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Are You Calculating Your Agency’s Profits Correctly? | EP 3

Release Date: 07/15/2025

The Six Levers of Profitable Client Engagements | EP20

The AgencyHabits Podcast

Running an agency is an exercise in risk management. In this episode, hosts Peter Kang and Sei-Wook Kim break down the most significant threats that can jeopardize an agency's survival. They move beyond daily annoyances to focus on the high-impact risks that can truly put a business in danger. Using a simple risk matrix framework, Peter and Sei-Wook categorize and explore nine critical vulnerabilities, from founder burnout and partner conflict to client concentration and strategic misalignment. They provide actionable advice on how to identify, prepare for, and mitigate each risk, sharing...

Learning From Other Agency Owners | EP19

The AgencyHabits Podcast

Great agencies are not built in isolation. In this episode, Peter Kang and Sei-Wook Kim explore the transformative power of community and peer learning for agency founders. The hosts share their personal journey from working in a silo to actively seeking mentorship and joining dedicated communities, revealing how these connections helped them avoid blind spots, gain crucial perspective, and accelerate their growth. Peter and Sei-Wook break down specific communities that have been instrumental to their journey, including Bureau of Digital, Society of Digital Agencies (SoDA), and Collective 54....

Why Agencies Rely on Referrals But Few Treat It as a System | EP18

The AgencyHabits Podcast

Most agencies say they rely on referrals, but few treat them as a system. In this episode, Peter Kang and Sei-Wook Kim dismantle the "hope-based" approach to referrals and lay out a strategic framework for building a consistent pipeline. Drawing from the book The Referral Code, they redefine referrals as a transfer of goodwill and share actionable tactics for intentional referral generation. Peter and Sei-Wook cover how to identify the right people to ask, the critical importance of timing your ask within a "state of appreciation," and how to craft effective, open-ended questions. They also...

How Agencies Should Think About and Manage Risk | EP 17

The AgencyHabits Podcast

In this episode, hosts Peter Kang and Sei-Wook Kim break down the six fundamental levers that drive profitability across all client engagements, whether you run fixed-fee projects, retainers, or long-term service programs. Drawing from real challenges within their own portfolio at Barrel Holdings, Peter and Sei-Wook provide a practical framework for diagnosing and fixing margin compression. They start by defining gross margin and then explore each lever in detail: from pricing and scoping to staffing, engagement design, scope management, reusable IP, and the role of automation and AI. The...

Scaling Your Agency Beyond $2M | EP 16

The AgencyHabits Podcast

In this episode, Peter Kang and Sei-Wook Kim dissect why agencies hit this wall and what you can do to break through. They explain how founder-centric systems that work at a smaller scale become the primary constraint to growth, leading to breakdowns in client delivery, team management, and financial visibility. The hosts share actionable solutions, from improving onboarding and implementing debrief processes to strategically hiring for your weaknesses and deepening financial rigor. They also introduce the Agency Systems Playbook, a framework of five core systems that drive a scalable agency....

How Agencies Can Be Better at Marketing Themselves | EP 15

The AgencyHabits Podcast

In this episode, hosts Peter Kang and Sei-Wook Kim tackle a common agency pitfall: treating marketing as a short-term, reactive effort only when leads dry up. They argue for a fundamental mindset shift, framing marketing as a long-term investment in reputation and awareness, similar to the compounding benefits of consistent exercise. Peter and Sei-Wook first outline the "basics" of agency marketing: from social posts and case studies to newsletters and events, and then dive deep into six specific, unconventional examples. They share their own experiences with a 24-hour website challenge and...

[REPLAY] Why & How to Prune Your Client Roster for Agency Growth | EP 19

The AgencyHabits Podcast

Holding on to the wrong clients can stunt your agency's growth, drain your team's morale, and cripple your profitability. This statement holds value for agency owners who are overwhelmed by client demands, feel trapped by early, problematic clients, or are struggling to focus their service offerings for maximum impact. In this episode, Peter Kang and Sei-Wook Kim tackle the difficult but essential practice of proactively reviewing and pruning your client list. Drawing from Barrel's own journey of specialization, they provide a clear-eyed framework for evaluating which clients are worth...

[REPLAY] How Much Cash Should Your Agency Keep on Hand? | EP 18

The AgencyHabits Podcast

Profit on paper doesn't pay the bills. Learn the best practices for designing payment terms and invoicing cadences to create a smooth, predictable cash flow. In this episode, Peter Kang and Sei-Wook Kim tackle one of the most critical yet misunderstood aspects of running an agency: cash flow management. They break down the dangerous gap between your P&L's accrual-based profitability and the real money in your bank account, explaining why even "profitable" agencies can face insolvency. Peter and Sei-Wook share hard-earned lessons from their own journey, including how much cash reserve is...

[REPLAY] How Specialization Impacts Your Agency’s Growth, Margins, and Valuation | EP 16

The AgencyHabits Podcast

Is your agency a "jack-of-all-trades, master of none"? In this episode, hosts Peter Kang and Sei-Wook Kim dive deep into the transformative power of agency specialization. They break down the critical difference between internal specialization and external positioning, and reveal why narrowing your focus is the ultimate growth accelerator for agencies under $10M in revenue. Peter and Sei-Wook share Barrel Holdings' own journey from a generalist agency serving investment banks and nail salons to a specialized leader in the Shopify CPG space. They provide a clear-eyed view of the trade-offs...

[REPLAY] Are You Calculating Your Agency’s Profits Correctly? | EP 15

The AgencyHabits Podcast

Agency profitability isn’t always what it seems. In this episode, Peter Kang and Sei-Wook Kim break down how to really evaluate your agency’s profit. The hosts also talks about why two agencies reporting the same margins can mean totally different things. They unpack the difference between EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and SDE (Seller’s Discretionary Earnings), showing how owner salaries, distributions, and “normalization” adjustments can completely change the story. Whether you’re thinking about selling your agency or just want a clearer...

More Episodes

In this episode, Peter Kang and Sei-Wook Kim tackle one of the most confusing aspects of agency financials: how to properly calculate profitability. They break down the critical difference between SDE (Seller's Discretionary Earnings) and EBITDA, explaining why these metrics can paint vastly different pictures of the same business.

Using concrete examples and spreadsheet walkthroughs, they demonstrate how owner salary calculations can dramatically impact reported profitability margins…sometimes swinging from 15% to 40% depending on how compensation is structured. This episode is essential for any agency owner who wants to understand their true financial performance and how acquirers evaluate businesses.

You'll learn why a "normalized" view of profitability matters, how replacement cost thinking changes valuation conversations, and why scale affects the relationship between owner compensation and overall margins.

Key Moments
1. Defining SDE vs. EBITDA and why the distinction matters for agency owners
2. Breaking down a sample P&L to show real-world profitability calculations
3. How owner salary manipulation can inflate or deflate EBITDA percentages
4. The "replacement cost" framework for normalizing owner compensation
5. Why these calculations become less volatile as agencies scale to $10M+ revenue
6. How Barrel Holdings adjusts for owner salary when evaluating acquisitions
7. The importance of understanding your true role and replacement value

Real Talk Takeaways
1. SDE includes owner compensation; EBITDA doesn't - know which metric you're using
2. Owner salary swings can create 10-20% margin differences in smaller agencies
3. Replacement cost thinking is key…what would you pay someone to do your job?
4. Scale reduces volatility - larger agencies see smaller percentage swings from owner comp
5. Normalize before you negotiate. Buyers will adjust your numbers anyway
6. 40% "profit" might actually be 25% EBITDA when properly calculated
7. Context matters. Highly involved owners need higher replacement cost estimates

Timestamps
00:00 – Welcome to Agency Habits
00:18 – Why profitability discussions often aren't apples-to-apples comparisons
00:44 – Defining SDE (Seller's Discretionary Earnings) vs. EBITDA
01:12 – The importance of understanding these different calculation methods
01:59 – Walking through concrete spreadsheet examples
02:11 – Sample P&L breakdown: $1M revenue agency with $500K COGS
02:35 – What constitutes COGS in an agency business
03:10 – SG&A expenses and how owner salary factors into calculations
03:56 – SDE calculation: adding back owner salary for 40% margin
04:26 – Why owners might take distributions instead of fixed salaries
05:18 – EBITDA scenarios: how different owner salaries create different margins
06:11 – The "too low" scenario: $65K salary inflating EBITDA to 33.5%
06:40 – The "too high" scenario: $250K salary depressing EBITDA to 15%
07:48 – How Barrel Holdings normalizes owner salary for fair comparisons
08:23 – The replacement cost framework for owner compensation
09:27 – Adjusting EBITDA calculations based on realistic replacement costs
11:01 – Why Barrel Holdings requires 15% EBITDA using their calculation method
11:45 – How these calculations change dramatically at scale
12:19 – $10M revenue example: why percentages converge at larger scale
13:20 – When owner salary becomes negligible in large, structured agencies
13:49 – The importance of understanding owner role and replacement cost
14:06 – Practical advice for agency owners on calculating true profitability

Notable Quotes
"It's not always clear what they mean. Are they talking about their profit after paying them a market salary? Are they excluding their comp? Is that inflating their numbers?"
"We're really thinking about what is the replacement cost of that person and making sure that's accurately reflected in the EBITDA."
"Just because your SDE is 400K doesn't mean you're pocketing 400K because there is something to be paid to Uncle Sam."

Links & Resources
Peter Kang on LinkedIn: https://www.linkedin.com/in/peterkang34/
Sei-Wook on LinkedIn: https://www.linkedin.com/in/seiwookkim/
AgencyHabits Website: https://www.agencyhabits.com/
AgencyHabits on LinkedIn: https://www.linkedin.com/company/agencyhabits/
Barrel Holdings Website: https://www.barrel-holdings.com/
Barrel Holdings LinkedIn: https://www.linkedin.com/company/barrel-holdings/

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