How do I read my own agency P&L properly?
Or put another way: I don’t understand my own numbers and I’m embarrassed to admit it
Read it top-down in three blocks. Revenue: what you billed. Gross margin: revenue minus the cost of delivery, including freelancers and the proportion of salaries spent on client work, this is the number that matters most. Overhead: rent, tools, non-billable salaries. What’s left is operating profit. If you only learn one line, learn gross margin.
The Long Answer
There’s no shame in this. Most agency founders came up through the craft, not through finance, and nobody handed them a manual. Here’s the version that matters.
Your P&L has three blocks. The first is revenue, the work you invoiced. The second is cost of sale, or cost of delivery: freelancers, contractors, and crucially the slice of your team’s salaries that goes into doing client work. Revenue minus cost of delivery is gross profit, and gross profit divided by revenue is your gross margin. That single percentage tells you whether the model works.
The third block is overhead: the costs that exist whether or not you win the next project, rent, software, admin salaries, your own salary. Gross profit minus overhead is operating profit.
When founders say ‘I don’t understand my numbers,’ what they usually mean is the cost-of-delivery line is fuzzy because their own time and their team’s true utilisation isn’t in it. Fix that line and the whole statement starts telling the truth. Once you can read gross margin, you can answer the only two questions that matter most weeks: are we pricing well enough, and are we delivering efficiently enough.
