How do you track the health of your agency?
By Mike Haile, a Deltek WorkBook Partner.
Every few years we see the headlines in the press hailing the death of the ad-agency. I don't agree. Yes, gone are the “Mad-Men” days when agencies had months to prepare ads for clients who seemed to have unlimited budgets, however that doesn’t mean that the agencies will be extinct any time soon.
Clients are more and more demanding, wanting more and for less, the "retainer" model is becoming less common and clients are favoring more ad-project type work, many "traditional" agencies are still not very comfortable with digital, all of which is putting pressure on agency margins.
I believe that most problems are opportunities in disguise, and this is no exception. Clients will always want to work with innovative creatives. The agencies that deliver this work and genuinely add value with some operational discipline will thrive in this new tougher environment. That means delivering and maintaining profitability, which is possible.
So, the question is what should an agency be tracking to ensure that it’s in reasonable health?
Here are some of the things that the most successful agencies that I worked with over the past 17 years track on a regular basis.
In a survey commissioned by Deltek, around 60% of agencies surveyed in the US said that their number 1 problem was getting new clients. That’s not that surprising for an organization that’s full of people who love to delight the clients that they have, but it’s a “necessary evil” for any thriving company. The most successful agencies have a tool that helps track leads, opportunities, and client pitches. This is reviewed by management team on a regular (ideally weekly) basis together with the businesses resourcing requirements.
This is probably a report that every company will review irrespective of its industry because it can’t survive unless it has a steady stream of clients wanting to buy its products or services. I appreciate that this may seem obvious, but I have seen a lot of agencies who seemed to think that they were different from other businesses.
It goes without saying that client management tool must be kept up to date. I still see organizations using Excel to manage but this but there are a lot of tools on the market that provide CRM functionality. Ideally you should pick one that is either part of your ERP or integrates with your ERP, for example, the screen print above (as with all the screen prints in this article) are from Deltek WorkBook.
2. Capacity/Resource Plan
The pipeline is not just needed to estimate revenues but also to help plan resources required to meet the demand and prevent any possible resource gaps. No agency wants to go to the trouble of pitching work which can’t deliver to the customer’s requirements. I understand that many agencies work on the principle of “let’s worry about resourcing when we win the pitch” but at least they should have something that gives it warning that they might have a capacity problem. I’ve also seen far too many agencies bring in freelancers to work on a project when they have spare capacity because their capacity planning is lacking.
Having a real-time resource plan (Excel doesn't count) is invaluable for making sure all the personnel are properly resourced and minimizing the use of freelancers.
3. Project Client/Profitability
According to the same survey which I referred to above, 69% of agencies admitted that are guessing when developing project scopes and estimates. That means that they have no idea if the project will be profitable.
This is a key differentiator between efficient agencies and their rivals. They know which clients are profitable and which ones are not, which allows them to see where they should or should not be developing relationships- They know how much they can cut the pitch price and make a profit because they have the right tools and systems in place to track the profitability of projects and to use the information gathered to pitch new work more effectively.
Winning the project is also only the beginning and it’s a fact of life that not all clients are made equal. Some ask for lots of different proposals when deciding which one to accept, many change their minds in the middle of the work. You have the clients who will ask the question, “Can you just add xyz, it’s just a small change, right?”
A project/client profitability reporting will keep management focused on making sure that all the clients are at least profitable and if not then justify what other value they bring to the business.
Tracking utilization & billability is difficult for many agencies because tracking the hours that their employees work is a real challenge. Persuading creative people to complete a timesheet is not easy and when they do, it's usually several days after the work is done so the information is not accurate. Ideally you should have a tool that helps them to track their hours worked on a real-time basis in a user-friendly manner. Look out for an article in the future on how this can be achieved!
Once this is done you need to ensure that they are spending their time on chargeable work which is where a good utilization report comes in. This also helps the agency to calculate the correct rate to charge the people on future projects.
To be effective the report should show:
- Monthly and year to date utilization vs target
- “Billability” = “hours billed”/total hours (I wrote about this back in 2016)
- Actual values of these hours in $$$ YTD chargeable hours x Rate vs Hours Billed
5. Cash flow
For a small business, this is arguably the most important report because it will need to ensure that it has enough cash to meet its short & medium-term obligations, and this is even more important in times like these. I've said it before, but using Excel for this is common but not advisable because an error in the formula or missing data could be catastrophic.
Last but not least is the P&L account. Every business ultimately needs to be profitable to survive so of course they need a system that allows them to see this. The difference, though, between a well-run agency and one that is not is that its leadership has this information to hand on a real-time basis. It’s no good waiting for weeks to see the results of the business by which time the information is outdated and obsolete. This is even more important if your agency is part of a group which wants to see this information within days of the month end. Wouldn't it be great if you could see how things are going the day the month closes so that you can manage the expectations of the group?
So, there you have it, I appreciate that some of this is not groundbreaking BUT the key point is that the most efficient agencies manage these KPI's using a fit for purpose system. They don't spend a load of man hours preparing this information.
This article is courtesy of our partner, Haile Consulting. The original post can be found here.
About Haile Consulting
Haile Consulting specializes in providing agencies and other professional services businesses with software solutions to improve the profitability of their projects and the efficiency of their resources. We do this by implementing Deltek WorkBook and Deltek ConceptShare solutions in their businesses, so they are able to grow and collaborate without hindrance. Our team of experts has more than 40 years of experience or working with professional services companies.