Your agency’s potential for growth depends on its profitability, which is ultimately the result of your agency’s ability to generate and sustain revenue while keeping costs low.
While keeping a close eye on finances is critical to agency success, for creative agencies this can be a challenge in the midst of competing projects and multiple client deadlines and requirements.
The best way to ensure the financial health of your agency is by tracking three key areas:
1. Outgoing cash flow
Make sure the agency can account for all outgoing cash and that this can easily be explained to a third party, to ensure regulatory compliance. Outgoing cash needs to be associated with the relevant project so that you get a clear picture about how your profitability is affected by different kinds of projects or clients.
2. Examine different revenue channels
Understand exactly where your revenue is coming from. Rather than tracking overall revenue, you can track revenue per employee or per project to give you a more detailed insight into your profit margin. This can show you which projects and staff generate the most revenue and are most profitable.
This information can help you make smarter management decisions. For example, you can implement additional incentives for high-performing staff members to retain them in the agency. You may also determine that they have specific valuable skills that can help to accelerate growth, so you can invest in nurturing and developing these skills further, or find a way to upskill other members of the team. Strategies such as this form a stronger foundation for future agency growth.
3. Analyze budget burn rate
Understand how a client’s budget will be used across the duration of an agreed project. You can then closely monitor the budget to make sure the project is on track. All projects have different budget expectations, so while you may expect more than half the budget to be used within the first month for a certain project, such a high burn rate may signal an issue in others. By regularly monitoring and analyzing budget burn rates, you can receive early signals of whether a project is likely to be profitable or not, and if it will improve or harm your agency’s financial health and growth prospects.
Using financial health information to accelerate growth
Once you invest time to understand and analyze these key financial aspects, you can begin to determine how profitable your business currently is and its future growth potential. From this, you can decide where to focus your resources going forward. For example, you can pour more resources into the most profitable projects to ensure continued success, and limit typically unprofitable projects or re-evaluate them if they are considered high value to customers.
If you can’t measure this information, you can’t determine what you need to do to increase profitability. So, investing time to understand and evaluate your core revenue streams, budget burn rate, and outgoing cash flow can provide you with insights into how your agency generates revenue on a daily basis.
How agency management software can help
Centralized agency management software can help your management team get a much better handle on finances and save their valuable time for profit-generating client work rather than trying to crunch numbers. Function Point’s agency management software includes built-in intelligence reporting and tracking tools that give you insights into your financial data. You can see exactly how much daily revenue your agency is making and can break it down to see where the revenue is coming from.
By using Function Point’s centralized agency management software to track costs, timesheets, and more, you can begin to realize efficiencies and areas that can be improved, which leads to increased profitability.
This software also provides insights into staff utilization and resource planning. You can see which employees are billing to capacity and those who have space to take on more projects. By seeing this information, you can make sure you’re not carrying staff members who aren’t bringing in revenue, and you can make sure you’re not overloading staff members so much that it could cause them to make mistakes, burn out, and leave.
With the reports provided by Function Point software, you can also make sure you’re distributing work fairly across your team and employees are placed in areas where they excel. The reports tool lets you plan for upcoming projects so that you have the resources needed to complete the project on time and within budget.
Being able to successfully do these things is fundamental to having an agency that can grow sustainably. Learn more about how you can improve growth in your agency by booking a free demo with Function Point.