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5 ways agencies lose profit… and how to fix them

3rd May 2023

Creative agencies are brilliant places to work, with ideas flowing and full of, yes creativity. But they’re also commercial entities. And for agency managers, keeping the right balance of passion and profits can be a tricky one. They need to keep the agency profitable to keep it competitive and help it grow. It can be surprisingly easy for profits to slip away. Thankfully, with some forethought and the right systems in place, it can be just as easy to keep a tight grip on your finances.

There are five key areas which often lead to a loss of profits for agency

1. Underestimating

Your estimate is all powerful so you need to get it right. Many agencies fall into the ‘reverse engineer’ trap of starting with a figure they think the client will like and working backwards from there. Essentially forcing the time to fit, whether it’s right or not. So you’ll either end up not delivering a good job, going over budget, or quoting too much and risking alienating the client. All impacting on your bottom line.

How to fix it: get under the skin of every brief, really considering each element. Look at similar jobs you’ve done before – can you use them to guide your timings? Make sure your teams are realistic about how long they need (creatives love to add sunshine and polish to each job, but this can’t be at the expense of your profits). And get to know your clients. Are they in the habit of asking for several sets of amends? Do they like long meetings and pitches? Only by accurately assessing how long a project will take will you actually see the profits from them. Read How to improve your agency’s estimating and job costing (synergist.co.uk)

2. Overservicing (aka scope creep)

Can you just do an extra bit of artworking? Someone else has had a look and they think it’d work better if we did xyz. Can you do a presentation at tomorrow’s meeting? Every agency has had these conversations with clients, asking for just that little bit extra on top of what’s been agreed. But a little extra can VERY quickly turn into a lot extra… which in profit terms means you can end up working for free.

How to fix it: make sure that your initial quote is as detailed as possible so it’s clear if clients are asking for above and beyond the usual above and beyond. You could add a buffer into the quote (x amount for extra sets of amends, x amount per hour beyond the brief), especially if you know this client has a habit of shifting the parameters of the brief. Or you could requote, especially if the extra work being asked for is substantial. Or… you could suck it up. Some agencies do choose to just do the extra work and absorb it within their original quote, to preserve good client relationships. If you choose this option that’s fine, but make sure it’s a commercial decision. You still need to know how long extra it’s going to take so it doesn’t just look like your job has gone massively over budget. Also, within the spirit of this piece, doing this too often isn’t likely to help your profits too much.

Read 5 reasons agencies over-service clients, and how to stop it (synergist.co.uk)

3. Using the wrong people for the job

It can be tempting to take on any work that comes your way, especially during quieter times. But you need to make sure you’re only taking on work you have the correct capacity to handle. Otherwise you could be in danger of overloading already overworked teams. Or, worse, throwing the work at the wrong people purely in the hope of getting it done. You might get it done, but it’s unlikely to be to the client’s satisfaction.

How to fix it: you employ people with different skillsets for a reason. In the same way you wouldn’t ask your finance manager to sort an IT problem, there’s no point asking a designer to write copy, or a web developer to produce artwork. This is where your capacity planning comes in. You need to know what’s already in, who’s working on it, and what’s booked in. This means you can see if there are any upcoming gaps, which your client services team can try to fill – or you can see if there’s any internal work or training which could be done. Conversely, you can see if there’s likely to be too much work for the right team to handle. From here, you can decide if you need to bring in freelancers, or even recruit. It might feel counterproductive to bring freelancers in to help one team if another is not busy. But putting the right people on the job can boost your profits… while the wrong ones can deplete them.

Read Manage your agency’s resource for less peaks and troughs (synergist.co.uk)

4. Overusing freelancers

Which brings us onto the next potential profit drain: overusing freelancers. Bringing temporary help in on an ad-hoc basis can be a good idea. Especially if you have a good roster of people you know you can bring in and will be able to pick the work up quickly and easily, without spending a lot of time training and explaining. But the temptation can be just to keep them on, in case more work comes through, or to mop up odds and ends. And this is where your profits can suffer.

How to fix it: be strict about when and how you use freelancers. If you know a specific team will be shorthanded or overloaded, freelancers can be a great temporary fix. But this isn’t an ideal long-term scenario, as you’ll be paying freelance rates. If you know that the extra work is going to keep coming in, could it be time to recruit? Or is there anyone already on your payroll who you could upskill or retrain? You should never be in a situation where you have a freelancer sitting around twiddling their thumbs because you’ve incorrectly calculated workload… you’re paying them without seeing any profits.

5. Reinventing the wheel

There are a ton of processes involved in running an agency. Timesheeting, budgeting, project management, briefing, debriefing, finances, planning. All important cogs in the wheel. But left unmanaged, these can start to turn into an exercise in chaos and overwhelm, leading to a big bloat in your processes and a big dent in your profits.

How to fix it: standard operating procedures don’t sound exciting, but when you realise how important they are to your bottom line you’ll soon change your mind. Instead of having teams all working to their own set of processes, having an effective, preferably automated, set of templates and systems can streamline and simplify. Much less time wasted on navigating siloed systems, much more money saved… and made.

Day-to-day life at an agency is busy, bustling and often on the edge. That’s the norm. But crashing through each day hoping for the best is a surefire way to see your profits plummet. Stepping back, using a good agency management system to give you full visibility, and doing some careful strategic planning can help to keep your agency moving in the right direction. Towards smoother ways of working and bigger, better profits.

For more agency insights, check out www.synergist.co.uk/resources

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About Synergist

Synergist agency management software helps agencies to grow safely and smoothly by reducing the ‘busy chaos’ and enabling teams to work more efficiently and profitably. By streamlining project workflows, with features such as Kanban Boards, Ga...

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