How to maximise agency profits: Be prepared to fire your clients?
1st March 2017
Business may be thriving, but is your agency as profitable as it could be? Here are five top tips for making sure your agency is spinning straw into gold, rather than jut spinning plates.
Five tips for making more money
From Steve McComish, MD at agency London PR:
1. Trim your overheads. “My first tip to maximise profits is to keep an eye on your overheads and your people. Do you really need those new £2,000 desks? Is that city-centre office absolutely essential?”
2. Prune your clients. “As anyone who has ever managed PR accounts knows, some clients are a dream to work with whilst others can be more challenging. I would go further and say some clients just aren’t worth the trouble they bring into the agency. I’m talking about the toxic clients who never pay on time, take up the team’s time and are plain painful to deal with. These clients will always end up requiring more service than they have paid for, eating into your profits.
“Take a look at your client list and grab a marker pen. Grade your clients from A to D and then immediately get rid of the Ds. A polite letter or email explaining that you’re now focusing on new projects is all it takes. Take a hard look at those C-grade clients too. Are they really worth keeping?
“As Seth Godin said, ‘Choose your customers. Fire the ones that hurt your ability to deliver the right story to the others.’”
From Rob Skinner, MD at PR agency Skout:
3. Work out campaign costs. Properly. “At the start of the campaign plan your resources, who’s working on it and how long will it take? That person’s time comes at a cost. How much is it worth? Think about implementing timesheets as a way to monitor activity. Why not run your internal team as an agency – assign ‘fees’ to campaigns supporting internal ‘clients’ to gain a true picture of profitability.
“All too often PR agencies get entrenched in the delivery of a campaign and not the results. This can cause campaigns to take longer than they were budgeted for and increase their cost. Ensure that you’re not under-pricing a campaign. As most campaigns end up with some element of project creep, it’s possible you’ll end up unprofitable before the campaign has even finished. Be transparent with your client from the outset and estimate rather than providing fixed quotes. As you move through the campaign delivery, review where you are and adjust as you go.”
From Chris O’Donoghue, CEO of marketing agency Mongoose:
4. Focus on salaries. “As an agency your biggest single overhead is your employees. Given they are also the ‘product’ you’re selling you need to ensure the production line is optimised and running smoothly. This means investing in your company culture to attract, retain and develop the best possible agency team.
“Ideally you’d start the year with all of your client revenue contracted for the 12 months ahead, but in reality this is never the case, especially in today’s economy where you need to re-sign clients year on year and at different times of your fiscal year. So it’s a case of ensuring you manage your income to salaries and overheads as tightly as possible. Not easy, as first you are chasing a gross profit target so need to invest to win clients, and second you will be over-resourced but want to maintain your employees. Get it right and you make a profit, leave it too long and you leave yourself chasing...”
From Maree Maxfield, director at training consultancy Maxama:
5. Look at your retainers. “Many PR agencies actually have no idea whether their retainer clients are profitable or not. Sometimes they treat them as a bit of a job lot, grateful to be able to invoice a regular amount every month. But when you dig down, while some relationships are profitable, other clients are exceeding the billable hours agreed to. Implementing simple online job management tools that agency employees can use and update will help you track hours in real time, minimising the chances of exceeding the agreed fixed retainer.
“Some tools out there also allow you to set up notifications when you reach the agreed billable hours – or in advance. You can then speak to the client and agree a price for any additional hours. Many agencies end up either not charging for these, or their clients get a bill shock when they receive an invoice. This makes the whole process a lot more transparent and will also help both you and your clients budget and quote for work much more efficiently.
“With the right system in place you will also have all the data you need to measure the profitability of your retainer clients, and those services you provide. You may find that certain services are regularly exceeding billable hours and therefore you need to review your pricing structure and retainers.
“This will also highlight issues with productivity within your agency, and of course weed out those demanding clients who are getting a lot more value from their package than you anticipated!”
An agency busy servicing lots of clients with snazzy offices may appear successful, but it could be that having less work and showing off a little less would mean more money in the bank. An obsession with spreadsheets may not be the reason you came into PR, but it certainly helps if you want to run a long-term concern.