What Is The Average Profit Margin For A Digital Agency?

Every business starts with the aim of profit-making. After a particular period, if the firm is not making any profit, that is if it is not covering the total cost of production and giving a profit margin, then it is considered that it is time to shut down the firm.

In this era of the internet, traditional methods of doing business have been replaced by digital businesses. A digital agency is a firm that does a majority of its business online, or quite simply through the internet.

How to calculate the profit margin

To know if the firm stands in the average, it is important to know to calculate the profit margin. Digital agencies often have to face unforeseen expenses. The general formula for calculating a profit for a digital firm would be:

Net margin = (Gross profit) – [Total hours worked*(Employee cost per hour+ overhead costs per hour)]

It is important to calculate cost per employee as well as revenue per client. Unfortunately, in a survey, it was found that only 49{d8483493c9524b12804a032eac0ce2285c7c00f20c39bec2d1c4a9b945a214c5} of digital agencies calculate their revenue per client.

What is the average margin?

Fewer than 35{d8483493c9524b12804a032eac0ce2285c7c00f20c39bec2d1c4a9b945a214c5} of digital agencies actually knew their profit margin in a survey. Others reported having an average profit margin in between 11{d8483493c9524b12804a032eac0ce2285c7c00f20c39bec2d1c4a9b945a214c5} and 25{d8483493c9524b12804a032eac0ce2285c7c00f20c39bec2d1c4a9b945a214c5}.

Margins that are in single digits are far too low to keep the firm running. And if the profit margin is above 20{d8483493c9524b12804a032eac0ce2285c7c00f20c39bec2d1c4a9b945a214c5} it is indicated that the firm is doing extremely well. Suppose a digital agency in Sydney, let’s call it Digital Agency Sydney marks their profit to be an average of about 9{d8483493c9524b12804a032eac0ce2285c7c00f20c39bec2d1c4a9b945a214c5}, then it can either switch to value-based pricing as a method to increase the margin or choose to shut down.

The profit margin of a digital agency, as it operates online is highly abstract. But in comparison, it is said that the above 10{d8483493c9524b12804a032eac0ce2285c7c00f20c39bec2d1c4a9b945a214c5} margin is just enough to keep the firm going.

What do you think?

Stefan Smith

Written by Stefan Smith

Stefan Smith is currently the managing editor of Nfl Touch Down. She is the author of ‘Sweet Life’ and the recipient of Pen and Scroll award.

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