The Numbers behind the Work
Updated: Aug 12
Richard Wright | Wright Thinking
The central argument.
A creative agency is not a product business, a technology business, or a manufacturing business. It has one asset: its people. That means the relationship between what those people cost and what they generate is the single most important indicator of commercial health — more important than revenue, more important than headcount, more important than any individual client relationship. Get that ratio right and almost everything else is manageable. Get it wrong and no amount of great creative work will save you.
This blog isn't theory. It's the commercial architecture that runs underneath every healthy agency, written by someone who's lived on both sides of it — maintaining it when it was strong, and rebuilding it when it wasn't.
The Core Metric: Compensation to Income.
The industry has various ways of expressing this ratio. The Agency Management Institute recommends a 55:25:20 model — 55% of adjusted gross income on people, 25% on overhead, and 20% on profit. The fundamental logic is the same whatever framework you use: people are simultaneously the revenue engine and the primary consumer of fuel. Salary and associated costs — National Insurance, benefits, pensions, everything fully loaded — represent the largest single line on any agency P&L. And unlike a product cost, you can't easily turn it off when revenue dips.
The benchmark for a healthy agency is a gross delivery margin of 50% or above. Well-run agencies target 50-60% on their overall financials; at project level the target may higher — 60-70% — to account for utilisation gaps, time off, and operational friction that doesn't show up in individual project accounting but appears in the overall numbers.
At Burrows, the comp-to-income ratio was consistently healthy — healthy enough that when the business needed to invest in R&D and innovation, there was room to relax it deliberately. That's what a strong ratio buys you: not just profit, but strategic headroom.
The counter-example is instructive. When joining a previous agency — which we won't name — the comp-to-income ratio was dangerously high. The fix wasn't cutting people. It was building pipeline.
Setting the rate card.
The rate card is where comp-to-income becomes operational. The starting point is fully loaded staff cost — salary plus NI, benefits, pension, and any other employment overhead. From that base, you apply a margin of between 50 and 60% to arrive at your billable day rate.
The reason for maintaining two rate cards — a standard and an aggressive — is commercial flexibility. The standard rate card is your default and protects your margin. The aggressive rate card is your competitive weapon: available when you need to win, not as a permanent discount. The critical discipline is knowing which one you're using and why, and never confusing the two.
A few specific principles worth articulating:
Never cut the rate card to discount. If a client needs a lower number, adjust the hours, not the rate. Cutting the rate card devalues your people permanently and sets a precedent that is almost impossible to reverse. Playing with hours allows you to offer a lower overall cost while preserving the integrity of what your time is worth.
Overhead is separate. Fully loaded staff cost does not include office costs, software licences, infrastructure, or any other fixed overhead. These need to be accounted for separately and understood as a cost that the rate card margin must absorb alongside profit. An agency that sets rates against staff cost alone and forgets its overhead is building a structural deficit.
Non-billable staff can carry partial billing. Operations staff overseeing process, senior management with direct client relationships and strategic oversight, internal communications touching specific client projects — all of these roles can legitimately carry a percentage of billable time. It requires honest internal accounting and clear timesheet discipline, but it is a real lever on comp-to-income.
Utilisation — The hidden driver.
Industry benchmarks suggest 70-80% billable utilisation as a typical agency target, with production staff at the higher end and senior leadership considerably lower — sometimes as low as 30-40% — to allow for business development, management, and strategic work.
At Burrows, the target was 90% for billable staff. That number is achievable only with one thing: a strong, visible pipeline that allows resource to be pre-booked. Utilisation is not a discipline problem. It is a pipeline problem. When the work is there and planned, utilisation follows. When the pipeline is thin or uncertain, utilisation drops and comp-to-income deteriorates regardless of how efficiently the work itself is done.
The pipeline story from the unnamed agency is the proof. When comp-to-income was high, the response was to focus the account team on organic growth — getting closer to existing clients' cycle plans, identifying lateral opportunities within client organisations, finding new departments and budget holders who didn't yet know what the studio could do for them. New business is expensive and slow. Organic growth from existing relationships is faster, cheaper, and higher margin.
Research supports this: it costs significantly more to win a new client than to grow an existing one. Understanding a client's full organisational structure — adjacent departments, upcoming initiatives, budget holders not yet connected — is where sustainable pipeline comes from.
Hours: Where Margin Goes to Die
A profitable rate card and a well-managed comp-to-income ratio can both be destroyed at job level if hours are not controlled. The quoted hours on an estimate are not a suggestion — they are a commercial commitment. Running 100% over on hours on a profitable job turns it into a loss-maker. The rate card becomes irrelevant.
The 80% flag. The intervention mechanism that works is a system flag when a job hits 80% of its budgeted hours. That is the point at which the PM must assess burn rate against percentage of work completed. If 80% of hours have been spent and 80% of the work is done, everything is on track. If 80% of hours have been spent and 50% of the work is done, there is a problem that needs addressing now — not when the job hits 100%.
Jobs go on hold at 100%. When a job reaches its hours budget, it stops. The PM then has two options: identify scope creep and request additional funding from the client, or identify internal overrun, document the cause, and produce a rectification plan. Both routes require a conversation — but stopping the job forces that conversation to happen rather than allowing the overrun to compound silently.
Recording and looping back. Overrun reasons should be recorded and reviewed for trends. A single overrun is a project problem. A recurring overrun on the same type of work, or from the same team, or on the same client's briefs, is a systemic problem that requires a systemic fix — whether that's in estimating, briefing, or delivery process.
Bill to Estimate vs Bill to Actuals
The billing model changes everything about how a job is managed.
Bill to actuals means every hour worked goes on a timesheet and is billed to the client. In this model, the discipline is completeness — every hour that touches the project must be logged. The education challenge is helping the team understand that timesheets are not administrative overhead: they are the direct mechanism by which work converts into revenue, and revenue converts into salaries. When people understand that connection, timesheet compliance improves immediately.
Bill to estimate means the client pays the quoted amount regardless of actual hours spent. In this model, the brief becomes the single most important document in the job. Scope inclusions matter. Scope exclusions matter more. The estimating process must be diligent, accurate, and conservative — because any hours spent over the estimate are unrecoverable. The contingency conversation belongs at the beginning of a fixed-price engagement, not at the end.
The practical wisdom: on a bill to actuals project, you want every hour logged. On a bill to estimate project, you want every hour controlled.
The management instinct is different in each case, and teams need to understand which model they're operating under.
Value-Based Pricing and Commercial Models
Beyond the rate card, there are pricing situations that require a different framework.
Value-based pricing applies when what you're delivering is worth more to the client than the hours suggest. The discipline here is running both calculations: the value price and the LOE (level of effort) price using a mid-level rate card. If the value price is higher, you can defend it — as long as your margin is still strong. If you've invested R&D time to develop the capability that makes the work possible, that investment can legitimately be reflected in the price. You are not just selling hours; you are selling the result of prior investment that the client didn't fund.
Retainers are commercially beneficial because they smooth utilisation. Predictable monthly revenue against committed resource is the closest an agency gets to manufacturing economics. They tend to improve comp-to-income because they reduce the gap between capacity and billing.
Output-based pricing — typically applied to automated or technology-driven deliverables — tends to be lower margin but drives volume. The margin profile changes; the comp-to-income logic still applies.
Fixed-price contracts require the brief to do the heavy lifting. The more clearly inclusions and exclusions are defined, the more of the inherent variability is removed before the work starts. A pre-agreed contingency that activates when defined parameters are exceeded is not a concession — it is a professional risk management mechanism that protects both parties.
The Pipeline Is the Foundation of Everything.
The commercial mechanics described above — rate cards, utilisation, hour control, billing models — all function well when the pipeline is strong and visible. They all deteriorate when it isn't.
The most sustainable pipeline is not won through new business pitches. It is grown through existing client relationships. Understanding a client's cycle plan. Knowing what they're planning six months before they brief it. Identifying which other teams, brands, or departments within their organisation could use what you do. Introducing capabilities the client doesn't yet know you have.
This is not account management as administration. It is account management as commercial strategy — and it is the highest-leverage activity an agency leadership team can invest in.
The Numbers Exist to Protect the People and the Work
The danger with writing about commercial mechanics is that it can sound like the numbers are the point. They aren't. The point is the work, and the people who make it.
A healthy comp-to-income ratio doesn't exist to make a spreadsheet look good. It exists so that when a brilliant creative joins the agency, you can pay them properly. It exists so that when a client asks for something genuinely ambitious, you have the resource to say yes rather than the pressure to say yes and then quietly under-deliver. It exists so that when the industry shifts — and it always shifts — you have the headroom to invest in what's coming rather than scrambling to protect what's going.
The agency that treat commercial discipline as something separate from creative culture — a finance department concern, a leadership problem, something that happens in rooms the creatives don't go into — are the ones that eventually find themselves making decisions driven by margin rather than quality. Cutting the junior role that was actually load-bearing. Taking the brief that was never going to work because the revenue gap needed filling. Skipping the R&D investment that would have kept the studio ahead.
The discipline described in this blog — the rate card, the utilisation target, the 80% flag, the hour control — is not about squeezing more out of people. It is about creating the conditions in which people can do their best work, without the studio making decisions from a position of financial stress.
A well-run agency is a creative agency with options. And options come from getting the numbers right.
By Richard Wright
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