What is Agency Fee ROI?
Agency fee ROI measures the return generated by your marketing or creative agency relative to their fees. It answers the fundamental question: is the agency making you more money than they cost? Compare in-house vs outsourced approaches with the Freelancer vs Agency Calculator and track overall marketing returns with the Marketing ROI Calculator.
The Formula
Agency ROI = (Revenue Attributable to Agency Work − Total Agency Fees) ÷ Total Agency Fees × 100
Worked Example
A digital marketing agency charges a $3,000/month retainer and generates $12,000/month in attributable revenue.
- Monthly agency fees = $3,000
- Monthly attributable revenue = $12,000
- Monthly profit from agency = $12,000 − $3,000 = $9,000
- Agency ROI = ($9,000 ÷ $3,000) × 100 = 300%
📌 The agency delivers a 300% ROI, every $1 in fees generates $4 in revenue ($3 profit). This is strong performance that justifies the retainer.
Why This Matters
Budget justification
A clear ROI calculation turns the agency fee from a "cost" into an "investment" in board conversations. An agency delivering 300% ROI should receive more budget, not less, increasing their budget from $3K to $5K could generate $20K in revenue.
Agency selection
When comparing agencies, ROI is the only metric that matters. A $5,000/month agency delivering 400% ROI is cheaper than a $2,000/month agency delivering 100% ROI. Judge by returns, not fees.
Scope creep prevention
Tracking agency fee ROI by deliverable category (SEO, paid media, creative) reveals which services justify their cost and which are padding the retainer. Companies that audit agency scopes quarterly reduce wasted spend by 15-20% without cutting effective programs.
Common Mistakes
❌ Measuring too early
SEO agencies need 4-6 months to show results. Content agencies need 3-6 months. Paid media agencies should show returns within 1-2 months. Judge each channel on its appropriate timeline, not a blanket 30-day review.
❌ Not separating agency fee from ad spend
If you pay $3,000 in agency fees and $10,000 in ad spend, the agency's ROI should be measured against their $3,000 fee only (managing the ads), not the $13,000 total. The ad spend is a separate investment with its own ROI.
❌ Ignoring communication overhead
Agencies that require 5+ hours/week of your team's time for status calls, feedback rounds, and approvals add hidden internal costs. Factor in your staff time at their hourly rate when calculating the true cost of the agency relationship.
Industry Benchmarks
| Category | Good | Average | Poor |
|---|---|---|---|
| Agency fee as % of ad spend | 10-15% | 15-25% | Above 30% |
| Agency ROI | 300%+ | 150-300% | Below 100% |
| Time to measurable results | 1-2 months | 3-4 months | Above 6 months |
Source: Agency Management Institute Benchmarks
Benchmark data sourced from Agency Management Institute Benchmarks.