Definition:

AGI represents the "true" income your agency is earning through the work that you perform after removing any revenue that simply passes through your agency. On many P&Ls this appears as Gross Profit, depending on how the financials are structured.

Formula:

Revenue - Pass-Through Expenses

Where “Revenue” is the fees you charge and collect from clients for work, and “Pass-Through Expenses” are costs for external vendors required to deliver work to end clients (i.e. white label partners, ad buys, print budgets, etc.) In short, as long as these fees aren’t part of your ‘core service offering’, they would typically be considered Pass-Through. If for example, you’re slammed and need to add extra staffing to deliver the work you sold, and that team is performing a core service that you offer, that is when you would generally not consider that a Pass-Through Expense.

Here is a link to a more in-depth look at Pass-Through Expenses if you wanted to go deeper on that.

Example:

Let’s say you’re a marketing firm, offering every marketing service under the sun. You’ve got an all-star team that can handle all of it except for SEO services. You sell an “all-inclusive” one-off project package to a client for $50k, and plan to provide all of the services in house except for SEO, which you’ll hire a firm for that will cost $5k. This $5k fee will pass through your agency onto the vendor.

In this scenario, your Revenue is $50k, Pass-Through Expenses are $5k, and therefore your AGI is $45k for this project.

Nuances/Other Scenarios:

When it comes to marking up (and taking a profit) on your white-labelled services, you should treat the markup as AGI. For example, in the above scenario your vendor fee is $5k, but what if you only pay $4k to actually get that service from your vendor? Your markup of $1k would be considered part of AGI, and the Pass-Through Expenses would be $4k.

The reason why we use AGI rather than Revenue is to get a more accurate representation of the earning potential of your agency. In extreme cases, agencies could offer plenty of services but only actually provide a few in-house. If all of this was considered their agency’s income, they might appear to be a much larger agency than they really are. A deeper dive into the use of AGI vs Revenue can be found at this link.

Why Agency Gross Income Over Revenue?

**ℹ️** If you have any other questions on the topic, please don’t hesitate to reach out to your Parakeeto Account Manager so they’re able to give you the clarity you need!