S4 Capital. How Revenue Fell 6% and Profit Rose 83%.
Autumn Term, Lesson 4. Agency staff costs are the number behind S4 Capital’s turnaround, and one every agency and consultancy owner should know: how much of your fee income goes on people.
Autumn Term is a weekly series from WrightCFO, a UK fractional CFO practice, on what the numbers were saying in well-known businesses, the ones that went wrong and the ones that got it right.
The short version
- For an agency or consultancy, the key ratio is people costs (salaries, freelancers, contractors and the owner’s pay) as a share of fee income.
- A long-standing rule of thumb is to keep agency staff costs to no more than half of fee income, so every pound spent on people brings in at least two pounds of fees.
- A few points matter enormously: on £3 million of fee income, moving from 60% to 55% adds £150,000 a year.
- S4 Capital’s ratio reached 79.2% in the first half of 2025. After cutting mainly non-billable roles it fell to 72.2%, and profit rose from £20.8 million to £38 million even as fee income dropped.
- If a buyer offers you shares or an earn-out, check the buyer’s own people cost ratio before you talk about price.
What share of your fee income goes on people?
I mean all of it: salaries, freelancers, contractors and whatever you pay yourself. Fee income is what’s left once anything you pass straight to the client, such as media spend or print, has come out.
When I worked at the IPA, the Institute of Practitioners in Advertising, twenty years ago, we advised agencies to keep people costs to no more than half of fee income. Every pound spent on people should bring in at least two pounds of fees.
Why a few points of agency staff costs matter so much
If you sell people’s time, people are most of your costs. A small move in that percentage is a big move in profit.
On £3 million of fee income:
- 60% down to 55% adds £150,000 a year, without a single new client
- 60% up to 65% takes the same £150,000 away
How the number creeps up
It rarely jumps. It drifts, usually while revenue is still growing, so nobody looks until the profit has gone. The usual causes are:
- a client leaves, and the team who worked on it stays
- a senior hire starts months before the work that pays for them
- roles that don’t bill clients grow, one sensible appointment at a time
What happened at S4 Capital?
S4 is the advertising group Sir Martin Sorrell set up in 2018 after leaving WPP. If you’ve worked in advertising, you may well have worked for him, pitched against him or been bought by him.
The rise. S4 combined with more than 25 digital agencies, starting with MediaMonks in Amsterdam. Many of their founders were paid partly in S4 shares. By 2021 the group was worth around £5 billion.
The fall.
- 2022: the auditor couldn’t finish in time, results were delayed twice and the shares lost about a third
- 2024: a £306.9 million loss, mostly writing down the agencies it had bought
- 2024 and 2025: technology clients moved marketing budgets into building AI
- Summer 2025: market value below £140 million
The fix. In the second half of 2025, S4 cut roles, mainly people who didn’t bill clients.
First half of 2025 compared with first half of 2026:
- Fee income: £328 million to £308 million
- People costs as a share of fee income: 79.2% to 72.2%
- Profit, on the measure S4 reports: £20.8 million to £38 million
- Net debt: £145.9 million to £66.3 million
Seven points on £308 million is about £21 million. That covers the whole £17 million rise in profit.
Even so, 72% is a long way above the half we used to recommend at the IPA.
Cutting 11% of your people is hard, for them most of all, so this isn’t a recipe. The lesson is how far the ratio drifted before anyone dealt with it.
If a buyer offers you shares
Founders paid in S4 shares at 2021 prices have since seen almost all of that value go.
If an offer for your business is partly in shares, or depends on an earn-out, that part is only worth what the buyer turns out to be worth. Work out the buyer’s own people cost ratio before you talk about price. (The Body Shop is another reminder to look hard at who is buying.)
Five things to look at this week
- Work out your ratio for each of the last twelve months. Include freelancers, contractors and a fair salary for yourself.
- Split billable from non-billable. Work out what the non-billable people cost as a share of fee income. That’s where S4 made its cuts.
- Check the leavers. For each client lost this year, are the people who worked on it still on the payroll?
- Price the next hire. At 50%, a £60,000 salary needs £120,000 of new work. Is that work signed, or hoped for? (Lesson 3, on Next, covers this in more detail.)
- Check any buyer. If you’ve had an approach, work out their ratio from their accounts first.
How a fractional CFO from WrightCFO can help
If the first of those took more than ten minutes, your payroll, freelancer invoices and fee income probably sit in different places. One of our fractional CFOs can:
- set up a monthly report showing the ratio by team and by client
- agree where it should sit for your business, and what happens when it drifts
- build next year’s budget and hiring plan around it
- go through a buyer’s numbers, and any shares or earn-out in their offer, before you negotiate
Creative, media and advertising agencies are one of our specialist sectors, and several of our CFOs are dedicated to working with them.
Thirty minutes, and nothing for you to send me beforehand. Book a slot directly with me here.
Sophie
Frequently asked questions
What should agency staff costs be as a percentage of fee income?
A long-standing benchmark for UK advertising and creative agencies is to keep total people costs, including freelancers, contractors and the owners’ pay, to around 50% of fee income. Many agencies run higher, at 55% to 65%, which leaves much less room for overheads and profit.
What is fee income for an agency?
Fee income, sometimes called net revenue, is what an agency earns after deducting costs it passes straight through to clients, such as media spend, print or production. It is the right base for measuring staff costs, because pass-through costs inflate turnover without adding margin.
How did S4 Capital improve its profit while revenue fell?
In the second half of 2025 S4 Capital cut roles, mainly in non-billable and back-office functions. In the first half of 2026 its personnel costs fell from 79.2% to 72.2% of net revenue, and operational EBITDA rose from £20.8 million to £38 million, even though net revenue fell 6.2% to £308 million.
How do I reduce staff costs as a share of revenue without layoffs?
Track the ratio monthly by team and client, so drift is caught early. Raise prices or reduce scope on unprofitable clients, redeploy people when a client leaves rather than carrying them, time senior hires to signed work, and use freelancers for peaks rather than adding permanent non-billable roles.
Should I accept shares or an earn-out when selling my agency?
Shares and earn-outs are only worth what the buyer turns out to be worth. Before agreeing, review the buyer’s accounts, including its own people cost ratio, debt and recent trading, and take independent advice on how much of the price is guaranteed cash.
Sophie Wright is the founder of WrightCFO, a fractional CFO practice of eleven Chartered Accountants founded in 2014. We work with founder-led and private equity-backed businesses across the UK, mostly between £1 million and £10 million in revenue, in technology, creative, media, professional services and not-for-profit, on margin and people costs, budgeting and forecasting, board reporting, exit readiness and post-acquisition integration.
Related reading: The Gutenberg Trap: why media agencies are billing themselves into extinction; Babylon Health, and why client profitability matters more than revenue.
Sources: S4 Capital audited results for 2024 and 2025, and interim results for 2026 (5 August 2026); Investing.com and Yahoo Finance, earnings call coverage (March and August 2026), see also MarketBeat’s summary; Bloomberg, on the MediaMonks deal (July 2018) and the audit delay (March 2022); City A.M. and AccountingWEB (March and April 2022); The Telegraph and Adweek, on S4’s market value (August 2025).
Photo by Joshua Earle on Unsplash.
