How Can I Improve Profitability in My Software Development Agency?

I'm the owner of a small software development agency and I'm currently facing challenges with profitability. Developer salaries represent my highest expense, and I find it difficult to set project prices that provide a healthy margin. Senior engineers in the US often command salaries ranging from $100k to $180k, which puts a strain on project budgets, especially since clients have limited budgets and often won't pay what we need to be profitable. I've attempted to raise rates and become more selective about projects, but I'm still struggling to find the right strategy. A friend suggested considering offshore hiring as a way to manage costs. I'm curious how others are navigating these issues.