Net margin (agency)

The percentage of revenue remaining as profit after subtracting all costs — delivery labor, overhead, tools, salaries not tied to specific projects — the bottom-line profitability figure, as distinct from gross margin.

Example

An agency with $500,000 in annual revenue and $440,000 in total costs (delivery, overhead, tools, admin) has a net margin of 12%.

Why it matters for agencies

Net margin is where the cumulative effect of unmanaged scope creep across every client eventually shows up — a few points of margin lost per project on unbilled work adds up, at the agency level, to a materially less profitable business even if top-line revenue looks healthy.