Pass-Through Revenue: The Money That Was Never Yours, With Carson and Kristen

## Points of Interest - **00:01 Introduction and New AI-Driven Call Analysis:** Kristen and Carson introduce a new process where they use Claude to analyze client calls regularly and surface recurring themes for the podcast, starting with today's topic: pass-through. - **01:14 Defining Pass-Through:** Kristen defines pass-through as any money that flows from a client through the agency to another vendor, where the agency isn't responsible for that cost's profitability, citing examples like media spend, print budgets, and stock imagery. - **03:26 Defining AGI and the Formula:** Carson explains Agency Gross Income (AGI) as top-line revenue minus pass-through, emphasizing that a $5 million agency by billings might actually be a $1 million agency once pass-through is removed. - **05:34 Case Study: Media Spend Masking True Agency Size:** Kristen shares an example of a $3 million agency that was really closer to $1.5 million once media planning and buying income was stripped away, due to a messy chart of accounts. - **07:26 Case Study: Off-Balance-Sheet Media Slush Fund:** Kristen describes a second client who kept media dollars off their P&L entirely, creating the illusion of abundant cash on hand and complicating tracking of which funds belonged to which client. - **09:17 Cash Flow Risks of Fronting Pass-Through:** Kristen and Carson discuss how agencies that don't collect pass-through funds upfront risk becoming an unintentional bank for their clients, leading to cash flow trouble. - **10:16 Case Study: Events Agency Mistaking $10M for $2M:** Carson recounts a client who operated as if they were a $10 million agency when 80% of that revenue was pass-through events costs, leaving them a $2 million agency with unsustainable spending habits. - **12:02 Case Study: Understaffing Miscalculation on a $100K Event:** Carson shares a second events example where a team overstaffed a $100,000 event without realizing only $20,000 of that actually belonged to the agency, locking them into a multi-year contract destined to lose money. - **16:26 The Contractor Decision Tree:** Kristen walks through a sequential framework for classifying contractors as pass-through, delivery expense, or shared delivery cost, based on questions about salary status, compensation structure, and cost attribution. - **23:15 Pricing and Estimating Projects with Pass-Through in Mind:** Kristen and Carson explain how to separate people costs from pass-through costs when building project estimates, using breakeven calculations to arrive at a target price with margin. - **25:09 Making Pass-Through Visible on the P&L:** Carson advises working with bookkeepers to separate pass-through from cost of goods sold so agencies can clearly see their AGI rather than having it obscured within a muddled COGS section. - **28:15 Tracking Costs and Empowering Project Managers:** Kristen recommends empowering project managers closest to the delivery work to track and flag cost overruns proactively, rather than leaving pass-through reconciliation solely to bookkeepers or finance. ## Show Notes - Free Agency Toolkit - Parakeeto Foundations Course - Free access to our Model Platform - **Connect on LinkedIn** - Carson Pierce - Kristen Kelly Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.