Most creative agency founders didn’t start their businesses to maximise profit. They started them to do good work – work they were proud of, work that clients valued, work that built reputations.

The tension tends to show up later. Many agencies producing strong creative work struggle to achieve consistent, healthy margins. Not because the work isn’t good enough, but because the commercial decisions that sit behind that work aren’t always managed well.

At the recent DBA Member Forum, I focused on two places where agencies tend to lose margin. They’re not the whole story, but small changes here can make a noticeable difference.

Accurate and realistic proposals

Many agencies lose margin before a project has even started.

This usually happens at the proposal stage. Work isn’t properly costed, assumptions aren’t tested, or pricing is adjusted downwards in an effort to stay competitive. The result is a project that looks viable on paper but is already under pressure the moment it kicks off.

A common mistake is reusing old proposals without understanding how those projects actually performed. If you don’t know where time was really spent, how many revisions were required, or where delivery became stretched, you’re guessing. Guesswork rarely leads to profitable outcomes.

This is also where timesheets matter. They’re the bane of most agencies because teams don’t enjoy filling them in, and leaders often question whether they’re worth the hassle. They’re there to tell you whether the work was priced accurately. If projects regularly overrun, the issue is usually scope, not delivery. Without that data, you’re pricing on assumptions rather than evidence.

There’s also a tendency to reduce the price while keeping the deliverables intact. This is where many projects start to unravel. If the budget is fixed, the scope has to flex. You have to cut your cloth accordingly.

Designers will always want more time – and rightly so. I’ve never had one say, “You’ve given me too much budget, take some back.” But time isn’t free. If the budget doesn’t stretch, the scope has to adjust.

This is why internal alignment matters so much at proposal stage. There needs to be an honest discussion with the delivery team about what can realistically be achieved within the budget – and a shared agreement that the team will stick to it. Without that buy-in, budgets become theoretical and overruns are absorbed later.

Strong proposals are honest documents. They align budget, scope and resourcing assumptions clearly, and they set expectations internally as well as externally. When teams are involved early and understand the constraints, staying within budget becomes a conscious decision rather than a constant battle.

Getting resource management right

Most agencies default to scheduling when what they really need is resource management. Scheduling is reactive – it deals with what’s already landed. Resource management looks ahead at demand, capacity and skills, and plans before problems show up.

To do that well, you need two things: visibility of upcoming work and a simple, agreed process for allocating people. Without those, you’re not really managing resources – you’re just fitting work into whatever gaps you can find.

The tool you use matters far less than getting that foundation right. Most agencies still rely on Excel because it’s flexible and familiar. Dedicated resource management software can help, but it won’t fix the underlying issue. Once the basics are in place, the tooling becomes secondary.

When this is working, projects start on time, teams aren’t stretched, and the hours you priced into the proposal are actually the hours you have available. That’s what protects margin. It also means you have the right talent on the right work, giving the team the time and headspace to deliver to a high creative standard – not just to hit the deadline.

What this looks like in practice

The way work is scoped influences how it needs to be resourced. And how well it’s resourced determines whether the margin you priced in at the start survives delivery.

When agencies struggle with profitability, the symptoms are familiar – scope creep, the wrong skills on the job, and rework. The causes usually sit earlier, in how work is priced, planned and resourced.

Profitability isn’t about compromising creativity. It’s about setting work up properly so it can be delivered well on time and within budget.

Read other expert perspectives:

In Focus: Staff cost to fee income ratio: DBA Expert Mike Almandras

In Focus: The people story behind the numbers: DBA Expert Aliya Vigor-Robertson

Many creative firms operate with the same intent – “to have great people doing great work for great clients”. This is very commendable but I always think that the phrase needs a couple of words added at the end – “delivered profitably”.

Profit can often be an afterthought but ultimately it is the fuel for your business. Being profitable should translate into more cash in the bank and gives you the freedom to make longer term decisions about how you want to run your business, rather than lurching from problem to problem and having to make knee-jerk reactions.

So how should you go about setting your design business up to be profitable? And what key metrics should you be looking at? I was asked to pick my favourite and settled on the staff cost to fee income ratio. 

So what does that actually mean?

People costs are normally the largest cost within an agency or studio. Getting the alignment correct between your fee income and your people costs is the single biggest driver of achieving profit within your business. If you can get it right, it solves a lot of other issues in your business. Get it wrong and it doesn’t matter how hard you work, you’ll never make any money. So what is it and how do you calculate it?

It’s important to define each of the financial terms so that you can apply it consistently within your own business. Different people have different ways of calculating some of these figures – the important thing is to pick a method that you are comfortable with and then stick with it.

The first thing is to establish the difference between gross billings and fee income.

• Gross billings – everything that you invoice to clients. This will include any pass through costs and media buys and will be the total revenue that your agency invoices to clients.
• Fee income – this is what is left for your agency after you have deducted any pass through costs. It can be a grey area as to what you include in the pass through costs but I would advise you limit it to third party costs i.e. anything that your agency doesn’t do as part of its ordinary internal activities, so things such as media buys, location costs etc would be stripped out. However it shouldn’t exclude freelance costs where the freelancer is providing a service similar to your own internal staff.

The reason for using your fee income rather than gross billings is that this is the actual revenue that belongs to your agency and sits against your controllable costs. To use an extreme example, if you have invoiced a client for £500k but that includes £400k media buy, then your fee income is only £100k. Likewise if you have a £100k design project for a client being delivered entirely by your internal team, then this also has fee income of £100k.

Now that the fee income has been established, it should be compared to your total people costs, which I define as your internal staff costs plus freelancers plus a market rate salary for the founder (if they use a combination of salaries and dividends to pay themselves).

The historic agency model suggested a ratio of 60:20:20 i.e. for every £100 of fee income, £60 should go on people, £20 on overheads (your remaining costs) and that leaves £20 of profit. Or in other words a staff cost to fee income ratio of 60%.

If your staff cost to fee income ratio is significantly below that, it indicates either that you’re potentially running your team into the ground and at risk of burnout or that you have hit the sweet spot of being able to charge higher prices to your clients.

If your ratio runs significantly higher than that, you’ll likely find that everyone is busy but you’re not actually making any money. You’ll need to dig further into your finances to understand what is causing it – it might be pricing (a ratecard issue), it might be overservicing (a scoping/delivery issue), it might be that your recovery rates are too low (a scoping issue). The important thing is not to ignore it.

One of the main ways I’m seeing agencies manage their people costs more effectively has been to operate a leaner model with a smaller core internal team, supplemented by a roster of experienced freelancers. The bulk of agency revenue is project based and adopting this approach allows you to scale the team up and down as needed, without having to carry the additional cost in months where revenue is lower.

If you can keep your staff cost to fee income ratio consistently in the 60%-65% range then the profits should follow.

Other expert perspectives:

In Focus: Where agency margins are won – or lost in delivery: DBA Expert Manish Kapur

In Focus: The people story behind the numbers: DBA Expert Aliya Vigor-Robertson

When we look at metrics like gross income per head, utilisation and recovery rates in isolation, they feel like operational or commercial challenges. But when you step back and look at them holistically, these numbers are actually outcomes of how skills are structured, supported and deployed across your agency.

If these metrics are under pressure, it’s rarely just a pricing issue or a client problem. More often than not, it’s a signal about capability, role design or leadership capacity.

This matters because it changes where you look for solutions. If you’re treating falling productivity purely as a finance or operations issue, you’re missing what’s actually happening with your people.

What we lost when we cut

Looking at agencies that completed the DBA In Focus survey in both years, headcount was down just 0.5%, but fee income per head fell by 2.1%. That’s the pattern that should concern us. 

In theory, if you’re removing lower performers or consolidating roles, you’d expect income per head to at least stay steady, if not rise. The fact that it fell suggests that some agencies removed not just cost, but critical capability – the people driving income, managing client relationships, maintaining momentum.

The picture varies considerably from agency to agency. Some grew, some contracted significantly. But the overall pattern points to something important: last year’s restructures weren’t only a cost story, they were a talent and capability one. And that raises uncomfortable questions about which skills and responsibilities are most essential right now, and what happens when you lose them without a plan to redistribute or rebuild that capability.

Who can actually afford to start in this industry?

Junior designers with under three years’ experience are earning £26,000 to £28,000, with some roles falling below the London Living Wage. That’s not just a pay issue; it’s an access issue.

If you’re a graduate with student debt, living in London or another major city, these salary levels make it extraordinarily difficult to begin a career in design. And while it’s encouraging to see more agencies offering internships, pay levels at entry point continue to limit who can realistically afford to join the industry at all.

The question we need to be asking is: what is this actually benefiting? Because access at the start of a career has a direct impact on long-term diversity, retention and ultimately, who ends up in leadership roles a decade from now.

If agencies are serious about building diverse teams, early-career pay needs to be part of that conversation. It’s not just about who you’re willing to hire; it’s about who can afford to say yes.

The structural barriers to women's progression

Women continue to hold only 37% of senior business and department head roles, and the gender pay gap widens significantly at senior levels. The contributing factors are worth restating.

Only 34% of agencies offer enhanced parental pay, and that figure drops to 15% among smaller agencies. These are understandably difficult commercial decisions, particularly for smaller businesses operating on tight margins. But the data reinforces something we see time and again in practice: support through parenthood plays a critical role in whether women stay, progress and ultimately lead within agencies.

This isn’t about judgment. It’s about recognising that structural factors, not individual capability, are shaping who gets to stay and who doesn’t. And if the outcome is that women consistently drop out at mid-to-senior level, we need to be honest about what’s driving that.

When pay can't move, clarity becomes everything

With only 58% of agencies planning pay rises this year, and fewer than half of small agencies doing so, pay pressure is clearly being driven by rising costs and tighter margins. But here’s what agencies often get wrong: when pay can’t move, the biggest risk isn’t the freeze itself, it’s a lack of clarity.

Agencies that are retaining their best people tend to be the ones that are transparent about constraints, progression and expectations, even in challenging conditions. People can handle difficult news. What they struggle with is ambiguity, particularly when it comes to their own future.

If you can’t offer a pay rise this year, that’s understandable. But have you told your team why? Have you been clear about when things might change, or what progression looks like in the meantime? Because in the absence of that clarity, your best people will start looking elsewhere.

Skills, not headcount, will shape what's next

Finally, while much of this data is retrospective, it’s difficult to ignore what’s ahead. AI is likely to have a significant impact on skills, roles and productivity over the next few years, and how agencies approach this will matter enormously.

The agencies that treat this as a people and skills challenge, not purely a technology or headcount one, are likely to be far better positioned for what’s coming. That means thinking carefully about which skills you need to build, which roles may need to evolve, and how you support people through that transition.

The pattern across all of this is clear: the agencies that will thrive aren’t necessarily the ones with the biggest budgets or the most aggressive growth plans. They’re the ones that understand their people challenges are their business challenges, and they’re addressing them as such. Because if last year taught us anything, it’s that capability is harder to rebuild than it is to lose.

Other expert perspectives:

In Focus: Where agency margins are won – or lost in delivery: DBA Expert Manish Kapur

In Focus: Staff cost to fee income ratio: DBA Expert Mike Almandras 

Business performance and profitability

• Staff cost to fee income ratio remains one of the most critical profitability metrics, with 60% being considered healthy.
• Fluctuations in overheads since the pandemic have seen businesses operating closer to 65/70% on staff costs (leaving 10-15% for overheads and 20% for profit) but you need to keep a check on these ratios to maintain profitability. 

Business development and differentiation

• With clients viewing largely undifferentiated agencies as interchangeable, price-led decisions become inevitable. So how do you really stand out in the current market?
• The next DBA Member Forum on Monday 2 March, 1:30-2:30 will explore this in more detail.
• One point of difference for DBA members is to add the DBA logo to your website and Linkedin. It shows that you care about the development of your business, your staff and how you manage your clients and builds credibility and trust. Members can download it here. 
• Ask bigger, deeper questions to uncover the real business problem upfront beyond the brief.
• Define what success looks like and commit to measuring outcomes over time. We can help with this – book in a call. 

Talent, culture and people strategy 

• There’s a trend in design businesses at the smaller end of the scale operating with a senior, core team supplemented by freelancers, reducing the pressure to take on work that might be unprofitable. 
• Conversely, from the conversations the DBA is having with the Council for Higher Education in Art & Design (CHEAD), larger agencies are bucking this trend, taking on more junior talent.
• Entry level salaries below the London Living Wage (£28,860) limit who can afford to enter the industry – and early career conditions directly shape the future diversity and leadership of the industry.
• If headcount reductions are on the cards, be sure to audit the skills you need and where they sit in the business to prevent any unintended impacts on gross income. 
• Where pay rises are frozen, transparency is even more important. Clarify routes to progression and take a more holistic view of reward to keep hold of your top talent. 

Operational effectiveness and efficiency

• Protect your margins through accurate project scoping to prevent the age-old issue of ‘working for free on a Friday’. Timesheets are critical. For smaller agencies, this often starts with disciplined use of Excel.
• Operational efficiency depends on clear internal commitment to agreed budgets. Everyone needs visibility on what was sold, what the budget is, and how to stick to it.
• True efficiency comes from forward-looking resource management, not last-minute scheduling. Visibility of pipeline and capacity ensures you have the right people on the right work.

If you’d like tailored, strategic business advice, please do take a look at the DBA Experts Register. And why not consider booking yourself and your team a ticket to the Design Effect on 10 March to see how design is shaping organisations at a strategic level. The day is designed to create space to step back from day-to-day pressures and engage with the bigger picture together.

Our next DBA Member Forum is on Monday 2 March at 1.30pm GMT. Find out more and join us >