Improving profitability is a major goal for many creative agencies. It can revolutionise the way your agency operates and ensure its future as a business. What many agency owners can fail to realise, however, is just how many factors go into increasing profitability for the long term. There really is no silver bullet.
To start with, to improve profitability, you have to have the work coming in in the first place. If you don’t have enough work coming in, you can implement all of the strategies in the world, but your profitability will not improve. An effective business development strategy is critical for every business!
But, this is just one factor in a whole host of little, but important, things. This post aims to explore some of the key areas to look at if you want to improve your profitability. If you focus on fine tuning these, your profitability should begin to increase.
To start, it’s vital to go back to basics and look at the way you’re charging clients for your work. After all, profitability ultimately lies with the money coming in. Creative agencies often like the idea of the value-based theory of chargeability, where they don’t charge per hour but instead charge what they believe the project is truly worth- often far above and beyond the regular hourly rate.
However, very, very few agencies have succeeded in getting this right or are brave enough to actually implement it. This means that hourly rates are still the norm across the industry. But, how much you’re charging your hourly rates can make or break your profitability. You need to ensure that there is a sufficient buffer in every hour to allow for the expected overburn on projects - common in most agencies. Your hourly rates should also be reviewed on an annual basis in line with any pay rises you give to your team, to ensure you retain a sufficient profit margin. Getting your hourly rates right can take trial and error, but it’s absolutely key if you want the rest of the puzzle pieces to fall into place and increase profitability across the board.
For more information on how to make the most of your hourly rates, click here to read my blog post, Recovery Rates: Is Your Design Agency Working For Free On Fridays?
Your sales process
Next, if you’re serious about improving profitability, you need to look at your sales processes. Many agencies believe that if they can just get more sales, profitability will naturally increase. But it’s not usually that straightforward, with several other factors involved in increasing profitability! But, that doesn’t mean it’s not an important part of your business to scrutinise for ways to improve.
When it comes to constructing a good sales process, you need to ensure that you are delivering accurate proposals to your clients first time. It’s surprisingly common for agencies to undercharge on their proposals without changing the deliverables. This means you can be making a loss before you even begin- which is clearly not ideal for increasing profitability!
So, to ensure that your proposals are accurate before clients see them, you need to be consulting the right people within your agency. Now is not the time for wishful thinking or guesstimates! Consult the people who will actually be working on the project and listen to their input on the time it takes. This should improve your accuracy and ensure that the client is happy with the deliverables, and the agency is happy with the level of profitability that the project provides.
Once you’ve consulted the right people to piece together an accurate proposal, it’s also crucial to have the right people to carry out the job. This is why effective resource management can be one of your several best friends when it comes to improving profitability!
Effective resource management encompasses a variety of things, from hiring the right people at the right time, to ensuring that good standards of communication are upheld so that everyone knows what they’re supposed to be doing and when. Resource management should be integrated into the very fabric of your organisation if you want to see true change take place.
Of course, this can take time to build up, especially if you’re a growing agency that hasn’t needed a great deal of resource management in the past. But, it’s really worth the effort if you’re serious about increasing profitability. For more information and suggestions about how to improve resource management, click here to view my blog post: Why do creative agencies need effective resource management?
Processes and Parkinson’s Law
The next key factor for improving profitability is inspecting your processes. I’m a firm believer in streamlined, agile processes for creative agencies. There’s no point implementing processes for the sake of it or because you see others doing it. It’s all about finding the processes that work for your agency and its profitability, but also give your creative teams the freedom they need to do their best work.
My belief in lean processes stems from Parkinson’s Law. That is, the theory that tasks mould to fit the amount of time set aside for their completion. While it may sound far-fetched, it often really is the case. If you allocate endless amounts of time to tasks, they will expand to fit that time. But, if you implement lean processes that really work for your agency and team, you can allocate less time to the same tasks, and still get a great end result that your clients are happy with.
The impact on profitability here is that you can complete more projects in the same amount of or even less time. By charging the same amount as you always would, your income will go up without having to hire more staff or stretch the ones you’ve got to cover projects that seem to be endless!
For more information on Parkinson’s Law and why your agency could benefit from lean processes, click here to read my blog: How reducing processes can improve your creative agency’s output and increase your profitability.
Following on from that, effective briefs for every project are vital. After all, every team member that works on the project should have the brief there to follow and guide them throughout. Evaluating your brief-writing process and where it could become more useful for your team is key to stop them from wasting valuable time that will bring down your profitability. A good brief will look different for every agency and indeed may differ between projects. But, some of the key things you may want to include are:
- A realistic but strict time frame so that everyone knows how much time they have to complete the work and when the deadlines are.
- An overview of the client, their brand, business objectives, and core messaging, as well as any specific likes or dislikes relating to the project.
- The intended audience, so teams can tailor their work towards them.
- A clear description of the deliverables so everyone knows exactly what they need to produce. This should cut down on mistakes and changes.
Reviews and Quality Control
Speaking of changes, ensuring that you have an effective process for reviewing and checking the quality of work can also be useful for improving profitability. I think the key here is that ensuring any reviews of work are timely. No matter who is reviewing the work, whether that’s the Creative Director or other managers, it should be expected that they will do it within a set timeframe. This will allow changes to be made promptly as well.
Overall, it avoids wasting time as well as showing clients work that hasn’t been reviewed, which can lead to more changes in the long term. A big problem at many agencies is staff having to frequently work late in order to correct mistakes or rush through changes as a result of last-minute reviews. This is a disaster for profitability, as it can drastically reduce staff satisfaction, leading to a high staff turnover. And there is little more expensive than constantly having to rehire and train staff that just don’t stay!
Of course, this list of factors to consider when increasing profitability is not exhaustive. It’s just here to demonstrate that there is no single change you can make if you truly want to see your profitability go up. It’s all about combining factors. What these factors are will differ for every agency. And, anyone who tries to tell you they have some kind of miracle fix for profitability probably doesn’t in reality. Simply put, you need to put in the hard work to reap the results.
If you’re serious about improving the profitability of your creative agency, you might want to consider taking on the services of an expert in this area, such as myself. I can help you improve profitability by going through your agency with a fine-toothed comb, and coming up with a truly bespoke strategy to help you move things forward. To find out more about what I do and how I can help you, please get in touch today by clicking here.