Is your marketing agency financially successful? If you’re like most, you measure your agency’s financial success based on revenue.
You think: if revenue is growing, the agency is growing too.
You might be bringing in revenue, but if you’re barely breaking even, that cannot be a measure of financial success. We need to always be looking at net profit when we’re talking about financial goals.
I was coaching one of my private clients, the owner of a multi-million dollar agency recently. He said he just landed a $40,000 per month retainer client, but his Operations Director says they're barely breaking even…
Yes! It’s actually more common than you might think.
Do you know that service-based businesses should be reaching a 30% profit margin? But many agencies just aren’t as profitable as they could be.
Often times the left hand (let’s call it Sales) doesn’t know what the right hand (let’s call it Delivery) is doing.
That’s right -- it all comes down to Sales and Delivery.
Is Your Agency Making These 2 Mistakes?
1. Delivery -- In a lot of cases, the team is doing way too much. They have good relationships with their clients and want to do an amazing job. (Those are both good things!) However, they're over-delivering which is eating into the profit margin.
When the team is spending more time than projected or producing at higher levels than the client is paying for, that amount of service is killing your profit margin.
To fix this issue, your team may need better processes and systems. Explain to them the need to be efficient and even find ways to incentivize them to do so, such as staying within projected hours or meeting other delivery goals. The very best way to help them is to develop and implement Standard Operating Procedures (SOP's) that aid in efficiency and curb over-delivery.
2. Sales -- The real question is, who’s handling the estimating and pricing of new business? Often times, it’s the agency owner or another member of the leadership team who doesn’t have much to do with the actual delivery. When that happens, there’s generally a disconnect between expectations and reality.
You need a numbers person to handle the pricing. It should be someone who's hands-on with operations and in touch with all that goes into each project and client relationship. Assign this person to analyze past projects and the profit margins on those, then use that learning to price out new projects.
Pricing should not be just based on what the client is willing to pay. Instead, learn from past projects and bake in the proper margins so your agency is more profitable.
Bottom line, there are two ways to get more profitable: work more efficiently or price more effectively.
Make sure your pricing matches the service level you are delivering and watch your profits soar. That’s when you can consider your agency to be financially successful.