Chartered Financial Analyst specializing in professional service firm valuation and operations.
Determine how many clients your agency must service each month to cover its total overhead. Enter any three variables—Monthly Fixed Costs, Avg. Client Retainer, Variable Cost per Client, or Breakeven Clients—to solve for the fourth.
Agency Breakeven Calculator
Agency Breakeven Formula
The breakeven formula for a service agency finds the number of clients (Q) it must have for total monthly revenue to equal all fixed and variable costs.
Q = F / (P – V)
Solve for Monthly Fixed Costs (F):
F = Q * (P – V)
Solve for Avg. Client Retainer (P):
P = (F / Q) + V
Solve for Variable Cost per Client (V):
V = P – (F / Q)
Variables Explained
- Monthly Fixed Costs (F): Your total, recurring monthly overhead (e.g., rent, employee salaries, CRM software).
- Avg. Client Retainer (P): Your average monthly revenue per client.
- Variable Cost per Client (V): The direct costs per client (e.g., contractor fees, per-client ad spend, software seats).
- Breakeven Clients (Q): The total number of clients needed to reach $0 in monthly profit.
Related Calculators
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What is an Agency Breakeven Point?
An **Agency Breakeven Point** is the number of clients an agency must retain per month to cover its total costs. It’s the critical line between losing money and being profitable. For an agency, accurately separating fixed and variable costs is the most important step.
**Fixed Costs (F)** are your monthly operational expenses, or “overhead.” This includes all costs that do not change with the number of clients you have, such as office rent, full-time employee salaries (e.g., admin, sales), and general software subscriptions (e.g., your CRM, accounting software).
**Variable Costs (V)** are the costs incurred *specifically because you have a client*. This includes any white-label contractor fees, per-client software seats (e.g., a reporting tool), a portion of ad spend if it’s bundled, or any other direct cost. The **Contribution Margin** (P – V) is your net profit from one client, which then goes to pay down your fixed costs.
This calculator helps you find the number of clients, each contributing this margin, needed to cover your total monthly overhead. Any clients signed *after* this breakeven number generate your agency’s net profit.
How to Calculate Agency Breakeven (Example)
Let’s calculate the breakeven point for a marketing agency.
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Identify Monthly Fixed Costs (F):
The agency has $20,000 in monthly salaries, rent, and general software.
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Identify Avg. Client Retainer (P):
The average client pays a monthly retainer of $5,000.
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Identify Variable Cost (V):
Each client requires $1,500 in white-label contractor work and specific software licenses.
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Apply the Formula: Q = F / (P – V)
First, calculate the contribution margin per client: $5,000 (P) – $1,500 (V) = $3,500.
Next, divide the fixed costs by this margin:
Q = $20,000 / $3,500 = 5.71 -
Conclusion:
The agency must have 6 clients (rounding up) on retainer each month to cover all costs and start making a profit.
Frequently Asked Questions (FAQ)
This is the most common question. Full-time, salaried employees (like an account manager or admin) are **Fixed Costs (F)**. A freelancer or contractor you pay *per client* is a **Variable Cost (V)**. If you assign a salaried employee to a client, their cost is still fixed.
You should use a weighted average. However, for a more accurate analysis, it’s better to calculate your breakeven point based on your *average* or *most common* client retainer size.
It is best to analyze them separately. This calculator is ideal for a retainer-based model. For one-time projects, you can either use the “Project Breakeven Calculator” or (F) as your monthly costs, (P) as your avg. project value, and (Q) as the projects needed *per month*.
Set your (F) (e.g., $20,000), (V) (e.g., $1,500), and a target number of clients (Q) you can service (e.g., 5). Solve for (P) to find your minimum retainer: `P = ($20,000 / 5) + $1,500 = $4,000 + $1,500 = $5,500`. You must charge at least $5,500 per client.