As your agency has grown, you’ve likely added or are planning to add a dedicated account management function to your staff to help grow and nurture your existing clients. You’ve likely also run into the question of where in your P&L statement to place the cost of a function that straddles delivery and sales.
Are account managers part of your operational overhead? Should some of their cost be included in the direct costs of delivering your service (COS*)? Misclassifying these costs can distort your finances, making it harder to evaluate your agency’s profitability and track client-specific margins.
Understanding where account managers fall in your cost structure helps you make more informed pricing, margins, and staffing decisions. It also provides clarity when reviewing your financial health, helping you see where resources are truly going. The way you categorize your spend for staff in an account management function should align with how you expect account managers to add value to your agency. That way, the ROI on the function can be measured appropriately - either in profitability if you determine they align closer with service delivery or in metrics related to revenue duration and expansion if they align more closely with sales.
The truth is, not all account manager time is created equal. Some of it is spent in administrative tasks—sending invoices, managing client relationships, and attending internal meetings. That’s clearly Operating Expenses (Opex). But in many agencies, account managers also spend time on more strategic work: having more strategic conversations with their clients, providing high-level delivery oversight, and ensuring that major initiatives stay on track and up to the agency’s delivery standard. This kind of work is service delivery, and thus it’s more appropriate to classify a portion of their salary under Cost of Service (COS).
You don’t need to split their cost based on actual hours. Instead, split their costs based on an educated guess about what percentage of their work is directly tied to service delivery and what’s more administrative.
As a starting point, we recommend a 75/25 split—with 75% going to Opex and 25% to COS. This breakdown should give you a clearer picture of how much you’re really spending to deliver client work. But this ratio should be tailored to fit your agency. If your account managers are more hands-on with strategy and service delivery, the COS portion may need to be higher. Conversely, if they’re primarily administrative, you may find a lower percentage in COS makes more sense. Start by looking at the job description you used to hire the role, and how they track their time. Don’t introduce the operational complexity of splitting costs based on individuals' actual hours. A SWAG will do!
The key takeaway is that understanding this split for your agency—and then categorizing their costs accordingly—can help you run a more financially healthy agency. It gives you more accurate profitability metrics, which in turn helps you price your services more effectively and manage resources better. And it gives you a better idea of the true cost of account management, providing you a better basis to evaluate whether adding the function has been a successful path to growth for you or not.
*We usually abbreviate this as COS - Cost of Service - but some agencies use COGs - Cost of Goods Sold
Want to talk about how your agency can best go about recognizing revenue and expenses in a way that will give you the control you need to grow in a sane, scalable way? Reach out!