Agency finance fundamentals
The finances of running a professional services firm, such as a creative or digital agency, are subtly different to those for other forms of business.
This page sets out some of the core fundamentals, to serve as a reference. It'll help ensure we have a common understanding as we go into some more complex topics elsewhere in the playbook.
A traditional business focuses on 'Sales income' or 'turnover', which is simply the total amount charged to customers. Then it subtracts the 'cost of goods sold (COGS)', which leaves it with 'Gross Profit (GP)'.
That model works for, say, a retailer. They sell you a can of beans for 50cents, they take off the cost to them of 25cents, and then they are left with 25cents gross pro
But in an agency, although the principles are broadly similar (we take out money that was never really ours because we have to pay it straight on to someone else), it's helpful to have clearer terms. Also, because the greatest percentage of costs in an agency are the people, it's really not healthy to start bandying around the word 'profit' before you get to thinking about the core costs.
So, here is the Convivio way of thinking about income: