Agency Gross Income (AGI) is a financial metric that represents the actual revenue an agency retains from its client work, after subtracting all pass-through expenses and third-party costs.
Sometimes referred to as “net revenue” or “adjusted gross income,” AGI reflects the money available to cover internal costs like salaries, overhead, and profit.
It differs from total revenue or billings, which may include all client charges—such as media spend, materials, direct software or license fees, or freelance costs.
While Agency Gross Income doesn’t include Pass-Through Expenses, it will include any mark-up or additional fees applied on top of those pass-through expenses.
Formula:
AGI = Gross Billings – Pass-Through Expenses
AGI provides a clearer picture of the true revenue of a firm, and sets an accurate foundation for tracking profitability and operational efficiency.
Why it matters for agencies
AGI is one of the most important financial indicators for agencies because it focuses on the income that actually contributes to covering internal operations and driving profit. It serves as the baseline for evaluating key metrics like Average Billable Rates, Delivery Margin, and Operating Margin.
Here’s why AGI is essential:
- Clarifies true agency revenue: Excludes third-party spend that doesn’t reflect revenue that the agency is responsible for earning with it’s internal operations.
- Improves profitability analysis: Provides a more accurate foundation for margin calculations and spending ratios / budgets.
- Supports strategic planning: Helps forecast growth, hiring, and investment needs.
- Aligns financial reporting: Creates consistency when comparing project, department, or client performance.
- Enables better benchmarking: Allows apples-to-apples comparisons with industry peers.
How to measure
Measuring AGI involves isolating and tracking pass-through expenses, as well as “Other” income which may not pertain to agency operations. Here are some tactics agencies can apply:
- Track pass-through expenses rigorously: Separate client costs and pass-through expenses related to 3rd party vendors rigorously on projects and in accounting workflows.
- Define and isolate “Other Income”: Income generated from things like subleasing an office, government grants, interest earned on investments, etc. should be isolated and separated so as to not inflate AGI, and obfuscate margin and spending ratio insight.
- Educate your team: Help staff understand the difference between gross billings and AGI to guide better decisions.
- Standardize reporting practices: Ensure financial data is consistent and actionable across teams.
When used correctly, AGI becomes a powerful lens through which agency leaders can evaluate health, set goals, and make smarter operational decisions.