Is Your Agency As Profitable As It Could Be?
Recent research from Kingston Smith W1, ClickZ and SoDA highlight several issues that impact advertising and digital agencies’ ability to reach their target net operating profits. There are a number of challenges most agency models have to contend with.
The most common challenges are inconsistent and demanding clients, ineffective internal processes and rising operating costs. But how do you prevent these from impacting the financial performance of your agency?
Cause And Effect
- Clients that are increasingly demanding often change or add to the scope during a project. If like many agencies, you’re working to a fixed rate, this ‘scope creep’ results in costly and time-consuming over-servicing.
- If your agency doesn’t have effective processes in place for measuring and managing resources and productivity, you’re almost certainly harming your project margins.
- The costs (and failure rates) of pitching, rising staff salaries, recruitment and investments in new skills are all major issues that affect profitability.
Focus On The Solution
There are several steps you can take to tackle all the issues you face. You could begin by looking at how accurately you scope and budget your projects, and how well you understand your capability to deliver and manage them? Identifying any weaknesses in how you plan and manage your resources will help you establish ways to improve your forecasts and project margins.
Other steps you should focus on include:
- Looking at how you target your clients ̶ understand your clients’ sectors and what their customers demand
- Considering whether your processes are holding you back ̶ look at how you manage your operations, clients creatives and business development
- Measuring your performance ̶ provide transparency of all KPIs and agency-wide costs and margins
What if you could improve the profitability of all your clients, projects and employees? Our eGuide ̶ Knowing What’s Good For You ̶ explores what may be causing your agency to miss the mark on profitability. It also looks in more detail at what you can do to address it.
Join me and other professionals from the agency industry as we ask the question What if?