Benchmarks · Services / Agency
What investors check first in a services business
Healthy ranges for a services business at an early stage: gross margin 35%–60%, monthly clients churn up to 4%, year 2 delivery cost % of revenue 30%–55%, year 1 project share of revenue (at start) 0%–50%.
How a services business makes money
Clients x retainer + projects x project fee.
That one line is the revenue engine. Every number in it should be something you can measure today and defend with your own data. Investors rebuild it in their heads in the first five minutes, so your model should too.
The benchmark ranges
| Metric | Healthy (green) | Watch (amber) |
|---|---|---|
| Gross margin | 35%–60% | 25%–70% |
| Monthly clients churn | up to 4% | up to 6% |
| Year 2 delivery cost % of revenue | 30%–55% | 20%–65% |
| Year 1 project share of revenue (at start) | 0%–50% | 0%–70% |
Year 2 delivery cost % of revenue. Below ~30% is rare for real services work; above ~60% leaves little margin.
Year 1 project share of revenue (at start). Investors value recurring retainers far more than one-off projects.
Ranges are rules of thumb for early-stage companies, used by the Model Health Score in the Services / Agency edition. They are not market data; check current sources and talk to founders who raised recently.
The drivers in the model
These are the inputs the Services / Agency edition asks for, with the values used for the sample company, Brightforge Studio Ltd. (product design and development studio on monthly retainers). Where a value changes over five years, the first and last are shown.
| Driver | Sample | Why it matters |
|---|---|---|
| Clients at start (month 0) | 8 | Active clients you already have before month 1. |
| Organic / referral new clients in month 1 | 0.6 | Word of mouth, SEO, referrals, partnerships. |
| Organic new-client growth per month | 3% → 2% | Compounds monthly. Above 10% a month needs strong evidence. |
| Paid marketing spend | $3,000 → $20,000 | Ads, sponsorships, paid campaigns (people costs are in Headcount). |
| Paid CAC (cost to win one client via paid channels) | $6,000 → $8,000 | Paid new customers = paid spend / paid CAC. CAC usually rises as you scale. |
| Monthly churn | 4% → 3% | Share of retainer clients lost each month. |
| Retainer per client per month, Year 1 | $7,000 | Average monthly retainer. |
| Annual retainer rate increase | 5% | |
| One-off projects started per month | 1 → 3 | Fixed-fee or time-and-materials projects outside retainers. |
| Average project fee | $25,000 | Recognised in the month the project starts (simplified). |
| Delivery cost (freelancers + delivery staff) | 52% → 45% | Cost of the people who do the client work. 40-60% is common. |
What the sample model looks like over five years
| Brightforge Studio Ltd. | Y1 | Y2 | Y3 | Y4 | Y5 |
|---|---|---|---|---|---|
| Revenue | $1.35M | $2.53M | $4.31M | $6.70M | $9.62M |
| Gross margin % | 47% | 49% | 51% | 53% | 54% |
| EBITDA | -$262k | -$751k | -$810k | -$633k | $188k |
| Cash at year end | $1.08M | $2.70M | $1.75M | $912k | $945k |
| Retainer clients (year end) | 17 | 30 | 49 | 72 | 98 |
| Retainer run-rate (year end) | $1.40M | $2.67M | $4.58M | $7.03M | $10M |
| Headcount (year end) | 9 | 16 | 22 | 28 | 30 |
| LTV : CAC | 6.4x | 4.4x | 4.6x | 4.9x | 5.2x |
| CAC payback (months) | 3.9 | 6.5 | 7.2 | 6.8 | 6.4 |
Fictional sample company, Base case. Figures are illustrative and come from the SAMPLE file of the Services / Agency edition.
Services / Agency terms to know
- Retainer
- A fixed monthly fee for ongoing work.
- Utilisation
- Share of available hours that are billable.
- Delivery margin
- Revenue minus the cost of the people doing client work.