tony Bradberry likes to leverage the ‘value’ card. He says,

“Clients hire us to get to their goal, which is growth. So, what happens between point A and B doesn’t matter.”

Instead, Bradberry sells them on the value of possible results from different tactics and playbooks, each priced separately.

Value-based pricing works for:

• Performance marketing agencies
• Conversion rate optimization firms
• Business strategy consultants
• Branding agencies
• Digital transformation agencies

That said, value-based pricing doesn’t always sway clients. To pull it off, you’ll need compelling case studies, polished positioning, and a reputation of being an agency that delivers. Plus, not every service lends itself to easy ROI attribution, making the model tricky to justify or scale.

Pro tip: A profit model isn’t set in stone

You don’t have to commit to one profit model. Most agencies use a mix of several to better reflect the nature (and value) of different service lines. Likewise, it’s not a set-it-and-forget setup. Market dynamics shift, and customer relationships wane. So, you need to stay flexible.

“On one hand, I can't plug every market variable spreadsheet to predict future profitability with certainty,” says Eli Rubel. “What I can do, though, is constantly seek new ways to fine-tune and tweak the agency profit model.” This iterative approach to agency management optimization has allowed Rubel to maintain 40%+ net margins at both of his companies.

Under the hood, a profit model is a collection of parameters you can tweak to increase (or, well, decrease) your profitability. Most of them relate to your operations — how you scope work, allocate resources, and manage delivery. But some are external, too, such as new regulations or labor shortages.

Here’s a table summing up the key drivers of agency profitability:

Effective agency management isn’t about working harder — it’s about working smarter behind the scenes.

Agency owners who’ve mastered their margins know the biggest gains come from using data to optimize capacity planning, streamlining service delivery, and making tough but intentional choices about service and client portfolios.

We asked seasoned founders to share strategies that turned their chaotic calendars into consistent profits. Here’s their best advice for running leaner, smarter, and more profitable agencies.

Implement time tracking

Agency owners often underestimate the value of time tracking. Tony Bradberry recounts:

“When we started, we were very anti-timesheet. Instead, we focused on metrics like capacity and profitability. But as we grew, one thing became clear: not all business is good business.”

Like many digital agencies, Grey Matter has its share of bad clients — those who struggle to convey their needs, aren’t great at communication, and cause project delays. “When we started tracking time in our second year, we discovered that while the upfront revenue looked great on some accounts, the actual time waste and drag on the agency as a whole was huge,” Bradberry admits.

To cut that slack, Tony ran time studies of every workflow to map the expected duration. With a reference time benchmark, the Grey Matter team improved capacity planning. “When we plan the 90 days of work for each client, we use our time data and their retainer hours. Then, like in the old Apollo 13 movie, we think how we can fit everything and get someone home safely from the moon,” he jokes.

For Grey Matter, time data was key to optimizing the capacity-to-contract fit for each client, avoiding over-servicing, and maintaining a higher profit margin.

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Know which actions pay off

With Toggl Track, you can run a multi-level profitability analysis across projects, clients, tasks, or users to determine which actions bring (or siphon away) revenue.

With forecasts backed by time data, you can improve your financial management, pricing, staffing, and project budgeting decisions.

Anchor hiring decisions in utilization rates

Running a successful agency is a balancing act of optimized capacity levels vs. workload levels. When you’re over-staffed, profit dips due to high payroll costs. But with too few staff and new accounts rolling in, work quality and team morale decline.

To avoid such scenarios, Eli Rubel constantly monitors the resource utilization rate.

“Our healthy number is between 75% and 90%. We track it automatically through our Profit Command Center dashboards, which aggregate financial, operational, time, and CRM data for a unified view of the business. When we reach a 90% utilization rate, the recruiting team gets to work.”

Better resource visibility helped Rubel improve its recruitment process, which he didn’t take seriously early on and now regrets. “We relied on external recruiters or wing it and scoured LinkedIn ourselves. But upon reflection, I realized that things stressing me out both personally and as a business were hiring related,” he says.

Rubel replaced the ad hoc recruitment approach with an internal HR Center of Excellence, which he called “a game changer.” The new Head of Talent Acquisition set up an effective talent pipeline, activated when the utilization rate enters the dangerous zone.

With a data-driven approach to hiring and resource allocation, Rubel can shift his attention to where it’s needed. He admits that one of his agencies runs at a 60% utilization rate, meaning 40% of available work hours are unused. So, sales and account managers need to double down on new business development.

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Speed up talent acquisition

With dynamic demand, many agencies need extra talent for yesterday. Use Toggl Hire to build fast, data-driven hiring pipelines in several clicks from pre-made templates (and customize as needed).

Centralize all hiring-related messaging to improve cross-team collaboration. Verify the candidate’s real-world capabilities with integrated skill tests to avoid mis-hires. Remove repetitive tasks from your hiring cycle with smart automation tools to shortlist and hire the best talents fast.

Hire fractionally to balance resource utilization

Poor visibility into workload and uncertain client demand can undermine cash flow. But hiring more in-house staff can be cost-inhibitive or too risky if you’re still testing the waters. Most agencies also can’t afford to bring in the wrong people due to the high costs of bad hires.

That’s why Tom Whatley, CEO at B2B content marketing agency Grizzle, advocates for bringing in fractional people instead. He says,

“Everyone in-house were poached as freelancers. For example, Jenna, my Head of Content, started as an editor, but she quickly embedded herself into client accounts and helped build our early content delivery processes. So, it was a no-brainer to hand her the keys and say, run with it full-time.”

Whatley reduced hiring risks by bringing in people who already deeply understood the company’s inner workings. For freelancers turned full-timers, Grizzle’s culture was a strong attractor. “Our culture protects the lifestyle people want as a freelancer, but they also get better job security and learn a lot.”

Grizzle is now testing a new service line — video marketing — and once again, Whatley is hiring fractional first. “I had someone in my network who excelled in video. He’s now embedded in our team, building the client delivery processes and doing the work itself. We’ll soon need a producer, maybe a videographer, and voice-over artists. Because the offer is still emerging, hiring fractional for all video-related roles means lower risks for us.”

When the client offering is validated, Whatley expects to bring some of his fractional hires in-house for leadership roles, which is a win-win for both sides. “Generally, I’m a big fan of building out a bench of people that you need before you need them and then hiring them in-house once there’s proven client demand,” he adds.

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Build your bottomless talent pool

With an average cost to hire an employee ranging from $5 to $20K, agencies can save a lot by maintaining a potential hires database (aka a talent pool.)

It’s easy and fast to build one with Toggl Hire. Our platform automatically saves all past applicants into a private database. Easily find people with top test scores for in-demand skill sets. Search by skill, location, or role to find ideal matches who are open to freelancing (or full-timing) with you!

Speed up workflows with an agency management system

(In)effective project management is another major component of agency profitability. If your bright people get bogged down in repetitive tasks and endless admin, you’re losing money.

Unfortunately, low operational efficiency is a common theme, not just among agency owners. Globally, only 21% think their operating model is running at optimum. Why so?

• Manual and/or fragmented business processes
• Data and communication silos across teams
• Lack of proven insights for decision-making

The better news? You can fix most of these issues with a better agency management solution (AMS) — purpose-built software for managing the Ops side of the business. Typical functionality includes project scheduling, task management, capacity planning, contract management, invoicing, workflow automation, and all sorts of real-time analytics.

Popular general project management tools

Toggl Plan

Asana

monday.com

Popular agency management software solutions

Bonsai

Scoro

Kantata

AMS helps improve team productivity through better goal alignment, task prioritization, and workload visibility. It keeps clients accountable, too. “We have a Client View in our project management tool,” shares Brooklin Nash. “Every client has a milestone view for specific dates for general accountability. They can also see and act on all action items assigned to them.”

Dedicated client dashboards replaced constant back-and-forth emails as clients can easily see project progression via a Gantt chart, review editorial calendars, and give feedback. This reduces client anxiety, builds trust, and makes everyone feel involved in the process.

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Improve your operations with analytics

Get a better view of your agency's needs with Toggl Track Project Dashboards. Predict project completion based on tracked hours and project estimates to ensure optimal resource allocation and manage client expectations. Track billable vs non-billable hours distribution to better understand where inefficiencies happen.

For better execution, try Toggl Plan, a visual project management tool informed by time-tracking data. Optimize your team's capacity and task scheduling with time insights to avoid missed deadlines, overwork, and scheduling conflicts. Then, easily involve clients in the project life cycle by sharing visual timelines and giving automatic updates on completed milestones.

Involve your teams in client relationship management

Effective client retention leads to steady, scalable profit. But keeping those relationships warm can be tough when your team juggles 30+ accounts. Heavy reliance on account managers to constantly check in with the core team on project statuses, client KPIs, and other updates also creates communication lag.

To avoid such scenarios, Tony Bradberry involves all teams in client communication. He explains,

“We don’t want clients to become too attached to me or another sales rep. Instead, we want them to talk to our marketing people because they’re doing the real work.”

During client onboarding, Bradberry introduces the assigned team to the client and lets them take over the relationship. “Because our teams set the strategy, it’s their job to convince the client they need extras for success, like more hours in their retainers or a HubSpot implementation,” Bradberry adds.

Direct involvement allows marketing teams to build stronger client rapport. They can show off their chops before pushing for a bigger project (and a bigger retainer), which may be harder for a client to justify. By pitching need-based upsells, teams can drive more revenue, cut acquisition costs, and deepen client loyalty.

It also allows for greater scalability in client relationship management. As an agency owner, you don’t need to play the middleman and can focus instead on more value-added work.

Periodically prune your service and client list

Since profit margins are directly related to revenue, many agency owners strive for revenue at all costs. They go after more clients, launch extra services, and otherwise hustle to keep that number up.

But without visibility into the other side of the profit equation — the cost of doing business — you’re not seeing the full story. Your revenue may be going up, but your profit margins are not because you’re burning too many resources to keep up with unsustainable demand.

Around that time, Grizzle also tried to venture out of its SaaS B2B niche. They onboarded an e-commerce client and considered expansion in that space. But that step didn’t pan out because the agency lacked the resources to penetrate the market.

The events made Whatley rethink his approach to service portfolio expansion. “We still want to try new services, but we now trial them for ourselves first,” he says. Before launching a client-facing video marketing service, Whatley worked on the agency’s YouTube channel to evaluate the benefits and trial their operating workflows. This slower but more data-driven strategy to service development has avoided Grizzle some costly losses.

Tony Bradberry of Grey Matter shares a similar vision regarding the client list. Like Whatley, he’s no longer afraid to reverse decisions to protect profit margins, namely, phasing out unprofitable clients. He shares,

“When I joined, our average retainer was about $3,200/month. We analyzed our time data and realized we were over-investing in some clients. We adjusted our pricing and now take on more profitable work while phasing out legacy clients.”

The decision felt scary at first, but it was the right call. After parting ways with unprofitable accounts, Grey Matter ended up with a more manageable workload and a higher profit margin.

The lesson? Don’t hesitate to sunset unprofitable services, raise rates, or drop low-value clients if your goal is to increase agency profitability rather than revenues alone.

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Streamline profitability tracking

Toggl Track offers multiple ‘lengths’ for monitoring agency profitability. Assign custom billing rates for different tasks, teams, clients, and team members.

After logging hours, you can track and forecast revenue per client or project via the Billing amount report, which tracks financial progress against fixed costs. Or, run a revenue-based workload analysis to identify high-value activities and top revenue contributors. With these insights, you can easily spot (and prune) unprofitable service lines or client accounts to strengthen your margins.

Learn to move with the flow

The ‘feast and famine’ cycle is common for early-stage agencies. One month, you’re onboarding several large accounts. The next, clients slash their budgets or cancel retainers. Unlike product businesses, agencies rely heavily on people and billable hours, making scaling more complex and resource-dependent.

“Our biggest problem for three years was that we couldn't hire quickly enough to meet the demand, which is an awesome problem to have — a really frustrating but still an awesome problem.”

... recounts Eli Rubel, who spent millions on recruiting fees to fix this.

But when the market changed again, and demand dipped, Rubel was better prepared. His Profit Systems dashboard lets him estimate how key metrics — revenue, OpEX, and margins — will look with any number of customers or employees, allowing him to “scale responsibly.”

No one can predict market shifts, but you can inform your growth strategy with data like:

• Historical billing and cash flow trends
• Time insights about project timelines
• Resource utilization rate
• Client retention and churn rates
• Billable vs non-billable time ratios
• Team capacity vs. actual workload
• Budget vs actual performance per project
• Average project profitability by service type
• Seasonality patterns in workload or revenue

Prepare for the short-term future by avoiding scenarios where demand outpaces hiring, or low-value projects siphon away resources from high-ticket items. Knowing where you stand helps you adapt to challenges and maintain a cushion for slower periods.