A digital marketing agency should allocate 15% of revenue to profit, 15% to owner pay, and 15% to taxes, leaving 55% for operating costs. Capping expenses at that level forces efficiency and prevents wasteful hiring or software spending.
The money comes in, at least 15% to profit, 15% to owner pay, 15% to tax. Don't forget about tax. And it may be more, consult with your CPA in your particular situation, which then leaves you with about 55% for operating expenses, the money that you use for your own marketing, paying your team, the delivery of the goods and the delivery of the services that you have for your clients. And what I want you to understand, Parkinson's Law, an object will expand to the container that it's in. You've just reduced your container from 100% to just 55%, right? And that constraint makes it so that you have to be more efficient, so that you recognize, well, I can't hire that third person, I can't go invest in that software tool, I can only spend 55% because that's all that's in my operating expenses account. It's a simple concept, but it will have a massive impact in how much profit you actually keep within your digital marketing agency and how much you're able to pay yourself as you grow and as you scale.
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