All of my consultancy work starts with a free discovery meeting. I want to fully understand each of my client’s unique pain points and ensure I can offer a solution before taking on the engagement. Clients will tell me what they think the issue is, such as creative quality, low levels of profitability, poor staff retention, and so on. However, I prefer our next step to be a whole agency audit so that I can dig deeper into the client’s issue before making any recommendations. I also find that the audit process can unearth additional issues that the agency owner was not aware of beforehand, but could cause bigger problems at a later date if they’re not addressed.
Although my recommendations are bespoke to every agency I work with, I have noticed that the majority of creative agencies fall into two separate camps. That is, those that are predominantly creative-led, and those that are more commercial-led. Neither is right or wrong, but this does have an impact on how my recommendations are weighted; is the prime objective to improve profitability without impacting high creative standards or is it to raise creative standards without impacting high levels of profitability? There are some interesting points to be made about the distinction between the two, as well as the ‘ideal’ middle ground, which is what this article is about.
The majority of creative agency owners aren’t attracted to the profession because of the money they can make. Instead, they tend to do it for the love of the work. Amazing output and respect from the industry is what they value the most. Of course, having this passion is very helpful when it comes to success. But, in my experience few agencies are highly creative-led and also highly profitable – which I consider to be an operating profit margin of over 20%.
This tends to be for a number of reasons. Firstly, they are commonly founded and led by a strong Creative Director who stipulates what’s to be done and how. As such, projects don't tend to be completed until they are 100% happy. This can lead to overburn and low recovery rates. Recovery rates are the percentage of the workforce’s time that is actually spent on paid client work, so the more projects overburn, the more working time is technically unpaid. You can learn more about recovery rates for creative agencies in my blog: Recovery Rates: Is Your Design Agency Working For Free On Fridays? Click here to read it.
Overall, creative-led agencies tend to have one eye on meeting the clients brief and the other on filling their awards cabinet.
On the other hand, commercial-led agencies focus on meeting the brief within the budget and avoid overburn on projects as much as possible. I have noticed that they tend to have a stronger client servicing team. This team dictates what’s needed and how much time can be dedicated to each project, with minimal input from a creative lead. Their actual creative output may not be to quite the same standard as it is in a more creative-led agency, but they may ask, does this matter as long as the client is satisfied?
You could argue that ultimately every professional services business needs to make a decent profit, and creative businesses should be no different. How many accountants and lawyers do you know that work for free, for example?
Is there a middle ground?
While both creative and commercial-led agencies can succeed in their own way, most agency owners are probably trying to reach a middle ground. That is, an agency that puts out great creative work and is still highly profitable. But, how do the agencies that manage to strike this balance do it? Here are some of the key things to focus on if you want your agency to get there:
Charging what you’re worth
Agencies that are both creative and profitable know how much their work is worth, and are not afraid to charge clients that amount. By doing this, you can ensure that your recovery rates are as good as possible, and that you are being paid a fair amount for the value you can bring to clients. Good creative work is hard to come by. So, if you’ve got it, you can charge a premium for it, attract better clients and staff, and help your agency’s profitability grow.
I am a big fan of lean, agile processes for creative agencies. For creative people to do their best work, they don’t need to be hindered by unnecessary processes. But, it’s still a good idea to have solid best practices in place to guide projects in general and set some parameters while still allowing for creative freedom.
You can read more about agile processes and how your agency can benefit from them in my blog post: How reducing processes can improve your creative agency’s output and increase profitability. Click here to read it.
Effective resource management
Good resource management can be the real difference between an agency that fails and one that thrives. Essentially, it’s about ensuring that all of the talented people in your agency have the correct amount of time to do their best work.
For resource management to be effective, it needs to look at the bigger picture of each project. What people and skills are needed? What area of the business are they needed in? When? These are just some of the questions that a good resource manager will ask and solve. And, by investing in effective resource management, the balance between creativity and profitability becomes easier to strike.
You can learn more about this in my blog: Why do creative agencies need effective resource management?
While both creative and commercial led agencies can thrive, it can be hard to find the balance that’s right for your agency. Become too creative-led, and your profitability can suffer, but become too commercial-led and the work you put out may not be as high-quality as you had hoped. That’s exactly why finding a balance is ideal if you want a profitable agency that’s also well-regarded.
However, this is easier said than done. Improving profitability involves looking at your agency as a whole, and coming up with a bespoke strategy. An outside expert, such as myself, can help you with this. I work with each agency on an individual basis to come up with a plan that is guaranteed to work for you. To find out more about me and how I can help you, please visit my service page, or get in touch today.