To achieve sustained agency growth, you need to be able to easily identify the projects that are making you money versus the ones that are being over-serviced and hence costing you money.
Tracking profitability seems like a fairly straightforward proposition. You simply add up the costs you incurred while managing the project, then subtract those from the fees you were able to charge for the project. Whatever is left over is, ostensibly, your profit.
However, there’s a lot more to it than just a simple addition and subtraction equation, and getting a clear handle on exactly what your costs are can be trickier than you think. After all, the most valuable thing you have to sell is also one of the hardest things to measure accurately; time.
If you’re using spreadsheets or guesstimates to determine how much time your staff members are spending on each project, then you’re almost guaranteed to be losing time somewhere. The more time your staff members spend on a project, the less profitable it’s likely to be, regardless of the budget your client has given you. So, if you haven’t accurately predicted how much time a project will really take, you could be leaving money on the table.
The only way to overcome this is to use a more precise and consistent way to measure the time your staff spend on projects. This also helps your team become more time-conscious and supports them with tools that keep them on track to meet deadlines and budgets.
The most profitable agencies use a centralized management software solution that puts all the relevant information in one place, letting you see at a glance whether the projects you’re working on are likely to turn a profit.
Here are five ways centralized agency management software can help you identify which agency projects are most profitable, as well as help keep your team on track.
1. Visibility into costs and revenue
Profitability is the difference between the cost of doing business and the revenue you create through your agency’s activities. You can’t change what you can’t measure and you can’t measure what you can’t see. Therefore, you need a solution that lets you quickly and accurately gain a real-world, real-time picture of your financial position.
The ideal solution is one that lets you capture transactions, manage invoices and compare revenue with costs. It’s important to have a solution that integrates tightly with your mainstream financial management system so you can extract the information you need to get project insights.
2. Resource allocation and time tracking
To manage projects profitably, you need to allocate the right resources to them. This usually means having one senior team member lead the project, supported by a team of more junior staff members with the appropriate skills to complete the project. For example, it’s costly to have a senior account director spending their time preparing work in progress reports when that work can be done easily and more cost-effectively by an account coordinator. However, sometimes this is exactly what happens as staff members find themselves spending more time on tasks than they anticipated, leading to an all-hands-on-deck situation where the focus is on just getting the work done rather than on getting it done in the most cost-effective manner.
Project managers need real-time insights into the time that team members are spending on the project so they can reallocate resources as necessary to keep costs down while ensuring the project is delivered to a high standard. Waiting until the end of the project to see how many hours were spent on what tasks means it’s too late to make any changes. If you simply don’t have this kind of granular visibility into how staff members are spending their time, you’ll never know for sure whether a project was profitable or not.
Agency management software that accurately tracks time and updates timesheets across the entire system in real time is crucial. Best practice solutions let you track the time people are spending based on projects, tasks and other parameters, via quick visualizations so you can immediately see if something needs to change.
3. Project management and tracking
As well as obvious project costs, there can be hidden costs in some projects. For example, a missed deadline could come with a financial penalty. If you’re not hitting deadlines every time, your clients may take their business elsewhere. To determine the profitability of a project, you need to understand whether that project was completed on time and within budget.
You can manually track projects but that just adds time (and therefore cost) to the process. Instead, consider agency management software that gives you centralized and real-time access to project updates, including all the information and data you need to keep projects on track.
If you have streamlined workflows and processes that are repeatable and reliable, then you can complete most projects quickly and efficiently. This inevitably means those projects become more profitable because you don’t have to allocate as many resources or as much time to them. Your team can’t be efficient if everyone attacks their tasks in a different way or reinvents the wheel each time they’re faced with a new challenge.
Agency management software can address this tendency by formalizing processes and providing workflows that save time and lead to predictable outcomes. It can also eliminate the need for multiple, time-sucking meetings by providing project status at a glance through dashboards that can be accessed anytime, anywhere and on any device.
Many growing agencies manually calculate costs versus revenue for projects to determine profitability. The potential for error and miscalculations means that this kind of manual analysis isn’t necessarily reliable. A manual approach can also mean you’re not taking every variable into account, leading to an incomplete view of whether a project was profitable or not.
Business intelligence (BI) tools can automate this process to a large extent, using the information from your agency management solution to deliver meaningful and timely insights about the profitability or otherwise of your projects. It can quickly highlight which projects are the most profitable, where you could gain efficiencies, and how you should allocate resources for maximum profitability. Without BI capabilities, your profitability analysis is likely to be flawed or, at least, not as accurate and detailed as it could be.
For any growing agency, understanding which projects are the most and least profitable lets you choose the projects and clients that maximise your profits. By providing in-depth analysis, agency management software can help you determine the most profitable projects, as well as identify opportunities to increase profitability within your business operations.
Experience the benefits of agency management software
Function Point’s all-in-one agency management software is a cloud-based solution that integrates all the capabilities necessary to improve business performance and profitability across a full-service agency. Suitable for agencies of all sizes, our solution features project management, resource management, customer relationship management, financial management and business intelligence capabilities. Experience the benefits of Function Point agency management software by requesting a demo.