3 Agency Cost-cutting Measures to Help You Navigate Uncertain Times

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 reduce costs in the right areas.  Let’s discover the best strategies employed by businesses to proactively prepare for a recession and successfully navigate the challenging economic environment ahead.

Where Can You Look to Reduce Expenses?

When unforeseen externalities hit, the question around where to cut agaency 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 agency cost reduction techniques 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 at you agency:

1. Profitability by Job Type

The purpose of assessing profitability by job type is to understand if a certain job is costing your agency more than it is yielding. During a recession, it becomes essential to prioritize low-risk, high-reward endeavors that yield maximum return on investment with minimal resources. 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.

Since the pandemic and economic downturn have compelled businesses to adapt and innovate, your agency can consider exploring new project scopes or untapped markets. For instance, you can cross-sell SEO with web design, or take on more complex projects with higher payouts.

By assessing the profitability of various projects and embracing fresh ideas, you can make better-informed decisions. Identify the most profitable endeavors and align your efforts accordingly to boost the resilience of your agency and thrive during challenging times.

2. Profitability by Client Type

During economic downturns, agencies should focus on serving clients in essential industries, such as healthcare, government, technology, education, and food. These clients are more likely to sustain their operations and require agency services even during hard times. Therefore, 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.

Once you’ve identified the ideal target clients, evaluate how a recession would impact their daily operations and what they need in order to adapt to the economic landscape. By aligning your services with their requirements, you can position your agency for greater stability and demand.

Another strategy to consider is to let go of high-maintenance, low-return clients. Consider removing those who frequently delay payments, have poor communication, or have unreasonable demands that lead to scope creep. By cutting ties with underperforming customers, you can free up resources to attract new clients and concentrate your efforts on serving your best clients. However, make sure you secure a new business before ending existing relationships, and show your respect when declining contract renewals with former clients.

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. By evaluating the efficiency and output of employees, you can optimize resource allocation and navigate the challenges posed by budget constraints. 

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 agency cost.

Thrive in Uncertain Times: Running a Profitable Agency

Increase your agency profitability while focusing on what matters most: the quality of your creative work

Other Strategies to Overcome Economic Slowdown

During an economic slump, it is tempting to lay off employees or cut salaries. However, this can negatively impact company culture and undermine the hard-earned rapport with your employees. Instead, focus on maximizing workflows and attracting new clients. This will help you retain talent and stay afloat during the recession. Once you survive through the recession, you’ve already have a great loyal team to quickly take on new job opportunities. 

Here’re other tips to protect your agency in a recession:

1. Strengthen Client Loyalty and Encourage Referrals

In challenging economic climates, it’s essential for agency owners to prioritize client satisfaction as a key strategy for success. By focusing on delivering an exceptional user experience, you can not only maintain but also grow your agency’s client base. 

Here’re some methods that allow your agencies to build strong relationships with customers:

  • Create personalized marketing strategies that cater to the client’s unique needs and preferences to enhance engagement and drive sales. 
  • Invest in outstanding customer services and go the extra mile, such as prompt responses, flexible warranty, and support policies to retain clients and cultivate a positive reputation. 
  • Regularly check in with clients and employees and maintain open communication channels to ensure transparency and alignment. 
  • Consider adopting a pod model, where you assign specialized teams to dedicated clients to streamline communication and foster loyalty. 
  • Leverage the power of client referrals by offering incentives, as satisfied clients can provide warmer leads. 

2. Invest in Marketing and Advertising 

Research by Analytics Partners shows that increasing paid media spending during a recession resulted in a rise in incremental sales for over half of the brands surveyed. On the other hand, cutting advertising spend during a recession can risk losing around 15% of revenue.

Despite the common tendency to cut marketing budgets during a downturn, generating leads becomes more cost-effective during this time. Digital advertising, which operates on auctions, gets more affordable when competition decreases. 

To weather a downturn, you can take the following marketing strategies: 

  • Invest in paid media and SEO to deliver content that aligns with your audience’s search intent
  • Build a strong website that showcases your agency’s expertise to solve clients’ problems with a well-built portfolio
  • Establish a solid social media presence to amplify and share relevant industry news, blog posts, case studies, and infographics. 

These approaches strengthen your brand’s reach, increase conversions, and position your agency as a thought leader with trusted and knowledgeable resources in your field. This way, you can maintain a consistent sales pipeline, diversify your client portfolio, and keep your agency brand name at the forefront of clients’ minds.

3. Building Cash Reserves

Building cash reserves is a crucial strategy for agencies to navigate uncertain times. It involves setting aside funds for emergencies and unexpected expenses. One approach is to delay purchasing new equipment and instead focus on paying off debt, lowering overhead costs, and selling underperforming assets. Cash reserves create a safety net allowing you to sustain operations during a recession without resorting to employee layoffs or significant cutbacks. Prioritizing cash reserves helps agencies ensure business continuity with financial stability in challenging times.

4. Streamlining Operations

In preparation for potential economic downturns, agency owners should develop strategies to streamline their operations and boost efficiency. One effective approach is to leverage new technologies and automation tools to optimize productivity. 

For example, you can implement project management software to track progress, optimize resource allocation, and oversee your workflow. You can also use cloud-based solutions to scale your business and minimize infrastructure costs. Additionally, use digital marketing tools and analytics platforms to optimize your client acquisition and retention strategies.

By taking these steps, you can improve operational efficiency, enhance your competitive edge, and navigate economic challenges with resilience. This will help you achieve long-term growth and success for your agency.

Leverage your Business Decisions with Function Point

Function Point’s all-in-one marketing agency management software enables creative agencies to make the right decisions by empowering owners with the intelligence they need. By incorporating customizable reporting to your decision-making process, you will be better equipped to navigate critical circumstances and continue to maintain profitability.

Download our free whitepaper to learn more

Are You Making The Right Decisions for Your Agency? Free Guide Download

Learn how an all-in-one agency management tool takes away the guesswork and helps you make better decisions for a thriving team, happy clients, profitable agency growth.