Last Updated: November 2025
Disclaimer: This guide provides general information only and does not constitute tax, legal, or financial advice. Superannuation rates, contractor classification tests, and instant asset write-off thresholds change regularly. Always verify current requirements at fairwork.gov.au and ato.gov.au, and consult with a registered tax agent and legal adviser for advice specific to your circumstances.
Marketing and advertising agencies face unique bookkeeping challenges that differ substantially from traditional businesses. Unlike retail or professional services, agencies must recognise retainer revenue correctly, track media spend and client reimbursements, manage freelancer vs employee classifications, calculate project profitability by client, and handle complex commission structures for account managers.
Industry data shows that marketing agencies have failure rates of 30-40% within the first three years, with cash flow mismanagement and poor project profitability tracking cited as major contributing factors. Agencies often have strong top-line revenue but weak profitability because project costs, freelancer expenses, and media spend are not allocated correctly.
This comprehensive guide explains how to manage bookkeeping for marketing and advertising agencies in Australia, covering retainer revenue recognition, media buying and reimbursements, freelancer management, project profitability, and the specific requirements that separate agency bookkeeping from general business accounting.
Marketing agencies require a specialised chart of accounts separating retainer revenue, project fees, media commissions, and creative production costs.
Agency revenue should be separated by type and client arrangement:
Retainer Revenue:
Project Revenue:
Media and Production Revenue:
Other Revenue:
This separation allows you to analyse revenue by type, calculate monthly recurring revenue from retainers, identify which services deliver best margins, and track client profitability.
Marketing agencies have specific expense categories:
Direct Project Costs (billable or allocated to clients):
Staff Costs:
Media Spend (client billable):
Software and Tools:
Occupancy and Overheads:
For project-based work, WIP represents creative development, production costs, and time incurred but not yet billed.
Current Assets:
When you invoice the client, WIP transfers to Accounts Receivable and corresponding revenue is recognised.
For retainers paid in advance, deferred revenue represents payments received for services not yet delivered.
Current Liabilities:
As you deliver service each month, deferred revenue is released to income.
Retainer arrangements are common in marketing agencies, providing predictable monthly revenue but requiring correct accounting treatment.
Client pays at end of month for services provided during the month.
Example: Social media management retainer
Accounting treatment: Create accounts receivable at month end for services provided but not yet invoiced.
Client pays at start of month for services to be provided during the month.
Example: Digital marketing retainer
Accounting treatment: When payment received on 1st, record as deferred revenue. Release to revenue over the month (or in one entry at month end for simplicity).
Client pays for 3, 6, or 12 months of services in advance.
Example: Annual retainer paid upfront
Accounting treatment:
Retainers typically include defined scope (hours, deliverables, channels). Work outside scope is billed separately.
Example: Social media retainer
Track base retainer and variations separately to understand true scope and prevent scope creep.
Marketing agencies often manage media buying for clients. Correct treatment of media spend is critical for profit reporting and GST compliance.
Agency buys media, marks up, and bills client. Agency is principal in the transaction per GST Ruling GSTR 2000/10.
Example: Facebook advertising campaign
Revenue recognition: Record $24,000 as revenue, $20,000 as media cost, $4,000 as gross profit.
GST treatment: Charge client GST on full $24,000. Claim input tax credit on $20,000 paid to Facebook. Net GST payable on $4,000 margin.
Agency places media on behalf of client, client reimburses actual cost. Agency charges separate management fee per GSTR 2000/10 agency principles.
Example: Google Ads management
Revenue recognition: Record only $2,250 management fee as revenue. The $15,000 media spend is recorded as client reimbursement (not revenue or expense).
Accounting treatment:
GST treatment: Charge GST only on $2,250 management fee. The $15,000 reimbursement is GST-free as a reimbursement of expenses per Division 111 of the GST Act.
The distinction depends on commercial substance and control:
- Principal: Agency has control over media placement, negotiates rates, takes inventory risk, client pays agency (not media vendor).
- Agent: Agency acts on client's behalf, client has direct relationship with media vendor (even if agency places), agency simply facilitates.
For most Australian agencies managing digital media (Facebook, Google, LinkedIn), agency is typically treated as agent, recording only management fees as revenue.
Marketing agencies heavily use freelancers for copywriting, design, photography, and video production. Misclassifying employees as freelancers creates significant financial and legal risks.
Per ATO practical compliance guideline PCG 2023/2:
Factors indicating genuine contracting:
Factors indicating employment:
If freelancer is actually an employee, you must pay superannuation guarantee (12% current rate).
Example: Designer paid $80,000 annually as "freelancer" but actually employee
These matters may warrant legal advice if classification is uncertain.
Genuine freelancers typically use these payment models:
Project-based: Fixed fee for defined deliverables (logo design $2,500, video production $8,000, website copywriting $3,200)
Day rate: $600-$1,200 per day depending on expertise (senior designers, art directors, strategists)
Hourly rate: $80-$200 per hour for smaller engagements
All payments should be via invoice against ABN, not through payroll.
Marketing agencies must track profitability by client and project to identify which work is profitable and which is destroying value.
Direct costs (attributable to specific client or project):
Overhead costs (support the business but not attributable to specific projects):
For accurate project profitability, allocate a portion of overhead to each project using a consistent method (percentage of revenue, percentage of direct costs, or hours worked).
Example: Brand campaign for Client A
If agency targets 35% gross margin, this project underperformed.
Track profitability by client across all retainers and projects.
Example: Client B monthly profitability
Track monthly to identify clients with strong margins vs weak margins.
Many agencies pay account managers base salary plus commission on revenue or profit they generate.
Account manager earns commission as percentage of client revenue they manage.
Example: Account manager compensation
Accounting treatment: Record base salary monthly. Accrue commission monthly based on client billings. Pay commission quarterly or annually.
Account manager earns commission based on gross profit from their clients.
Example: Account manager compensation
This structure incentivises profitable work, not just high revenue.
Sales or business development staff earn commission for winning new clients.
Example: New business commission
Track separately from ongoing account management commission.
Marketing agencies commonly incur various expenses in the course of earning business income. Whether these expenses are deductible depends on your specific circumstances and how they relate to your income-earning activities. This section provides general examples only - always consult your registered tax agent for advice specific to your situation.
Common business expenses marketing agencies may incur include:
- Professional costs: Professional indemnity insurance, professional memberships (Australian Marketing Institute, ADMA), industry certifications
- Creative software and tools: Adobe Creative Cloud subscriptions, stock photography and video subscriptions, design tools, social media management tools, SEO and analytics tools
- Professional development: Marketing conferences and events, creative courses and workshops, industry training
- Equipment: Computers, cameras, video equipment, lighting. Current instant asset write-off threshold is $1,000 for businesses with aggregated turnover under $10 million. Assets above this are typically depreciated. Check ato.gov.au for current thresholds and rates.
- Home office: If working from home with dedicated space exclusively for business
- Motor vehicles: For account managers and sales staff attending client meetings
- Client entertainment: Note that entertainment expenses have specific rules - consult your tax agent
For specific advice on what you can claim and how to claim it, consult your registered tax agent. Visit ato.gov.au for general ATO guidance.
Marketing agencies use specialised tools for project management, creative work, and financial management.
- Asana: From $13.49 per user per month. Project and task management with client project tracking. Best for agencies managing multiple client projects simultaneously.
- Monday.com: From $12 per user per month. Visual project management with customisable workflows. Best for agencies wanting visual kanban-style project boards.
- ClickUp: From $9 per user per month. Comprehensive project management with time tracking and documents. Best for agencies wanting all-in-one project management.
- Harvest: From $12 per user per month. Time tracking by project and client, expense tracking, and invoicing. Best for agencies billing time and materials or tracking project profitability.
- Toggl Track: From $10 per user per month. Simple time tracking with project categorisation. Best for agencies wanting lightweight time tracking.
- Xero: From $78 per month (Growing plan). Cloud accounting with project tracking (Xero Projects add-on $20/month). Best for most Australian marketing agencies.
- MYOB: From $69 per month. Alternative to Xero with similar capabilities.
Small agency (5-10 staff):
Recording media spend as agency revenue rather than client reimbursement overstates revenue and profit.
Cost: Agency managing $500,000 annual media spend but recording it as revenue shows $500,000 higher revenue and pays GST on the full amount (should only pay GST on management fee per GSTR 2000/10).
Solution: Use agent model for most media buying. Record only management fees as revenue. Track media spend separately as client reimbursements.
Completing client work without tracking actual costs vs revenue means you cannot identify which clients or project types are profitable.
Cost: Agency doing $1.5 million revenue with $200,000 profit overall may be losing money on 35% of clients.
Solution: Implement project tracking in accounting software. Allocate all freelancer costs, direct expenses, and overhead to projects. Review profitability monthly.
Paying designers, writers, or creatives as freelancers when they work exclusively for the agency using agency equipment creates superannuation obligations.
Cost: Agency with 3 "freelance" designers paid $70,000 each but actually employees would owe $25,200 in superannuation (12% x $70,000 x 3) plus SGC and penalties.
Solution: Review freelancer arrangements against ATO tests (PCG 2023/2). If freelancers work set hours, use your equipment, work exclusively for you, and are integrated into your business, they may be employees. Seek legal advice if uncertain.
Providing additional services outside retainer scope without billing variations means losing money on client relationships.
Cost: Agency with $6,000/month retainer providing additional $3,000/month in unbilled work effectively earns $6,000 for $9,000 worth of services (33% margin loss).
Solution: Define retainer scope clearly. Track time and work against scope. Bill variations for out-of-scope work monthly.
Paying account manager commissions on revenue before client payment received creates cash flow problems.
Cost: Account manager earns $8,000 commission on $160,000 annual client billings. Client pays slowly or disputes invoices. Agency pays commission before collecting revenue.
Solution: Pay commissions on collected revenue (not just billed revenue) or accrue commissions until payment received.
Completing creative work or projects without billing promptly creates aged WIP that becomes difficult to collect.
Cost: Agency with $80,000 in WIP over 60 days old may only collect 70%, writing off $24,000 in legitimately completed work.
Solution: Bill projects promptly when milestones are achieved or work is completed. Review WIP monthly and invoice anything over 30 days.
How should marketing agencies treat media buying in their bookkeeping?
Most agencies should use the agent model per GSTR 2000/10, recording only management fees or commission as revenue. When you spend $20,000 on Facebook ads for a client, record this as a client reimbursement (not revenue or expense). Bill the client $20,000 reimbursement plus your management fee. Record only the management fee as revenue. This ensures correct GST treatment (GST only on your fee, not the reimbursed media spend per Division 111 GST Act).
Should freelance designers and copywriters be classified as contractors or employees?
This depends on the actual working arrangement per PCG 2023/2. Freelancers who work for multiple clients, use their own equipment, quote fixed prices for deliverables, and control how they perform work are genuine contractors. Freelancers who work exclusively for your agency, use your equipment, work set hours, and are integrated into your business may be employees requiring superannuation (12% current rate) and other entitlements. Consult your accountant or employment lawyer for advice on specific arrangements.
How should I recognise revenue for monthly retainers?
If the client pays at the end of the month for services provided, recognise revenue during the month as service is delivered. If the client pays in advance, record the payment as deferred revenue and release it to income as service is delivered each month. For example, a $60,000 annual retainer paid upfront should be recorded as deferred revenue and released at $5,000 per month over 12 months.
What is the difference between commission-based and reimbursement-based media buying?
Commission-based (principal model per GSTR 2000/10): You buy media, mark it up, and bill the client. You record full billing as revenue and media cost as expense. Reimbursement-based (agent model): You place media on client's behalf, client reimburses actual cost, you charge separate management fee. Record only management fee as revenue. The reimbursement is GST-free per Division 111 GST Act.
How do I track project profitability for different clients?
Use accounting software with project tracking (Xero Projects, Harvest). Create a project code for each client engagement. Record all time worked, all direct costs (freelancers, stock assets, software), and allocate overhead. Compare total project costs to revenue billed to calculate gross profit margin. Review monthly.
Can I claim creative software subscriptions?
Creative software subscriptions used for earning business income may be expenses you can claim. Whether they are deductible depends on your specific circumstances and how the software relates to your income-earning activities. Consult your registered tax agent for advice specific to your situation.
Should I pay account manager commissions on billed or collected revenue?
Best practice is to pay commissions on collected revenue (not just billed). This protects cash flow and ensures you don't pay commissions before the client has actually paid. Alternatively, accrue commission when invoiced but pay when collected.
How should I handle scope creep on retainer clients?
Define retainer scope clearly in the agreement (specific hours, deliverables, channels). Track time and work against the defined scope using project management software. When the client requests work outside scope, issue a variation before starting the work. Bill variations separately from the base retainer.
What records do I need to keep for freelancer payments?
Keep freelancer invoices (with ABN), payment records, and evidence that the freelancer is genuinely operating a business. Maintain written contractor agreements specifying scope, deliverables, and terms. If the ATO investigates contractor vs employee classification, you must demonstrate the commercial substance of the contracting relationship.
Can marketing agencies claim the instant asset write-off for camera equipment?
Current instant asset write-off threshold is $1,000 for businesses with aggregated turnover under $10 million. Camera equipment and video gear above this threshold must be depreciated over effective life. Check ato.gov.au for current thresholds and consult your tax agent before making equipment purchases.
Scale Suite provides specialised bookkeeping and finance services for Australian marketing and advertising agencies, handling the complexity of revenue recognition, media spend tracking, payment compliance, and project profitability analysis.
Our team manages your complete bookkeeping functions and integrate directly with Xero to automate transaction processing while maintaining the oversight required for accurate financial reporting.
For marketing agencies with 5-50 staff, our embedded finance service costs less than hiring a dedicated bookkeeper while delivering specialist agency accounting expertise. We ensure project profitability is tracked in real time, media spend is treated correctly for GST purposes, arrangements are structured appropriately, and financial reports accurately reflect agency performance.
We work as an extension of your team through daily integration, responding to questions and processing transactions in real time rather than operating as a traditional external accounting firm that you contact monthly.
Scale Suite delivers embedded finance and human resource services for ambitious Australian businesses.Our Sydney-based team integrates with your daily operations through a shared platform, working like part of your internal staff but with senior-level expertise. From complete bookkeeping to strategic CFO insights, we deliver better outcomes than a single hire - without the recruitment risk, training time, or full-time salary commitment.
Considering hiring finance staff?
We’ll show you the full cost of an internal hire vs our embedded team – and exactly how much you’d save.
We’ll reply within 24 hours to book your free 30-minute call. No lock-in contracts and 30-day money-back guarantee
