Glossary
Fee revenue
The revenue an agency earns for its own services, after deducting pass-through costs such as media spend, production and other third-party charges rebilled to clients. Often called net revenue.
In plain English
Agencies handling media or large production budgets can report gross billings many times the size of the fees they earn. Whether those pass-through costs sit inside reported revenue depends on whether the agency acts as principal or agent under its accounting framework and the contracts; either way, buyers analyse the business on the fee it keeps, so they will want a clear reconciliation from gross billings to reported revenue to net revenue or fee income to gross profit.
Fee revenue is also the base for the margin measures buyers compare, such as gross margin and EBITDA as a percentage of fee revenue.
Why it matters
Gross presentation is not wrong in itself, but presenting gross billings as if they were fee income, or switching between bases from year to year, damages credibility quickly. Presenting fee revenue clearly, reconciled to gross billings and to the statutory accounts, builds trust and lets the business be compared properly with others. Fee income and gross profit are not the same measure in every agency, so define both.
What to watch for
- Reconcile gross billings, reported revenue, fee revenue and gross profit in the management accounts, with definitions.
- Be consistent with how revenue is recognised in the statutory accounts.
- Show margin on fee revenue and on gross profit, not on gross billings.
Transaction language and legal treatment depend on the agreement and the jurisdiction. Written by Motion Advisory Partners as general guidance, not legal advice.