The 33/33/33 Framework for Agency Profitability

January 21, 2026

Two years ago, I sat across from an agency owner who was at his wit’s end.

His business had done $600,000 in revenue the year before. Seven-figure run rate. Growing fast. Impressive list of clients.

And he had paid himself exactly zero dollars.

Not a small salary. Not “barely enough.” Zero. Nada.

Meanwhile, his team was well-paid. His contractors were happy. His clients were happy. Everyone was winning except the person who built the whole thing.

When I asked him why, he said what almost every agency owner says: “The business needs it more than I do. Once we make a bit more and things smooth out, I’ll pay myself.”

Here’s the problem: Things never smooth out when you don’t have a structure for how money should flow through your business.

You’re not running a charity. You’re running a business. And if you don’t know where your money should go, it’ll go everywhere except your pocket.

That’s where the 33/33/33 Framework comes in.

The Problem With How Agencies Think About Money

Most agency owners measure success by revenue.

“We did $400K last year!” sounds impressive at a networking event. But revenue means nothing if you’re not keeping any of it.

I see this pattern constantly.
Year one, you do $200K and take home $80K. Not bad. Year two, you double revenue to $400K and somehow take home $60K. Wait, what? Year three, you hit $600K and you’re making less than your lowest-paid employee. I swear, it happens every time.

What happened?

You added team. You added tools. You added expenses. But you never added a framework for how much of your revenue should actually land in each bucket.

So your COGS crept up. Your overhead exploded. And your profit got squeezed into whatever was left over – which was nothing.

The trap is thinking “I’ll just work harder and bring in more revenue.” But without a structure, more revenue just means more expenses and you’re still broke as hell.

What’s missing is a clear answer to this question: Every dollar that comes in, where should it go?

The 33/33/33 Framework

Here’s the simple answer:

33% = Cost of Goods Sold (COGS)
This is what it costs you to actually deliver the work. Your delivery team, contractors, project-specific expenses.

33% = Operating Expenses (OpEx)
This is what it costs to keep the lights on. Rent, software, marketing, admin costs – everything that’s not directly tied to client delivery.

33% = Profit
This is what YOU take home as the owner. Salary, distributions, tax reserves, reinvestment.

That’s it. Three buckets. Equal thirds.

Now, I know what you’re thinking: “But Pete, my business doesn’t break down that cleanly.”

You’re right. Most don’t – at first. But that’s because you’ve never had a target to aim for.

The 33/33/33 Framework isn’t describing how your business works today. It’s showing you how a healthy, sustainable service business should work.

And here’s the critical piece most people miss: Your compensation as the owner is profit, not an expense.

You’re not an employee. You’re the owner. Your take-home comes from the profit bucket – and if there’s no profit, you don’t get paid. That’s the reality you’re already living. The framework just makes it visible.

A Quick Note About Accounting

Before we go further, I need to address something that might confuse you when you talk to your CPA or bookkeeper.

Many accountants put owner salary in Operating Expenses. From a pure accounting standpoint, they’re not wrong; it shows up as payroll on your books.

But for the purpose of understanding your business profitability, that doesn’t work.

Here’s why: When your salary sits in OpEx, it gets lumped in with rent, software, and office supplies. It makes your overhead look inflated and your profit look artificially low, when the reality is you may be taking home a healthy amount, you just can’t see it clearly.

For the 33/33/33 Framework, we’re moving owner compensation into the Profit bucket.

This isn’t about overriding your CPA’s bookkeeping. Your books can stay exactly as they are for tax purposes.

This is about giving you a clear picture of what’s actually happening in your business:

What does it cost to deliver the work? (COGS)
What does it cost to keep the lights on? (OpEx)
What are you actually keeping? (Profit – including what you pay yourself)

So when you run this exercise, reclassify your owner compensation as profit. Add it to whatever’s left over after COGS and OpEx.

That’s your real profit number. That’s what you’re actually taking home.

And that’s the number that needs to hit 33%.

Breaking Down Each Third

The COGS Third (33%) – What It Costs to Deliver

This bucket includes everything directly tied to fulfilling client work. Your delivery team payroll – designers, developers, account managers, project managers, anyone actually doing client work. Payroll taxes and benefits for those folks. Contractor and subcontractor costs. Direct project expenses like stock photos, hosting for client sites, project-specific plugins.

What does NOT go here? Your salary (that’s profit, remember?). Your marketing team – that’s OpEx. Software you use to run your business? Also OpEx.

Simple rule: if it touches client work directly, it’s COGS. If it doesn’t, it goes somewhere else.

Example:
$600K annual revenue × 33% = $198,000 maximum you should spend on delivery costs.

If you’re spending $400K on delivery, you’ve got a problem. Either you’re overdelivering (scope creep), underpricing (charging $5K for $10K of work), paying too much to your contractors and team, or running an inefficient delivery process.

The OpEx Third (33%) – What It Costs to Run

This bucket is everything else that keeps your business operating. Rent and utilities. Software and subscriptions – your project management tools, design software, CRM, accounting. Your marketing and sales costs like ads, events, your website. Administrative stuff like bookkeeping, legal, insurance. General overhead. And yes, a great coach. (Not me, obviously. Someone else. Kidding!)

What doesn’t go here? Anything directly tied to client delivery – that’s COGS. And your owner compensation – that’s profit, not an expense. We covered this.

This is where most agencies hemorrhage money. Fifteen software subscriptions you barely use. Office space you don’t need. Marketing spend with no ROI. A thousand little expenses that feel small but add up to six figures.

Example:
$600K annual revenue × 33% = $198,000 maximum in operating expenses.

If your OpEx is at 40% or 50%, you’ve got bloat. And that bloat is coming straight out of your pocket.

The Profit Third (33%) – This Is Yours

This is the whole point of running a business.

Out of this bucket, you pay yourself: salary, owner’s draw, distributions, whatever structure works for you. You set aside tax reserves (because owing the IRS $40K in April is not a strategy – ask me how I know). You reinvest in growth when it makes sense: new hires, new tools, new capabilities. And you build a safety net, because every business has slow months and pretending yours won’t is just fantasy.

Example:
$600K annual revenue × 33% = $198,000 profit.

Let’s say you take $150K as owner compensation and leave $48K in the business for taxes and reserves. That’s a healthy, sustainable model.

But here’s what I see instead: Owners taking $40K and leaving $8K for “emergencies” while their team makes $80K+.

That’s not generosity. That’s martyrdom. And it doesn’t help anyone when you burn out in two years.

How to Apply This to Your Business Right Now

You don’t need to wait until next year or “when things calm down” to start using this framework. Here’s what to do today:

First, pull your P&L. Get your Profit & Loss statement for the last 12 months – or year-to-date if you’re mid-year. If you don’t have one, stop reading. Seriously. Go get it from your bookkeeper or QuickBooks. I’ll wait.

Got it? Good.

Now reclassify everything. Go line by line and put every expense into one of three buckets: COGS (delivery costs), OpEx (overhead), or Profit (what you actually took home). Be brutally honest here. Don’t put your salary in OpEx because it feels weird to call it “profit.” Don’t bury team payroll in “general expenses” because you don’t want to face the number. Get it right or this whole exercise is pointless.

Next, calculate your percentages. Divide each bucket by your total revenue.

Most agencies I work with discover something horrifying. COGS at 65% – yikes. OpEx at 28% – not terrible. Profit at 7% – and there it is. That’s why you’re broke.

Now you know where you’re bleeding.

So what do your numbers tell you?

If COGS is over 40%, you’ve got a pricing problem, a delivery efficiency problem, or both. You’re either undercharging for the work you’re doing or overdelivering on what you sold. Probably both, if I’m being honest. This is the most common issue I see – people doing $10K worth of work for $5K because they’re afraid to charge what it’s actually worth.

If OpEx is over 40%, you’ve got bloat. Plain and simple. Time for what I call the 10% challenge: find 10% of your annual expenses and cut them. Ruthlessly. Cancel the subscriptions you forgot you had. Renegotiate contracts you’ve been too lazy to revisit. Move to a cheaper office or go fully remote. I promise you won’t miss most of it.

If Profit is under 20%, here’s the hard truth: you’re subsidizing everyone else’s paycheck with your own sacrifice. Your team is comfortable. Your contractors are happy. And you’re the one lying awake at 2am wondering how you’ll make payroll. That’s not noble. That’s not generous. It’s just bad business.

One Important Distinction

The 33/33/33 framework works best for agencies in the $200K-$800K range. As you scale past $1M, your margins will almost certainly shift. COGS might rise to 40-45% as you build a larger delivery team, while OpEx drops to 25-30% thanks to economies of scale, giving you a bit less profit. And not all of that profit lands in your pocket as owner compensation. You’ll reinvest more, reserve more for taxes, build bigger cash cushions. The principle framework stays the same: know your numbers, protect your margins, pay yourself well. The exact percentages evolve as you grow.

The 90-Day Action Plan

You’re not going to fix this overnight. That’s okay.

The goal isn’t to hit 33/33/33 by next month. The goal is to move each category 5-10% closer over the next 90 days.

If you’re at 65% COGS:
Raise your prices on the next three proposals. Don’t negotiate scope creep. Tighten delivery timelines. Get to 55%, then 45%, then 35%.

If you’re at 40% OpEx:
Cut $2,000/month in expenses this quarter. That’s $24K/year back in your pocket.

If you’re at 7% Profit:
Set a goal to hit 15% this quarter, then 25% next quarter, then 33%.

Progress, not perfection.

What This Looks Like in Real Life

That agency owner I mentioned at the beginning? The one paying himself nothing on $600K revenue?

Here’s what we found when we ran his numbers:

COGS: 61% ($366K – way too high)
OpEx: 27% ($162K – not bad)
Profit: 12% ($72K – not enough)

We made three changes over 18 months:

1. Raised prices across the board (new clients paid 40% more, existing clients got 15% increases at renewal)
2. Cut $30K in annual expenses (software bloat, unused subscriptions, contractor redundancy)
3. Hired smarter (stopped hiring full-time for part-time needs)

Two years later, his revenue was at $800K. But more importantly:

COGS: 50% ($400K)
OpEx: 22% ($176K)
Profit: 28% ($224K)

He paid himself $150K that year. He had $74K left in the business for taxes, reserves, and reinvestment.

Same dude. Same work. Different structure.

He didn’t double his revenue to double his take-home. He just stopped leaving money on the table.

The Truth About Profitability

Here’s what I need you to understand:

You didn’t start your agency to be broke as hell.

You started it for freedom. Flexibility. Control. The ability to build something that serves you AND your clients.

But none of that works if you’re running on fumes.

The 33/33/33 Framework isn’t about being greedy. It’s about being sustainable.

You can’t serve your clients well when you’re stressed about money. You can’t build a great team when you’re resenting their paychecks. You can’t grow your business when there’s no margin for investment.

Healthy profit margins aren’t selfish. They’re the foundation of everything else you’re trying to build.

Here’s what I want for you: I want you to check your bank account on a random Tuesday and feel good about what you see. I want you to pay your team well AND pay yourself well. Not one or the other. I want you to take a vacation without checking Slack every twenty minutes because you’re terrified something will fall apart.

That’s not greed. That’s not “hustle culture.” That’s just a business that actually works.

You built this thing. You deserve to benefit from it.

Now go pull your P&L and find out where the money’s been hiding.

And if you get stuck? You know where to find me.