Your Delivery Leader Needs a Margin Number, Not Just a Deadline

By Craig S. Cody, CPA, Certified Tax Coach.

Putting one person in charge of every project fixes half the problem. Projects launch on time, clients stay happy, and the work gets better. The other half is whether those projects make money, and many agencies never ask their delivery lead to know that.

I see a lot of agencies watch profit closely for the agency as a whole and never by project. The clients of ours who track profit project by project, and actually review the numbers, are the most profitable agencies we work with.

So give your delivery leader a margin number to go with the deadline. Here's what goes on a one-page project P&L, how to read it while the project is still running, and what your delivery lead should own.

Why Are Agencies Hiring a Delivery Lead?

On October 12, Perth digital agency Humaan announced Nathalie Galistan as its new Delivery Lead. Per Campaign Brief, she'll "own the delivery of every client project at Humaan, from kickoff to launch" and work with management to raise the standard of how the agency "delivers, checks its work and grows its people."

That's a smart hire, and more agencies are making it. One owner can't personally watch every project once the agency passes a certain size. Someone has to own delivery.

Notice what the announcement doesn't mention, though: budgets, margin, or money. That isn't a knock on Humaan. It's how almost every delivery role gets described. The job is framed as quality and timing. Profit is left to the owner, who's looking at the agency total once a month.

Why Doesn't the Agency P&L Tell You Which Projects Make Money?

Your monthly P&L adds every project together. A website build that ran 45% over its hours sits next to a retainer that's running beautifully, and the total looks fine. The good projects hide the bad ones.

By the time the agency total dips, the damage happened months ago, on a project that's already closed. You can't fix a project after launch. You can only fix the next one, and only if someone figured out what went wrong.

That's the gap. The person closest to the hours, the contractors and the client's extra requests is the delivery lead. The person looking at the profit is the owner. Those two need to be looking at the same number.

What Goes on a One-Page Project P&L?

It's simpler than it sounds. Six lines, budgeted against actual, for every project over a size you choose.

Two notes on that table.

Use loaded cost, not billing rate. A designer who bills at $175 an hour might cost you $85 once you add payroll taxes and benefits and spread it over the hours they actually work. The P&L needs what the hour costs you, not what you'd charge for it.

Divide by AGI, not by the fee. If a project carries $50,000 of media, measuring margin against the full fee makes it look far better than it is. Agency gross income is the money your people actually produced. I wrote more about why that's the right denominator in Gross Margin by Account Manager.

Then add one line under the table: change orders, approved and pending. That's where most of the gap between budget and actual starts.

What Does a Project That Hits Every Deadline and Loses Money Look Like?

Here's an illustrative website build. The numbers are made up, but the pattern is one every agency owner will recognize.

The client pays $120,000. $8,000 of that is stock photography and font licensing billed at cost, so project AGI is $112,000. The team is budgeted at 420 hours at an $85 loaded cost, plus a $10,000 contract developer.

What happened? The client asked for two extra page templates and a third round of revisions. Nobody wrote a change order, because everyone wanted to keep the client happy. The team fell behind, so a second contract developer came on for three weeks to protect the launch date.

The site launched on time. The client loved it. The delivery lead did their job exactly as it was described. And the project came in $22,650 short of what it was supposed to earn.

Nobody did anything wrong in that story. Nobody was asked to watch the margin, so nobody did.

When Should Your Delivery Lead Look at the Numbers?

At the end is too late. The value of a project P&L is reading it while you can still change the outcome. Here's a rhythm that works:

• At kickoff: set the budget. Hours by role, contractor spend, and the target margin, agreed between the delivery lead and whoever sold the work.
• At 25%, 50% and 75% of budgeted hours: compare hours used to work completed. If you're 50% through the budget and 35% through the work, you have a problem, and you still have half the project to fix it.
• Whenever the client asks for something new: decide on the spot whether it's in scope. If it isn't, write the change order before the work starts.
• At close: a 15-minute review. What did we budget, what happened, and what do we change in the next proposal?

Run that same website build with those checkpoints. At the 50% mark the team has used 300 hours against 210 budgeted for that phase, and the two extra templates are on the table. The delivery lead writes a $12,000 change order for them and holds the second contractor to one week instead of three.

It still isn't the budget. Some of the overrun was real. But that one checkpoint is worth $21,450 on a single project, and the client got exactly what they asked for. On paper this is just budget versus actual. In practice, it's the habit our most profitable clients share: they look at the numbers while the project is still running.

What Should Your Delivery Lead Actually Own?

If you're hiring or promoting someone into a delivery role, put the margin in the job, in writing. I'd give them four things:

• The budget-versus-actual report for every live project, updated at least every two weeks.
• Change orders. The authority, and the expectation, to stop out-of-scope work until there's agreement. I've written about scope creep as one of the biggest leaks in an agency. The delivery lead is the person in a position to plug it.
• Contractor approvals above a set dollar amount, checked against the project budget before anyone is brought in.
• The close review, with the findings going back to whoever writes proposals.

What they shouldn't own alone is the price. If the project was sold too cheap, that's a sales and pricing problem, and the close review is how you surface it. Hold the delivery lead to the gap between budget and actual, not to a number someone else set.

A word on contractors, since they're often the line that moves fastest. When a project falls behind, freelancers get added quickly and documented loosely. Make sure the people you're paying as contractors really are contractors. Your file decides that, not the title.

Should the Margin Number Drive the Delivery Lead's Bonus?

Eventually, maybe. Not first. If you tie pay to project margin on day one, you'll get people padding budgets and fighting reasonable client requests.

Start by making the number visible and reviewing it together for two or three quarters. Once the budgets are honest and the reviews are a habit, a margin component in the bonus is fair. Keep it next to quality and client retention, not in place of them. A delivery lead who hits margin by shipping weak work hasn't helped you.

Who Is This Not For?

If you're a five-person shop where the owner touches every project, you're already the delivery lead. Build the one-page P&L for yourself first.

This is for marketing and PR agency owners with project work, a growing team, and a P&L that looks fine in total while you've got a nagging feeling that some projects don't.

Frequently Asked Questions

How do you measure project profitability at an agency?

Subtract pass-through costs from the fee to get project AGI. Then subtract labor at loaded cost and contractor spend. Divide what's left by project AGI to get the gross margin percent, and compare it to the budget you set at kickoff.

What is loaded labor cost?

It's what an hour of someone's time actually costs you: their pay plus payroll taxes and benefits, divided by the hours they actually work. It's lower than a billing rate and higher than base pay.

Should a project manager be responsible for project profit?

They should be responsible for the gap between the budget and the actual result, and for change orders. They shouldn't be held to a price someone else set. If the project was sold too cheap, that's a pricing problem.

How often should you review project budgets?

At kickoff, at 25%, 50% and 75% of budgeted hours, whenever the client asks for something new, and in a short review at close. Reviews in the middle of a project are where you can still change the result.

Why does my agency look profitable when some projects lose money?

Because the monthly P&L adds every project together. Strong projects and retainers cover the weak ones, so the total looks fine. You only see which projects lose money when you track each one separately.

Give the Margin an Owner

Hiring someone to own delivery is a great move. Just make sure the job includes knowing whether the work makes money. Build the one-page P&L, read it at the checkpoints, and let your delivery lead fix projects while they're still running.

If you'd like a CPA to look at the numbers behind your agency, including what you're keeping after tax, book a Free Tax Analysis.

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Craig S. Cody is a CPA, Certified Tax Coach, and retired NYPD Lieutenant. His firm works with more than 70 marketing and advertising agency owners every month, helping them keep more of what they make through proactive tax planning.

This article is general education, not advice for your specific situation. Confirm your own facts with your advisor before acting.