--- title: "Pass-Through Costs: What Agencies Need to Know" url: https://stacklist.com/card/00bc9e5e-9f23-4dd6-8dd5-61e825c56a2d source_url: "https://getholdings.com/glossary-v2/agency/pass-through-costs" stack: https://stacklist.com/stack/54032cf5-6878-4863-a5ae-093c58741825 summary: "Pass Through Costs on getholdings.com refers to a feature within their comprehensive business accounting platform. The platform offers 62 free tools for invoicing, expenses, taxes, and accounting, plus integrated banking services for US-based businesses." tags: "accounting-software, business-tools, invoicing, banking, pass-through-costs, financial-management, saas" key_entities: "getholdings.com (organization), i3 Bank (organization), Plaid (technology), Visa (technology), FDIC Insured (concept), pass-through-costs (concept), invoicing (concept)" classification: "reference" content_hash: "sha256:181030d57f1e5c229d25069f7f325b406f1723561cbfee2d604d286698f22347" acp_version: "0.2" token_counts_approximate: 3942 visibility: public agent_accessible: true status: "final" --- # Pass-Through Costs: What Agencies Need to Know 🏢 GLOSSARY · AGENCY Pass-Through Costs 📋 Quick Definition Expenses your agency pays on behalf of a client — like media buys, printing, or stock photos — that get billed back to them without markup (or with a small markup). What Is Pass-Through Costs? Pass-through costs are expenses that your agency incurs as part of client work but that aren't really your agency's costs — they're the client's costs that you're managing on their behalf. The most common examples are media buys (paying Google, Meta, or publishers for ad placements), printing and production costs, stock photography and video licenses, software subscriptions specific to a client project, and third-party tools or services. The "pass-through" part means these costs flow through your books — they show up as both revenue (when the client pays you) and as an expense (when you pay the vendor). Some agencies bill pass-throughs at cost, acting as a transparent intermediary. Others add a markup — typically 10-20% — to cover the administrative overhead of managing vendors, reconciling invoices, and fronting the cash. The key accounting distinction is that pass-through costs don't represent your agency's value-add. They inflate your top-line revenue without actually reflecting work your team performed. That's why AGI (agency gross income) subtracts them to show your agency's real revenue. Why It Matters for Agencies How you handle pass-through costs affects your cash flow, your client relationships, and your financial reporting. If you're fronting $100,000 in media spend for a client and they pay you net-60, you're essentially giving them a $100,000 interest-free loan for two months. That cash flow gap has killed agencies. Clearly defining what's pass-through vs. what's agency fee in your contracts also prevents disputes. Clients who see a $200,000 invoice want to know how much went to actual agency work vs. media and production. Transparency builds trust. Ambiguity breeds resentment. Example A marketing agency runs a campaign for a client. The total invoice is $85,000: $50,000 in agency fees (strategy, creative, project management) and $35,000 in pass-through costs ($28,000 media spend + $4,000 photography + $3,000 printing). The agency adds a 15% markup on pass-throughs, so the actual vendor costs are about $30,400. The $4,600 markup covers the admin overhead of managing those vendors. The agency's real revenue from this project is $50,000 + $4,600 = $54,600. Key Takeaways ✅ Pass-throughs are client expenses managed by your agency — media, production, software, freelancers ✅ They inflate top-line revenue but don't reflect your agency's value-add ✅ Clearly separate pass-throughs from agency fees in every contract and invoice ✅ Watch the cash flow gap — fronting large pass-throughs can strain your operating capital 💡 How Holdings Helps Holdings' free business banking gives agencies clear transaction categorization — automatically separating client pass-throughs from your real revenue so your books reflect reality. Get started free → See Free Tools → Related Terms AGI (Agency Gross Income) Your agency's total revenue minus pass-through costs — the money that actually stays in your agency to cover salaries, overhead, and profit. Cost-Plus Pricing A pricing model where you charge the client your actual costs plus a fixed percentage markup as your profit. Markup vs Margin Markup is how much you add on top of your cost; margin is the percentage of the final price that's profit — they sound similar but give you very different numbers. Accounts Receivable Days (DSO) The average number of days it takes your agency to collect payment after sending an invoice — lower is better for your cash flow. Work in Progress (WIP) The value of client work your agency has started but hasn't finished or billed for yet — it's revenue you've earned on paper but haven't collected. Retainer vs Project-Based vs Performance-Based The three main ways agencies charge clients — a recurring monthly fee, a one-time project price, or a fee tied to results. Explore More agency Terms Browse our complete financial glossary designed specifically for agencies. View All agency Terms →