If you’ve ever wrapped a project only to realize your “profit” disappeared somewhere along the way, you’re not alone. Marketing agencies often underestimate how easily their project margin can erode. The culprit? A mix of loose time tracking, scope creep, and delivery inefficiencies that slowly chip away at profitability.
The good news is that with the right controls, you can monitor project health in real-time and avoid painful surprises. Let’s cover some easy methods to keep your projects on budget.
1. Know Your Target Project Margin
Start with clarity. For most agencies, a healthy project gross margin typically falls between 50% and 70%. That’s revenue minus the direct costs of delivery (primarily labor). If your margin dips below 40%, that’s a red flag—either you underpriced, over-delivered, or both.
Remember, project margin by itself does not translate directly to gross margin on the profit and loss (P/L) statement. This would only be true if your entire service staff is at 100% utilization, which is not the case for most agencies. To get a refresher on utilization, project margin and their relationship to gross margin, check out this video on the margin triangle.
Action:
Define your minimum acceptable margin before kickoff. Use it as the baseline for every decision moving forward. The Upsourced team has plenty of templates for estimating projects. Just reach out to us, and we’ll share one with you. We’ll even personalize it for your rate card!
2. Track Delivered Hours vs. Estimate—Relentlessly
Your estimate is a promise to the client and yourself. But it’s not static. As delivery unfolds, you need to compare actual hours worked against budgeted hours in real-time. Waiting until the end of the project to review the numbers is like checking your gas gauge after you’ve run out of fuel.
Action:
Integrate weekly reporting into your project management tool (Harvest, ClickUp, Asana) with integrated time tracking. Review:
- Budgeted vs. Actual Hours
- Percentage Complete vs. Percentage of Budget Used
If you’re 50% through your budget and only 30% through deliverables, you have a problem. Address it immediately.
3. Time Tracking Is Non-Negotiable
Your margin lives and dies with accurate data. If your team is “guessing” their hours days later, you’re running blind. Proper time tracking isn’t about micromanagement—it’s about empowering you to make smart decisions before the budget’s gone.
Action:
- Require weekly time tracking at a minimum.
- Automate reminders in your PM tool.
- Educate your team: This isn’t Big Brother—it’s how you protect their workload and avoid fire drills at the end.
- If you have trouble getting employees to track their time reliably, consider implementing the '3 strikes and you’re out' rule. Missed your spreadsheet submission deadline 3 times? You’re gone from the organization. Harsh, but effective!
4. Watch for Scope Creep (and Sneaky Delivery Red Flags)
Scope creep rarely announces itself with a big sign. It’s subtle:
- A client says, “Can you just add this one thing?”
- A PM forgets to log a change order.
- Internal revisions balloon beyond what’s reasonable.
Before you know it, you’re delivering $100K of work on a $75K budget.
Action:
Train your team to flag changes promptly. And give them a script:
“That sounds great—let’s confirm whether that’s within scope or if we should issue a change order.”
Also, watch for delivery red flags like:
- Tasks are getting reassigned repeatedly.
- Approvals are dragging (which forces crunch time later).
- Over-servicing because the client seems “unhappy.”
Each one threatens your margin. Weekly team delivery meetings with your PM and PM leadership can help to escalate issues and help with providing enough clairty for strong professional judgement to be made on when it’s okay to “over-serve” vs. when the client should be held accountable for overages, e.g., through change orders or new SoWs.
5. Build a Culture of Proactive Margin Management
Margins don’t erode in accounting—they erode in delivery. Your team needs to own this as much as finance does. For the typical agency, this is the project manager’s (PM) responsibility. If you’re not sure what your PM should be responsible for, check out this recent Upsourced podcast on AM vs. PM responsibilities at marketing agencies.
Action:
- Share margin targets in project kickoffs.
- Give PMs the authority to escalate when budgets are at risk.
- Celebrate projects that hit or exceed margin goals.
Bottom Line
Healthy margins = healthy agency. They fund growth, prevent burnout, and maintain strong client relationships. The key is vigilance—monitor the numbers early, manage scope with confidence, and never leave profitability to chance.