Package Profitability for productized Agencies

Frequently Asked Questions

How does this calculator determine package profitability?

The calculator uses a comprehensive cost analysis approach:

1. Calculates direct labor costs (hours × hourly rate)
2. Adds all variable costs (software, PM overhead, acquisition costs)
3. Subtracts total costs from package price to determine real profit
4. Calculates profit margin as a percentage of package price
5. Determines minimum clients needed to cover fixed overhead

This gives you a complete picture of your package's true profitability.

What should I include in "Direct Labor Hours"?

Include all time spent directly working on the package deliverables:

• Actual production work (design, development, content creation)
• Research and analysis time
• Client communication and meetings
• Quality assurance and revisions
• Reporting and documentation

Don't include: General overhead, sales time, or administrative tasks (these go in other cost categories).

How do I calculate the "Hourly Labor Rate"?

Your hourly labor rate should include all costs associated with your team:

• Base salary or contractor rate
• Benefits (health insurance, retirement, etc.)
• Employment taxes and workers' compensation
• Equipment and workspace costs per person
• Training and professional development

Formula: (Annual salary + benefits + taxes + equipment) ÷ billable hours per year

What goes into "Software/Tools Allocation"?

Include the monthly cost of software and tools specifically used for this package:

• Industry-specific software licenses
• Stock photos, fonts, and creative assets
• Analytics and reporting tools
• Hosting and domain costs for client work
• API costs and third-party integrations

Tip: If you use the same tools across multiple packages, allocate costs proportionally based on usage.

How do I determine "Project Management Overhead"?

Project management overhead includes coordination and administrative costs:

• Project manager time allocation
• Account management and client relations
• Status reporting and documentation
• Team coordination and planning meetings
• Quality assurance and final delivery

Rule of thumb: PM overhead typically ranges from 10-20% of direct labor costs for standardized packages.

What is "Acquisition Cost Amortization"?

This represents the cost of acquiring each client, spread over their relationship duration:

• Sales and marketing expenses
• Proposal development time
• Discovery and onboarding costs
• Initial setup and configuration

Calculation: Total acquisition cost ÷ average client lifespan in months = monthly amortization

Example: $3,000 acquisition cost ÷ 12-month average client lifespan = $250/month

How should I allocate "Fixed Overhead"?

Fixed overhead includes costs that don't vary with package volume:

• Office rent and utilities
• Insurance and legal fees
• Accounting and administrative costs
• General software subscriptions
• Owner/executive compensation

Allocation method: Divide total monthly overhead by the number of packages you can realistically deliver.

What profit margin should I target for my packages?

Target profit margins vary by industry and business model:

• 20-30%: Minimum for sustainable operations
• 30-40%: Healthy margin for growth and reinvestment
• 40-50%: Strong margin for specialized packages
• 50%+: Premium pricing for highly specialized services

Remember: Higher margins allow for better team compensation, business growth, and market uncertainties.

How do I interpret the "Minimum Clients for Break-Even"?

This metric shows how many package clients you need to cover your fixed overhead:

• Below this number, you're losing money on fixed costs
• At this number, you break even on overhead
• Above this number, you're profitable

Strategy tip: Aim to have 2-3x the break-even number of clients for healthy profitability and growth capacity.

What if my package shows negative profitability?

If your package is unprofitable, consider these strategies:

1. Increase package price: The most direct solution
2. Reduce delivery time: Streamline processes and improve efficiency
3. Lower labor costs: Optimize team structure or use junior resources
4. Reduce scope: Remove or modify deliverables that aren't essential
5. Negotiate better tool costs: Find more cost-effective software solutions

Remember: It's better to charge appropriately than to lose money on every sale.

How often should I recalculate my package profitability?

Regular recalculation ensures your packages remain profitable:

• Monthly: Track actual vs. estimated hours
• Quarterly: Review and adjust all cost inputs
• Annually: Comprehensive review of pricing strategy
• When costs change: Update immediately for salary increases, new software, etc.

Pro tip: Track time meticulously for the first 3-6 months to validate your estimates.

Can I use this calculator for different package variations?

Yes! Use this calculator to analyze different package options:

• Basic vs. Premium packages: Compare profitability across tiers
• Industry-specific variations: Adjust for different client types
• Seasonal packages: Account for fluctuating costs and demand
• Team size variations: Model different resource allocations

Best practice: Create separate calculations for each distinct package to optimize your entire portfolio.