How to calculate agency project recovery rate

What does agency project recovery rate measure?#

Agency project recovery rate compares a project's final service fee with the standard sell value of the time used to deliver it. It is a percentage, not a profit figure.

For this closed-project method, calculate:

Recovery rate = final net service fee ÷ actual time value at standard sell rates × 100.

Standard time value means actual hours multiplied by the relevant role's standard hourly sell rate, with the role values added together. Use sell rates, not salary cost rates: you are comparing the fee with the value of the work, rather than its cost.

The numerator is the final agreed service fee after approved changes and any discounts or fee write-offs, not the client's cash payment. Settle outstanding fee disputes before calling the result final.

ICAEW's guidance on fees and charge-out rates compares fees raised with work valued at full charge-out rates. This method applies that comparison to one completed agency project.

A result below 100% means the fee did not cover the standard time value. A result above 100% means it exceeded that value. Neither result alone proves profit or loss.

Match the fee and time before you divide#

Start with a completed project and its full delivery period. Match all its service fees with all its delivery hours, even when invoices span several months.

For a monthly review, select projects closed that month and include each selected project's lifetime fee and lifetime time value. This keeps the work and its fee together, even if delivery started before the review month. Label this a closed-project group, not monthly earned revenue.

Use these exclusions consistently:

• Exclude VAT from the service fee.
• Exclude pass-through costs, such as client media spend, and their recharges from this labour-only comparison.
• Exclude advance invoices for work outside the selected project or period.
• Exclude unbilled open work and its hours from the closed-project group.

An advance payment for the selected completed project forms part of its final fee. Do not add it again as extra recovery.

For period-based analysis, match fees attributable to that period with time delivered in that same period. Do not divide this month's invoices by this month's hours without that reconciliation.

GOV.UK's invoice guidance lists the supply date, invoice date and VAT amount separately. Use those fields to check your source records rather than treating every invoice total as a service fee.

Keep internal sales and general administration outside project delivery time. Include project coordination, rework and uncharged revisions when they were needed to deliver the project. Do not remove them because someone marked them non-billable.

Our time tracking guides cover the records behind this calculation. Missing time makes recovery look better without changing the work delivered.

Value unequal roles at their own rates#

The following example uses an invented agency, hours, rates and fees to show how the calculation works. These are not benchmarks or observed results.

A digital agency completes a campaign project. Its actual hours include the original scope, an approved addition and uncharged revisions. Its standard rates remain fixed throughout delivery.

Delivery role	Actual hours	Standard sell rate	Standard time value
Strategy lead	20	£150 per hour	£3,000
Designer	60	£100 per hour	£6,000
Production specialist	40	£75 per hour	£3,000
Total	120	Not applicable	£12,000

The denominator is £12,000, because each role contributes its actual hours valued at its own standard sell rate. It is not 120 hours multiplied by a simple average of the three rates.

That simple average would give equal weight to each role, although the designer delivered more hours than either other role. The weighted standard rate is £12,000 ÷ 120 = £100 per hour.

Freeze the standard rate basis before reviewing the result. Record its effective date so you can check which rates belong to the work under review. If standard rates changed during delivery, apply the documented rate for each time entry's period consistently.

Do not replace standard rates with a discounted project rate after the event. That would hide the pricing concession you want to measure.

Build a recovery bridge without counting scope twice#

A recovery bridge explains each movement from standard time value to the final fee. Keep evidence beside each adjustment.

In this illustrative example, the original scope used £10,000 of standard time value. The approved addition used £2,000. Those amounts already make up the role table's £12,000 total.

The original agreed fee was £9,000, while the approved addition carried a £1,500 fee for its £2,000 of standard time value. A later service credit reduced the fee by £300.

Bridge step	Adjustment	Running value
Actual time at standard sell rates	Starting value	£12,000
Remove approved addition's standard time value	−£2,000	£10,000
Reconcile original-scope time value to agreed fee	−£1,000	£9,000
Add approved change fee	+£1,500	£10,500
Apply final service credit	−£300	£10,200

Recovery is therefore £10,200 ÷ £12,000 × 100 = 85%. The recovery gap is £1,800.

The change accounts for £500 of that gap: £2,000 time value less its £1,500 fee. The remaining gap consists of the £1,000 original-scope difference and the £300 service credit, which together explain the rest of the reduction.

Do not deduct another £500 for the change, because the bridge already includes the difference between its time value and fee. Likewise, do not deduct uncharged revision time again if it already explains the original-scope difference.

In this example, the £1,000 might contain an initial discount, underestimated effort or rework, but only records can support that split. Until you verify the cause, call it an unexplained difference.

Here, a fee write-off means a decision to reduce the service fee. Keep an unpaid debt separate unless you explicitly choose a different recovery definition.

Keep recovery separate from other measures#

Each measure answers a different question. Use the same fee and time boundaries when comparing them.

Effective hourly rate is fee divided by hours. In this illustrative example, it is £10,200 ÷ 120 = £85 per hour. Recovery compares that fee with role-weighted standard value instead.

Our guide to effective hourly rate on fixed fee projects explains that measure. Equal effective hourly rates can produce different recovery rates when the role mix differs.

Utilisation compares billable hours with available working hours under your chosen policy, so it measures capacity use rather than fee recovery. A busy team can still deliver more standard time value than its fee covers.

Collection concerns payment of amounts due. An unpaid invoice does not automatically reduce this fee-based recovery rate. Report overdue balances separately.

Profit requires delivery costs and a stated treatment of overhead, neither of which this comparison of fees and standard sell value provides. Recovery cannot replace a margin calculation.

Billing timing concerns when you issue invoices. An early invoice can improve billed totals before the team delivers the work. It does not improve the final project's recovery.

If standard time value is zero, recovery is undefined, not zero. Check missing hours and missing rates. For a valid non-zero denominator and zero final fee, recovery is zero.

Use the gap to change one decision#

The following review process is a recommendation, not an empirical finding. Keep the calculation separate from the decision about its cause.

First, check missing entries and rates. The guide to finding unpriced billable time helps distinguish missing pricing data from work deliberately supplied without an extra fee.

Next, check the agreed scope against revision records. A fee discount calls for a pricing decision. Extra review rounds call for a clearer allowance or an approved change.

For an agency total, divide summed final fees by summed standard time values so that each project contributes according to its standard time value. Do not average project percentages. A small project must not carry the same weight as a large one.

Compare projects with similar services and a consistent rate basis. A rate increase alone can reduce reported recovery even if hours and fees stay unchanged. Explain that movement before judging delivery.

Korrel can track time against project line items and delivery roles, using rates carried from the estimate. It does not create invoices or collect payments. Prepare this reconciliation separately; it is not an automated recovery report.

Create a Korrel account to record the project time and rates you need for your next closed-project review.