What is a good profit margin for a creative agency? Most agency owners I speak to can’t answer this question about their own business. They know roughly what comes in. They know roughly what goes out. But the actual margin? It’s a guess.

I ran a creative agency in Belfast for 13 years. Scaled it to £2.2M annual revenue before exiting. During that time, I got margins spectacularly wrong before I got them right. I’ve since worked with 50+ agency owners on this exact problem.

Here’s what the numbers actually look like in the UK, and what you can do about yours.

UK Agency Margin Benchmarks

Before we get into ranges, you need to understand two different numbers: gross margin and net profit margin. They’re not the same thing, and confusing them is one of the most common mistakes I see.

Gross margin is your revenue minus the direct cost of delivering work. Salaries for your creative team, freelancer costs, software directly tied to delivery. For UK creative agencies, a healthy gross margin sits between 50% and 70%.

Net profit margin is what’s left after everything. Rent, admin, marketing, your salary, insurance. All of it. This is the number that actually matters for your bank account and your agency’s valuation.

Here’s where UK creative agencies typically sit on net profit margin:

20-30% Net Profit: Excellent

This is elite territory. Agencies here have tight processes, premium pricing, and strong client selection. Both small studios and larger agencies can reach this level. Size isn’t the deciding factor. Discipline is.

If you’re here, you’re doing something right. The focus shifts to maintaining this while you scale.

12-15% Net Profit: Average

This is where most UK creative agencies land. The Benchpress report and various industry surveys consistently put the average UK agency net margin between 12% and 15%.

It’s not bad. But it’s not great. At this level, one bad month, one lost client, or one project that goes sideways can wipe out a quarter’s profit.

Most agencies I start working with are here. The good news: there’s significant upside available through systematic improvements.

Under 12% Net Profit: At Risk

During startup or high-growth phases, margins this low can be justified temporarily. You’re investing in team, systems, or new capabilities.

But if you’ve been operating under 12% for years, something needs to change. You don’t have a revenue problem. You have a profitability problem. And they’re very different things to fix.

Margins by Agency Type

Not all agencies are equal. The type of work you do significantly affects your margin potential:

These ranges assume reasonably mature agencies doing £250k+ revenue annually. If you’re a three-person studio, your margins should be higher than a 40-person operation doing the same work. Less overhead. Fewer layers. Simpler delivery.

The agencies that struggle most with margins are typically in the £500k-£1.5M range. They’ve grown past the point where the founder can do everything, but they haven’t built the systems and team to deliver efficiently at scale. This is the messy middle. Margins compress because costs scale faster than revenue. If you’re here, the fix is operational, not commercial.

Revenue Per Head: The Number Most Agencies Ignore

Here’s a benchmark most agency owners never track: revenue per head.

In the UK, creative agencies should target £80,000 to £120,000 revenue per full-time equivalent per year. That includes everyone. Designers, developers, account managers, admin, you.

Below £80k per head, you’re carrying too many people for the revenue you’re generating. Above £120k, you’re either very efficient or you’re burning people out. Both are worth investigating.

When I was running my agency, tracking this number monthly changed how I thought about hiring. Every new person needed to generate or support at least £80k in revenue. If they couldn’t, the maths didn’t work.

Utilisation Rate: Where Margin Actually Lives

Your gross margin is largely determined by utilisation rate. This is the percentage of available hours your team spends on billable, revenue-generating work.

The target for UK creative agencies: 65-75% utilisation.

That means if someone works 40 hours a week, 26-30 of those hours should be on client work. The rest is internal meetings, admin, professional development, and the unavoidable gaps between projects.

Below 65%, you’re paying people to sit around. Above 75%, you’re heading toward burnout and quality issues.

I didn’t track this properly for the first five years of my agency. When I finally did, I discovered we were running at about 55% utilisation. We were literally paying clients to work with us on some projects. A £2,000 project was costing us £3,500 to deliver when you accounted for all the unbillable time around it. That’s mental.

The 5 Margin Killers I See in Every Agency

After working with dozens of agency owners, these are the five things destroying margins. Every single time.

1. Scope Creep

The silent killer. A retainer client starts asking for “one more thing” that builds up over time. One client recently I discovered they were doing about £3,000 of free work annually for one client. Just scope creep that had built up over months. Free work? Not on my watch.

Track every request. If it’s outside the agreed scope, it gets quoted separately or added to the next contract review. Run a December audit on every retainer client. Compare what you’re delivering against what’s in the contract. You’ll be shocked at the gap.

2. Underpricing

If you’re winning more than 70% of your proposals, your prices are too low. Full stop.

I used this rule at Kaizen. With every major project we won, we would increase the quote of the next comparable project by £500 or £1,000. We kept doing this until people said no. Not an ounce of scientific methodology went into this, but it worked.

One coaching client went from £3,000 websites to £10,000. Same work. Same team. More confidence. The market didn’t change. Their belief in what they were worth changed.

I remember the first time I quoted £5,000 for a project. Felt like I was going to be sick saying the number. Client said “sounds reasonable, when can you start?” No negotiation. That’s when I knew the ceiling was in my head, not the market.

3. Over-Servicing

Going above and beyond is noble. It also destroys your margins. There’s a difference between excellent service and doing work you haven’t been paid for.

Set clear deliverables at the start of every project. If the client wants more, great. Quote it. Every time you say yes to free work, you’re telling the client your time has no value. That’s a hard habit to break, but it’s essential.

4. Poor Utilisation

Already covered above, but it bears repeating. If your team is only 55% utilised, nearly half your payroll is going toward non-revenue activity. That’s a structural problem, not a sales problem.

Fix this by tracking utilisation weekly, not quarterly. By the time you see a quarterly number, the damage is done. Weekly tracking lets you spot gaps and fill them before they compound.

5. Wrong Clients

Not every client is a good client. I worked with a restaurateur early on whose only brief was “cheap.” After four rounds of revisions, additional unquoted designs, and massive scope creep, we clocked up over 60 extra hours designing something they barely appreciated in the end.

Today I would run a mile from this type of work at any value. They’re not ideal clients. Price isn’t the only factor. Client quality matters as much as client quantity.

The best agencies I work with have fired their worst 10-20% of clients and seen margins improve almost immediately. Less work. More profit. Less stress. It sounds counterintuitive until you run the numbers.

How to Audit Your Margins: A Step-by-Step Process

If you don’t know your margins precisely, here’s how to find out:

Step 1: Calculate gross margin. Take your total revenue for the last 12 months. Subtract all direct delivery costs: creative team salaries, freelancer invoices, software used in delivery. Divide the result by revenue. That’s your gross margin percentage.

Step 2: Calculate net profit margin. From gross profit, subtract everything else: rent, admin salaries, marketing, insurance, your drawings, pension contributions, equipment. What’s left divided by revenue is your net margin.

Step 3: Calculate revenue per head. Total revenue divided by total full-time equivalent headcount. Include yourself. Include part-timers as fractions.

Step 4: Track utilisation. For one month, track billable hours versus total available hours for every team member. Even a rough estimate will be revealing.

Step 5: Identify the biggest leak. Is it pricing? Scope creep? Too many people for the revenue? Wrong clients dragging down profitability? You’ll usually find one dominant issue.

Once you know where the leak is, you can fix it. But you can’t fix what you don’t measure.

Most agency owners are surprised by what they find. The common reaction is “I knew it wasn’t great, but I didn’t know it was that bad.” That reaction is the starting point for real improvement.

The Monthly Margin Dashboard

Once you’ve done the initial audit, track these four numbers every month:

  1. Gross margin % — target 50-70%
  2. Net profit margin % — target 15-25%
  3. Revenue per head — target £80-120k annually (divide by 12 for monthly)
  4. Utilisation rate % — target 65-75%

Put them in a spreadsheet. Update them on the first of every month. Look at the trend over time, not individual months.

A single bad month means nothing. Three consecutive months of declining margin means something structural is changing. Catch it early.

How Margins Affect Your Agency’s Valuation

This is the part most agency owners miss entirely.

When a buyer looks at your agency, one of the first things they examine is your adjusted net profit. They apply a multiple to this number to determine what your business is worth.

UK creative agencies typically sell for 3-6x adjusted net profit (EBITDA). The multiple depends on factors like recurring revenue, client concentration, and owner dependency. But the base number being multiplied is your profit.

Here’s the maths:

Same revenue. Double the valuation. Simply by improving margins.

But it goes further than the raw number. Buyers also look at margin consistency. An agency that swings between 5% and 25% from quarter to quarter is riskier than one that delivers a steady 18%. Predictable margins signal a well-run business. Volatile margins signal a business dependent on luck, timing, or a founder’s heroics.

When I sold my agency, the margin trajectory mattered as much as the absolute number. Three years of improving margins told a story: this business is getting better, not just bigger.

If you ever plan to sell your agency, or even just want the option, margin improvement is the single highest-leverage thing you can do.

Real Results: From 12% to 24%

One agency owner I work with came to me doing £600k revenue at roughly 12% net margin. Around £72k profit. Not bad. But not what the business should have been generating given the quality of their work and client base.

Over 12 months, we worked on three things:

  1. Pricing. Increased project minimums by 30%. Lost two small clients. Replaced them with one larger one at higher margins.
  2. Scope management. Introduced proper change request processes. Stopped doing free work.
  3. Utilisation. Moved from 58% to 71% by restructuring how projects were allocated.

Result: £650k revenue (modest growth), 24% net margin. Profit went from £72k to £156k. The business was worth roughly twice what it had been 12 months earlier.

No new hires. No dramatic overhaul. Just systematic improvement on three specific things.

The owner’s comment after 12 months: “I wish I’d done this five years ago.” That’s the sentence I hear most often. The fixes aren’t complicated. The hard part is measuring honestly and then acting on what you find.

Frequently Asked Questions

What is a good profit margin for a creative agency?

In the UK, a good net profit margin for a creative agency is 15-20%. Anything above 20% is excellent. The average sits between 12% and 15%. Below 12% for an established agency signals structural problems that need addressing.

What gross margin should a creative agency target?

UK creative agencies should aim for 50-70% gross margin. This varies by agency type. Design and branding agencies tend to sit at the higher end. Media buying and full-service agencies tend to sit lower due to higher pass-through costs.

How do I improve my agency’s profit margins?

Start by measuring them accurately. Then focus on the biggest leak: pricing, scope creep, utilisation, or client quality. Most agencies see the fastest improvement from raising prices and managing scope. These two changes alone can add 5-10 percentage points to net margin.

What is a good revenue per head for a UK agency?

Target £80,000 to £120,000 per full-time equivalent per year. Below £80k suggests overstaffing relative to revenue. Above £120k could indicate efficiency or potential burnout risk.

Do margins matter for agency valuation?

Yes. Margins directly determine your agency’s valuation. UK agencies sell for 3-6x adjusted net profit. Doubling your margin at the same revenue doubles your valuation. It’s the highest-leverage improvement you can make if you’re planning to sell.

What’s Your Agency Actually Worth?

Profit margins are one of the biggest factors that determine your agency’s valuation. Read the full Agency Valuation Guide to understand all 7 factors that determine what buyers will pay.

Take the free Agency Valuation to get your score. It takes 3 minutes and gives you a clear picture of where you stand.

If you’re looking for structured support to improve margins and build a more profitable agency, explore how Scale coaching works. Or book a discovery call to discuss where the biggest margin opportunities are in your agency.