How PPC agencies can calculate margins for ad campaigns

Key takeaways

• True campaign profit is revenue minus all costs, not just ad spend. You must include your team's time, software fees, and overheads to see the real margin.
• Effective PPC agency project cost analysis requires tracking time against specific clients and campaigns. Without this, you're guessing at your most important cost: people.
• Use simple job costing templates to standardise your calculations. This creates consistency and makes project profitability tracking a routine part of your workflow.
• Margin monitoring should happen monthly, at minimum. Compare your estimated project margin to the actual result to spot pricing errors and scope creep early.
• Aim for a minimum 50% gross margin on managed services. This covers your costs and leaves room for profit, reinvestment, and sustainable growth.

What is a PPC agency project cost analysis?

A PPC agency project cost analysis is a breakdown of every expense tied to a specific ad campaign. It goes beyond just the client's ad spend. The goal is to find your true profit by subtracting all your costs from what the client pays you.

For PPC agencies, the biggest hidden cost is almost always your team's time. An analysis forces you to account for hours spent on strategy, setup, optimisation, and reporting. It also includes software subscriptions, any freelance support, and a portion of your office costs.

Without this analysis, you only see top-line revenue. You might think a £5,000 retainer is great, but if it costs you £4,500 in wages and tools to deliver, you're barely breaking even. This process turns guesswork into clear financial data.

Why do most PPC agencies get project costing wrong?

Most PPC agencies focus solely on ad spend and management fees, forgetting their own internal costs. They don't track time properly or allocate software expenses, so they have no idea which clients are actually profitable.

A common mistake is using a standard markup on ad spend. You might add 20% to a client's £10,000 monthly budget and charge £12,000. But if your team spends 40 hours that month managing it, your labour cost could be £2,000. After software, your profit is tiny.

Another error is not accounting for different client complexities. A local e-commerce account with 100 keywords is not the same as a multinational lead gen campaign with 10,000 keywords. They require different effort, but many agencies charge the same percentage fee.

This lack of detailed project profitability tracking means you can't make smart decisions. You might be pouring resources into your least profitable clients while undercharging your best ones. In our work with agencies, this is the number one reason for stagnant profits.

What costs should you include in your analysis?

Include every cost you incur to serve that specific client's PPC campaigns. The main categories are direct labour, direct expenses, and allocated overheads. Missing any of these inflates your perceived profit.

Direct labour is your team's time. You need to know how many hours your strategists, managers, and specialists spend on each client. Multiply those hours by each person's fully burdened hourly rate (their salary plus benefits and employer taxes).

Direct expenses are other costs tied directly to the project. This includes platform fees (like a Google Ads manager account fee), reporting software licences for that client, and payments to freelance designers or copywriters.

Allocated overheads are a share of your general running costs. Think about rent, utilities, accounting software, and non-billable management time. You can allocate these as a percentage of your total revenue or based on headcount.

For example, if your total monthly overhead is £5,000 and Client A represents 20% of your revenue, allocate £1,000 of overhead to their project cost analysis. This shows the full cost of serving them.

How do you track team time for accurate job costing?

You track team time by requiring everyone to log their hours against specific clients and tasks. Use a time-tracking tool that integrates with your project management system. Make this non-negotiable for accurate PPC agency project cost analysis.

Categorise time into tasks like campaign strategy, keyword research, ad copy creation, bid management, performance analysis, and client reporting. This shows you where the effort goes. You might discover reporting takes 30% of the time, prompting you to automate it.

Set a fully burdened hourly rate for each team member. Don't use their raw salary. Add about 20-30% to cover employer National Insurance, pension contributions, and benefits. If someone costs you £50,000 a year, their hourly cost is roughly £30-£35.

Review time logs weekly. Look for clients who are consistently over-serviced or tasks that are taking longer than estimated. This data is the foundation of all your project profitability tracking. Without it, your cost analysis is built on sand.

What does a simple job costing template look like?

A simple job costing template is a spreadsheet or software report that lists all revenue and costs for one project. It has sections for fees, labour, expenses, and a final profit calculation. Using a template standardises your margin monitoring across all clients.

Start with the revenue line. Put the client's monthly retainer or project fee here. Then list the ad spend separately if you are passing it through. Your management fee is your revenue for the analysis.

Next, create a labour section. List each team member, their hours spent on the project, and their hourly cost. The total is your direct labour cost. This is often the largest number.

Then, add a direct expenses section. List items like software fees, freelance costs, and any other direct spends. Finally, add a line for allocated overheads. The template subtracts all costs from revenue to show your net profit and margin percentage.

You can build this in Excel or Google Sheets. Many accounting platforms have built-in job costing templates or project modules. The key is consistency. Use the same template for every client every month.

For a ready-made framework, take our Agency Profit Score — it's a free 5-minute scorecard that gives you a personalised report on your agency's financial health, including visibility into profit margins across your campaigns.

How do you calculate the real margin on a PPC campaign?

You calculate the real margin by taking your management fee, subtracting all your costs, and dividing the result by the fee. The formula is: (Fee - Total Costs) / Fee = Margin %. This gives you the truth about a campaign's profitability.

Let's walk through an example. Your agency charges a £2,000 monthly management fee on a £20,000 ad spend. Your team logs 25 hours servicing the account. With an average hourly cost of £32, your labour is £800.

You also have £100 in software fees for this client. You allocate £300 of your general overhead. Your total cost is £800 + £100 + £300 = £1,200.

Your profit is £2,000 - £1,200 = £800. Your real margin is £800 / £2,000 = 40%. This is what matters, not the 10% fee on ad spend. A 40% gross margin is a healthy target for managed services.

Repeat this PPC agency project cost analysis for every client. You will quickly see which campaigns are stars (high margin) and which are sucking up profit (low or negative margin).

What are the key metrics for project profitability tracking?

The key metrics are gross margin per client, utilisation rate, and cost per hour. Tracking these monthly gives you control over your profitability. They turn subjective feelings about a client into objective data.

Gross margin per client is the most important. It's the percentage profit left after direct costs. As mentioned, aim for at least 50% on managed services. If a client is below 40%, you need to understand why. Is it scope creep or underpricing?

Utilisation rate measures how much of your team's paid time is billable to clients. In a PPC agency, a good target is 65-75%. If it's lower, you have too much internal time. If it's higher, your team is overworked and at risk of burnout.

Cost per hour is your average fully burdened cost for delivery staff. Knowing this number is essential for pricing. If your cost per hour is £35, you know you must charge significantly more than that to make a profit.

Regular margin monitoring using these metrics helps you spot trends. You can see if margins are improving or declining across your client portfolio. This allows for proactive adjustments instead of reactive panic.

How can this analysis improve your pricing?

This analysis shows you exactly what it costs to deliver work, so you can set prices that guarantee a profit. It moves you away from arbitrary percentages on ad spend towards value-based and cost-informed pricing.

First, identify your minimum acceptable margin. Let's say it's 50%. If your PPC agency project cost analysis shows a new type of campaign costs £1,500 to deliver, you know you must charge at least £3,000. (£3,000 - £1,500 = £1,500 profit, which is a 50% margin).

Second, use the data to create service packages. Bundle a set number of hours, specific software, and reporting into fixed-price retainers. Price these packages based on your known costs plus your target profit. This is clearer for clients and more predictable for you.

Third, charge for complexity. If a client wants weekly calls, custom dashboards, or constant testing, those activities take time. Your analysis proves it. You can now justify and price additional fees for "premium" service tiers.

Accurate costing gives you confidence to have pricing conversations. You can show clients the value behind your fee because you understand the work involved. This is how you escape the race to the bottom on price.

What tools can automate margin monitoring?

Several tools can automate the data collection and calculation parts of margin monitoring. The goal is to spend less time compiling spreadsheets and more time acting on the insights.

Time-tracking software like Harvest, Clockify, or Toggl Track is essential. These tools let team members log time to clients and projects. They often integrate with project tools like Asana or Trello. The data feeds directly into your reports.

Accounting software with project features is powerful. Platforms like Xero or QuickBooks Online allow you to assign income and expenses to specific "projects" or "jobs." They can then generate profit and loss reports for each client, which is the core of your project profitability tracking.

Dedicated agency management platforms like FunctionFox or Workamajig go further. They combine time tracking, project management, and financial reporting in one place. They automatically calculate job profitability based on logged hours and costs.

Start with what you have. Even a well-built spreadsheet template is better than nothing. The tool is less important than the discipline of consistently doing the PPC agency project cost analysis. Automation just makes it faster and less prone to error.

How often should you review project margins?

You should review project margins at least monthly. This aligns with most client billing cycles and gives you timely data to make decisions. Waiting until the end of the quarter or year is too late to fix problems.

Make it part of your monthly management accounting routine. After you close the books for the month, run profit reports for each client. Compare the actual margin to what you budgeted or expected.

Look for significant variances. Did a client's margin drop 10% this month? Investigate. Did the team log more hours? Was there an unexpected software cost? Use this review to catch scope creep before it becomes the new normal.

This regular margin monitoring also prepares you for client renewals. When a contract is up for renewal, you have 12 months of data. You can see the true profitability history and negotiate the new fee from a position of knowledge, not guesswork.

For very large or strategic campaigns, you might do a weekly check on hours logged versus budget. This is more about project management than finance, but it prevents cost overruns.

When should a PPC agency get professional help with this?

A PPC agency should get professional help when the founder is spending more time on spreadsheets than on strategy, or when profitability is inconsistent despite good revenue. An expert can set up systems that give you clarity and control.

If you're struggling to build a usable job costing template or get your team to track time accurately, bring in help. A specialist can design a simple process that works for your agency's size and culture. They'll get you started on the right path.

If your margins are a mystery—some months are great, others are terrible—you need an objective review. A professional can audit your pricing and delivery costs to find the leaks. They often spot allocation errors or missed costs that internal teams overlook.

When you're scaling past 10 people, the complexity increases. You have more team members, more clients, and more moving parts. Professional accountants for PPC agencies can implement scalable systems for cost analysis that grow with you.

Ultimately, if financial management is holding back your growth or causing you stress, it's time to delegate. Your focus should be on serving clients and winning business, not untangling cost data. The right support pays for itself through better pricing and higher profits.

Getting your project costing right is a major competitive advantage. It allows you to invest in the right clients, price with confidence, and build a sustainably profitable agency. To get a clear picture of where your agency stands financially, try the Agency Profit Score — answer 20 quick questions and receive insights on your Profit Visibility, Revenue & Pipeline, Cash Flow, Operations, and AI Readiness.