As accountants specialising in creative businesses, we've worked with hundreds of agencies over the...
Get super-profitable - Step 1
As accountants specialising in creative businesses, we’ve worked with hundreds of agencies over the years, from start-ups to £5m turnover. Here’s a few insights into what the most profitable ones do differently to the rest.
Step 1 - Think Differently
If you're looking to build a super-profitable agency, you're going to need to think differently to those agencies that just tick along. Here's some insights that will help:
Know what you want
The first step to more profit is to work out what you’re trying to achieve in your agency. Once you know where the finish line is, then you can think about how you’re going to get there, how quickly, and find out how other successful agencies have managed it.
Have a think about the sort of agency you’re creating. Are you building something to sell, or creating a boutique agency focused on a profitable niche? What does it look like in the future - can you draw an organisational chart of what it will look like in 3 years?
Once you’ve worked out what you want, you can then forecast the profit you hope to achieve. Have you sat down and thought about how much profit you’ll make over the next 12 months and how exactly you’re going to make it? The chances are that putting together a profit forecast spreadsheet isn’t likely to be top of your to-do list, but it is one of the most important things you can do if you want to be a super-profitable agency.
Getting what you want
We’ve found that one of the biggest barriers to getting what you want in an agency is cash flow. Making sure you’ve got the funds to reach your targets is essential - it’s going to be hard work making profit if you have to wait forever to get the cash into your bank account. Here are some quick tips to get cash in quicker:
- Ask for deposits – Do not start work on a project until you have been paid a deposit. If the client is not willing to work in this way, walk away. They will only be a nightmare further down the line.
- Staged payments – Don't leave a massive payment to be made at the end of the project. Split the project up into its key milestones and look to invoice regularly throughout.
- Use Direct Debit - We’ve seen more and more agencies using direct debit tools like GoCardless to ensure these staged payments are collected with the minimum of fuss.
- Reduce your payment terms to 'by return' – If you give 30 days credit, you cannot start asking for the money for 30 days. This is crazy - it is the banks that should be lending to businesses right now, not you. Change your payment terms on invoices to 'by return' and you're then able to ask for the money sooner.
What more could you get?
Once you’ve set your targets and checked you’ve got the cash to achieve them, then you need to assess whether you have the capacity to go further. For instance, you’ve probably got a billing target, but have you actually worked out what your billing capacity is? Here’s a little calculation to get you started:
Take your day rate and multiply it by the number of people in your team and the number of days in the month. This is your billing capacity. Now compare this figure to what you actually billed. How much is missing and how can you close this gap?
What’s on your dashboard?
As well as the traditional measures (billing, gross profit, net profit), the most successful agencies are also reviewing the following each month on their profit dashboards:
- Leading indicators: These give you an indication of the profit you’re likely to make in the future, rather than the profit you’ve made previously. Examples of leading indicators include the number of pitches this month, or the value of your sales pipeline.
- Billing per head: In Wow’s recent benchmark report on the creative sector, top performing agencies had revenue per head of £100k, with the average being £63k. Do you know your average revenue per head? What do you need to do to increase this?
Top tip for more profit: Get your whole team involved. Billing isn’t just the responsibility of the agency owner or Account Managers - great things happen when everyone is aware of the target and can do something to achieve it. In a digital world, sometimes it’s good to go back to basics and stick the billing target on the wall for everyone to see.