Any economic downturn, especially one that is unanticipated, can completely alter the way businesses function. The same holds true for creative agencies, many of whom may struggle to remain profitable through such trials.
Now is a great opportunity to make your agency resilient against any future uncertainties by understanding how to lower costs in the right areas.
When unforeseen externalities hit, the question around where to cut costs becomes a challenging one to answer, especially if owners have to resort to considering relieving staff.
Such an instance is indicative of decision-makers lacking access to the right intelligence to know exactly where and how their agencies should reduce expenses.
A centralized tool with business intelligence reporting capabilities is ideal to bring that level of accuracy to decision-making and keep you from shooting in the dark, in ambiguous circumstances.
Once armed with the right reporting tool, the next step is to determine which metrics to look at. Factors that drive profitability may vary across agencies, which is why it is important that your reporting tool is flexible enough to dish out reports that truly reflect your business goals.
However, there are a few sure-shot levers that any agency can pull to become a lean, mean, robust machine.
Here are 3 areas you should look at to assess where your inefficiency costs are stacking up:
1. Profitability by Job Type
The purpose of assessing profitability by job type is to understand if a certain job is costing you more than it is yielding. If you see a trend in the contribution (or lack thereof) of a particular job, maybe it’s time to shift your focus to jobs that might pay more.
2. Profitability by Client Type
It is important to measure which clients are low margin versus those that are extremely profitable. For instance, Function Point’s Average Budget Spend by Client report helps do exactly that. If your reporting tool allows you to clearly understand this difference, it might help you decide if you should drop the former and instead, redirect internal resources to more profitable clients that promise growth.
3. Profitability by Staff Productivity
Assessing the effectiveness of a staff member is a critical task and needs to be addressed by asking the question: Is a staff member’s cost worth the billable revenue? A report that accurately answers this question will tell you if a certain resource is making the agency billable revenue. In fact, Function Point’s Team Efficiency report goes a step further to reveal if the billable value is high enough. This is a crucial piece of information to help determine if you need to outsource a resource’s services as a means to reduce cost.
Function Point’s all-in-one reporting dashboard enables creative agencies to make the right decisions by empowering owners with the intelligence they need. By incorporating customisable reporting to your decision-making process, you will be better equipped to navigate critical circumstances and continue to maintain profitability.