If you want your agency to still be here in five or ten years, you’ll need to think about more than just selling and delivering. Over the years, we’ve seen so many bright, creative and talented agencies go under because they didn’t get the basics right when it came to the numbers within their business.
Whatever you want to achieve, the chances of achieving it are significantly increased if you have a plan. Profit is no different, and yet most agencies start with turnover when they create their forecasts for the coming 12 months. A smarter way of doing this is to start with the profit you want to make and work up from there. What would need to happen in order for you to achieve the profit you want? What type of projects would you need to win, and how many? What are your budgets for each department? What are the key metrics you’d need to keep track of throughout the year to ensure you’re on-track?
As a general rule, the more you charge, the more profit you make, which is why it’s important to review your pricing every six months, increasing it as you and your team get better at what you do (and your costs rise). Failing to do this will see your margins squeezed over time. However, the art of profitable pricing goes way beyond simply increasing your hourly rate. The key is to focus on the services that add the most value to your clients – the ones they can’t easily get elsewhere – it’s these services where you have the chance to charge based on the value you add, not the time you spend.
This is where most of the profit leaks out of agencies. If you want to stop this happening in your agency, it’s important you spend time properly scoping and ring-fencing your projects at the outset. For larger projects, it’s almost impossible to do this for the whole project, so break it down into smaller chunks and scope each section as you go – agencies who adopt this agile approach make more profit. You then need to find a way to keep projects on-track, and spot challenges before they become too big. Weekly reporting on the profitability of each project will help you do this.
There are untapped opportunities within your existing clients. Segment them so that you can spend time with the ones most valuable to your business. Take the time to understand their plans, so you can work out how you can help them achieve their objectives. Have a plan for each of your larger clients that details how you will expand the account. Run events for these clients and pitch ideas to them – you do this for new business, so why not for existing clients?
If it’s just you flying the flag for building a profitable and sustainable agency, this will be hard work. You need to engage your whole team in this pursuit and help them understand the importance of profit to their future and the future of the business. You can then show them how they can each positively impact profit through their everyday actions. You can also help them understand the implications of going beyond the scope or doing work for free – no-one wins when this happens – the client doesn’t value it, they work harder for no more reward, and the business becomes stretched and unprofitable.
Agency pricing and hourly rates
Peter Czapp, co-founder of The Wow Company and The Agency Collective, shares insights on hourly rates and how to price to maximise the profit you make. Watch this video to discover how agencies price, the average hourly rates for all levels within an agency, and the pricing secrets of the most profitable agencies.
Started in 2012, our agency benchmark report, BenchPress, has grown to become the largest survey of independent agency owners in the UK. Download this year’s reports to get insights into what’s required to ensure your agency is in the best shape possible, whatever the market conditions.
We’ve taken our pricing benchmarks and put them into a solo report for you. As well as sharing hourly rates, we explore different pricing models, how transparent agencies are when they price, what they charge for different levels of expertise, average project values, and what the top 25% of agencies do differently.
Being profitable is the cornerstone of a sustainable agency. However, think about profit as fuel for your journey, rather than the purpose of your agency. You won’t be able to go very far if you’re not making any money.
Beautiful businesses are designed in a sustainable way. They don’t chase growth for the sake of it. They have recurring revenue and positive cash flow that allows them to make decisions based on what is best for the long-term, rather than operating month-to-month, making decisions based on short-term horizons.
How could you redesign your business model to make it more sustainable?
The purpose of a company is not to make money. The purpose of a company is to accomplish something, to advance a greater cause, to contribute to society. Money will help you get there
Calculating your operating profit %
This is the amount of profit you have left before tax and dividends – expressed as a percentage of turnover. It’s often referred to as EBIT (earnings before interest and tax) and is a key determinant of the value of your agency.
You’ll see from the figures below that we’ve shown operating profit as a percentage of fee income as well as turnover. Fee income is your turnover less any ad or print spend. It’s a truer reflection of your performance than turnover if you have any client ad or print spend in your business.
Looking to increase the profit you make?
“We’ve learnt so much working with the team at Wow. They’ve helped us put together and implement initiatives that have made us more profitable. This has allowed us to invest more in our agency and our people.”
We can help you do that with an Agency Profit Review. We’ll look at all the ways you can increase your profit, including reviewing how you measure up against the most profitable agencies. You’ll leave with an action plan to increase the profit you make right away. Book a chat with Rory.
The Truly Sustainable Agency
As well as thinking about how we manage profit and cash, we should also be thinking about how we care for our planet. Humans are living a life that is consuming and taking away from the planet at a rate we can’t sustain. If we want our children to enjoy the beauty that is all around us, we’ll need to re-think the way our businesses impact the environment.
In 2019, Wow partnered with Offset Earth to create a Climate Positive Workforce, planting 600 trees a month to offset the carbon we produce. Click here to find out how you could do the same for your agency.
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