Margin by project and by client
The report that changes pricing conversations, produced monthly rather than argued about annually.
Creative and digital agencies
Your monthly profit and loss is not telling you very much
Fees are billed on milestones, freelance costs land in other months, and one big win makes the month before it look like a crisis. The real picture is per project, and it is almost always more uneven than you expect.
What you get
- Margin by project and by client, monthly
- Revenue recognised as it is delivered
- Freelance status reviewed before it bites
- An honest answer on R&D relief
- Cash forecast against your pipeline
- One fixed monthly fee
The numbers that decide it
Four figures worth knowing by heart
Four numbers govern an agency. Only one of them is a tax rate.
Per projectWhere the margin actually is
19% / 25%Corporation tax, below £50k and above £250k
£90,000VAT registration, on rolling turnover
On or beforePayday — when the RTI submission is due
2026/27 figures. See key tax dates and the calculators for the full picture.
Your year
The important date is monthly, not annual
Everything on this list except the first line is a filing. The first line is the one that makes you money.
Every monthTime against jobs closed off, and margin by project reviewed. This is the one that changes decisions.
Every paydayRTI to HMRC, on or before you pay anyone.
Every VAT quarterReturn and payment, one month and seven days after the period ends.
Your year endAccounts, corporation tax, and the work-in-progress figure that decides the profit.
+9 months, 1 dayCorporation tax due.
AnnuallyRetainer versus project mix reviewed, because it decides your cash shape.
Source: gov.uk Corporation Tax, VAT and PAYE guidance, checked July 2026.
The thing that makes it different
The profit is at project level, and nobody looks there
An agency's monthly profit and loss is close to meaningless on its own. Fees are invoiced on milestones that have nothing to do with when the work happened, freelance costs land in different months from the revenue they earned, and a big win in March makes February look like a crisis.
Underneath that, the real picture is per project — and it is almost always more uneven than the owner expects. Two or three clients are carrying the rest, one retainer that everybody complains about is the most profitable thing on the books, and a flagship account is losing money on hours nobody recorded.
None of that is visible without time against jobs and revenue recognised as the work is delivered. With them, pricing and which clients to keep stop being arguments and become arithmetic.
The detail that decides it
What actually moves the numbers in an agency
Agencies fail on cash and on project margin far more often than on tax. Both are measurable long before they hurt.
- Revenue recognition on projects
- A deposit is not income and a milestone invoice is not necessarily this month's revenue. Recognising fees as the work is delivered rather than as it is billed is what makes a monthly profit figure mean anything in a business with lumpy invoicing.
- Margin per project, not per month
- Agency profit hides at project level. Once time is recorded against jobs it is usually clear that a couple of clients are subsidising the rest — and that the one everybody complains about is not always the unprofitable one.
- Freelancers and status
- A freelancer who works only for you, to your hours, on your equipment, is an employment risk regardless of what the invoice says. Agencies scale on freelance capacity, so this is worth getting right before it is a PAYE settlement rather than after.
- R&D relief: usually not
- Building a website, integrating an API or designing a campaign is not research and development, however technically demanding it was. Some agency work genuinely qualifies. Most does not, HMRC's enquiry rate on weak claims rose sharply for a reason, and we will tell you which yours is.
- Retainers change the business, not just the cash
- A book that is half retainer is a fundamentally different company to finance, to staff and eventually to sell than one that starts every quarter at zero. If you want that, it is a pricing decision, and the numbers can tell you its effect before you make it.
Where the profit actually is
The same £40,000 of fees, two projects
Two clients, same fee, different outcome
Two projects billed at £20,000 each in the same quarter. Both look identical on the profit and loss. Time recorded against jobs says otherwise.
- Client A — fee
- £20,000
- Client A — 140 hours at a £65 blended cost, plus £1,500 of freelance
- −£10,600
- Client A — margin
- £9,400 (47%)
- Client B — fee
- £20,000
- Client B — 260 hours at the same rate, plus £4,000 of freelance and 3 rounds of revisions
- −£20,900
- Client B — margin
- −£900
On the monthly accounts this quarter made £8,500 on £40,000 of fees and everybody is reasonably happy. In fact one client paid for the other, and Client B needs a price rise, a tighter scope or a polite goodbye. You cannot have that conversation without the hours.
Worked through at 2026/27 rates from our own calculators, which follow gov.uk guidance checked in July 2026. An example, not advice — your figures will differ.
What we do about it
Numbers at the level decisions are made
Revenue recognised as delivered
So the monthly figures track the work rather than the invoicing schedule.
Freelance status reviewed
Before it becomes a PAYE settlement, which is the expensive way to find out.
An honest answer on R&D
Claimed where it genuinely applies, declined where it does not, and the reasoning written down either way.
Cash forecast against the pipeline
Because an agency's worst month is usually two months after its best one.
The retainer question
What moving a third of the book to retainer would do to cash, staffing and eventually to what the agency is worth.
Questions
What people in this trade ask us
How much does it cost?
A fixed monthly figure agreed in writing after a 30-minute discovery call. For agencies the drivers are headcount on payroll, the number of freelancers paid each month, transaction volume, VAT scheme and whether you want project-level reporting on top of the compliance work. FreeAgent is included in every package, worth up to £330 a year, though most agencies past a handful of staff end up on Xero — we are a Xero Gold Partner. There is no hourly charge for asking a question.
How do I know which projects are actually profitable?
By costing time against them. Revenue per project tells you nothing without the hours behind it: a £30,000 project delivered in 180 hours and one delivered in 340 hours have completely different outcomes and look identical in the profit and loss. You need recorded time — even roughly — against each job, plus freelance and subcontractor cost allocated to it. Most agencies discover that a minority of clients generate the majority of profit, and at least one flagship account is being delivered at a loss.
Should retainers and project work be reported separately?
Yes. They behave completely differently: a retainer is predictable recurring revenue that supports your fixed costs, while project income is lumpy, often collected in advance and delivered over months. Blending them hides the number that actually matters, which is what proportion of your fixed cost base is covered by recurring income before you win anything new. Agencies with high retainer coverage can plan hiring with some confidence; agencies living on projects cannot, however healthy the annual total looks. Reporting them separately takes no extra work if the chart of accounts is set up for it at the start.
Are our freelancers employees for tax purposes?
Possibly, and it depends on the working arrangement rather than the invoice. A freelancer who works set hours, uses your equipment, is directed like a member of staff and has worked exclusively for you for two years starts to look like an employee to HMRC regardless of what the contract says. If reclassified, the agency picks up the PAYE and National Insurance that should have been deducted, plus interest and penalties. Long-standing regular freelancers are the ones to review, because the relationship drifts over time without anyone deciding it should.
How do we handle billing in advance and work in progress?
Revenue should be recognised as the work is delivered, not when the invoice is raised or the money arrives. A 50% deposit on a six-month project is cash, not profit — it is deferred income sitting on the balance sheet until earned. Conversely, work delivered but not yet invoiced is accrued income. Agencies that ignore this see a spectacular month followed by three flat ones, and make hiring decisions on the spike.
Can you help with utilisation and the numbers we should watch?
Yes, and for agencies it usually comes down to four. Utilisation, the proportion of available time that is billable. Revenue per head, which is the fastest read on whether growth is actually working or just adding cost. Gross margin after freelance and direct delivery cost, which is where project profitability really shows. And recurring revenue as a percentage of fixed costs. Those four decide almost everything about whether the next hire is affordable, and none of them appears on a standard profit and loss. We build them into management accounts.
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