Let’s talk about one of the biggest challenges for any creative agency: setting hourly rates that keep the lights on, pay your team well, and still leave enough room for profit. Sound tricky? It doesn’t have to be.
Running a profitable creative agency is all about balance. Your team is your biggest asset, and their wages – hourly rates are your biggest cost. Nail that balance, and you’ll not only survive—you’ll thrive. Here’s how you can do it.
Here’s the golden rule: for your agency to be profitable, wages should take up 60% of your gross profit. The remaining 40% should be split between:
Why 60%? It’s the sweet spot that leaves room for everything else without stretching yourself too thin. Go over it, and your profitability takes a hit. Stay under it, and you risk overworking your team (and yourself) trying to pick up the slack.
Now, onto the big question—what should you charge clients? Forget guessing games. Use this simple formula instead:
1️⃣ Start with your team’s hourly wage (divide their salary by working hours).
2️⃣ Multiply it by three.
3️⃣ Voilà, you’ve got a rate that covers wages, overheads, and profit.
Here’s how it plays out in real life:
Say you’ve got a designer on $100k a year, and they clock 1,800 billable hours annually.
Does that number feel high or low? The real test is whether it allows you to hit that magic 60/20/20 split while staying competitive. Keep tweaking until it does.
Ever gotten burned by a fixed-fee project because of scope creep? You’re not alone. Fixed fees can work if the scope is super tight, but hourly rates give you more breathing room for the unexpected. The key is knowing when to use which, so you’re always charging fairly for your time.
Your team is your biggest strength, but only if their time is managed well. This doesn’t mean micromanaging every hour (no one loves that); it’s about understanding their capacity and making sure every project aligns with your revenue goals.
A simple spreadsheet or project management tool can help you track utilization and profitability by client or project. It’s not the sexiest part of running a creative agency, but it’s a game-changer.
At the end of the day, setting the right rates isn’t just about numbers; it’s about knowing the value you bring and pricing your services with confidence. And remember—your creative agency deserves to be just as successful and thriving as the brands you help grow.
Got questions about your pricing model? Reach out. We love helping agencies get their financials on point.