4 Problems Affecting Your Agency’s Profitability
Read time: 5 minutes
Do you feel that your creative agency should be more profitable than it is? Your staff always has work on the go and clients provide plenty of projects. Yet, when you check your financial reports, your profits are consistently lower than expected.
If this sounds familiar, you’ve probably got some profitability chokers.
These pesky problems are subtle drains on your overall profitability. They aren’t obvious at first glance: A close inspection of your daily operations is required to uncover them.
After reading this blog, you’ll understand the small but significant drags on your profitability and how to spot and fix them.
1. Underutilized Staff
Busy staff aren’t necessarily profitable. Even though they may have lots of tasks to complete each day, many of them can be non-billable, administrative work. Inefficient workflows and unclear guidelines about deadlines and deliverables are common reasons for an excess of administrative tasks and meetings.
If your team isn’t tracking their time, or not doing so accurately, you have no real way of knowing time is being spent wisely. That in itself is a separate problem, and you must create a culture of time tracking within your agency. However, if your staff is already diligently tracking time and you’re using a software that allows you to see the time breakdown by project—like ours!—the process is quite simple.
A time tracking software that allows you to view how much time is being spent on each project will allow you to break down the time by billable vs non-billable. This allows you to see whether the bulk of people’s time is being spent on client-facing work or internal processes and meetings.
The goal for a creative agency is for 75% of your staff’s time being spent on billable projects, and 60% billed. If you find your billability is lower than that, it may be time to speak with your project managers to find out where time is being spent and how your processes can be made more efficient.
2. Overservicing Clients
Keeping with the same theme that busy staff aren’t always profitable, over servicing clients is a sure fire way to be unprofitably busy. Our survey with over 400 agencies show 67% of creative teams are over-servicing clients by 50% or more.
Creative teams usually think they’re doing “just a little extra work,” for our clients. But a little becomes a lot if the issue goes unaddressed and it’s not until the data is pulled and evidence presented that they realize how much extra work they’ve been doing for their clients.
The solution to chronic overservicing is to have a frank discussion with your project managers and creative teams. Let them know that it isn’t sustainable to consistently do unpaid work for clients.
Empower your team to push back against scope creep, politely informing clients that any work outside of the original agreement can be done at an extra cost.
3. Under Budgeting Projects
No matter how efficient your creative teams are or how strictly they avoid over servicing clients, they can’t outperform a poor budget. Don’t underestimate your estimates. When you do, your team is bound to run over budget and damage your overall profitability through no fault of their own.
Look at your project history and see how often you run over budget. If it’s occurring regularly, you need to find out why. Are you not properly accounting for how long certain assets take to create? Are you not properly charging for purchased materials? Or are your staff not executing fast enough?
Go over your estimates with your creative teams and project managers to find out where mistakes in the estimate are being made. Incorporate their feedback into your next estimate to ensure your projects are more accurately pressed.
4. Underselling your prices
Are you charging what you’re worth? A big struggle many agency owners face is charging for their services. Many want to get their foot in the door by offering quality service at an affordable price.
This approach can hurt your agency more than it helps.
Not only do people associate price with quality, but it hurts your per project profitability and can require your team to take on an uncomfortable workload just to remain profitable overall. Remember: People buy because they value your service, not because of your price
Alternatively, you could be charging too much for your services. It’s good to value your work, but you can’t completely disregard the competition and standard rates in your industry. Over charging can result in too few projects walking through your door and meticulous clients looking to get their money’s worth on each project.
Look at what other agencies in your area are charging for similar services. How do your rates compare?
A common thread ties these issues together: in order to know which specific issue is dragging on your business, you need a marketing agency software that provides project estimates, monitors budgets, and tracks time. Without such information, you will be lost in the woods without a map.