Glossary

Agency finance terms, defined properly.

Most of these terms get used loosely enough to hide a problem. Each one here has a definition, the formula where there is one, and the mistake people make with it.

B

Billable hours vs non-billable hoursWhat a client can be charged for, and the paid time that keeps the agency running.Blended rateOne average hourly rate charged across a team of mixed seniorities.

C

Capacity planningWhether the hours you can deliver cover the hours you have already committed to.

D

Drawdown retainerA pre-paid balance the client funds up front and the agency draws down as work is done.

E

Effective hourly rateWhat you actually earned per hour, once unbilled and over-serviced time is counted.

G

Gross margin (agency)What is left of fee revenue after paying the people who delivered the work.

N

Net marginWhat the agency keeps after delivery, overhead, owner pay and tax.

P

Pass-through costs (media spend)Client money you spend on their behalf. Not revenue, and not margin.

R

Realization rateThe share of delivered billable value that an invoice was actually raised for.Retainer burn rateHow much of a retainer's scoped hours have been consumed so far this period.Retainer vs project vs hourly billingThe three ways an agency turns work into an invoice, and what each one risks.Revenue recognition for retainersA retainer fee is earned across the period it covers, not when it is invoiced.

S

Scope creepWork added to an engagement with no matching change in fee, hours or deadline.Servicing gap (over-servicing)The value of work delivered above what the client contracted for.

U

Unbilled work (WIP)Work delivered and not yet invoiced. Revenue you have earned and cannot spend.Utilization rateThe share of a person's paid hours that reached billable client work.

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