Those extra special legacy clients were the reason you were able to build your agency up to what it is today…but are they now limiting your continued growth? Hear me out.
In my experience, a lot of digital agency owners have a number of legacy clients on their books, clients they’ve worked with for years and years, with who they love and who have really positive relationships. The trouble is, these clients have been around since day-dot and all these years later, they’re still paying day-dot prices which are breakeven at best, and entirely unprofitable at worst.
This is troublesome for a few reasons, some more obvious than others.
Firstly, these clients are unprofitable and are costing the agency money – but the long-standing relationship actually means the agency owner feels beholden to them so they keep the work and grin and bear the cost of doing so – which impacts your bottom line.
Secondly, in an agency environment, the service on offer is essentially time – time spent by your employees to complete certain tasks for your clients. When these legacy clients, who are already getting an absolute bargain, start to encroach on their fair share of the agency’s team and billable time, the loss to the business compounds.
Suddenly these breakeven clients are costing money, and worse still, everyone in the team is tied up servicing them and there’s no capacity left to service the profitable ones.
I’m referring to the Pareto Principle (or 80/20 Rule). Which in this instance, means that 20% of an agency’s clients, should be generating 80% of the overall revenue.
While this is essentially just a model, in my experience the Pareto Principle absolutely rings true for digital agencies – if you have doubts, export your own client list and test this out for yourself!
With that in mind, and given what we’ve just unpacked in the paragraphs above, it’s clear that the revenue potential and the path to success lies in the hands of an agency’s top 20% of clients.
Allocating your resources (human or otherwise) to servicing those highly profitable clients, rather than the unprofitable/breakeven clients, is what’s going to grow your agency.
This doesn’t mean over-servicing these clients and doing more billable work for free. Instead, think about what your team can offer in order to maximise your client’s business. Perhaps you have a PPC team, who up until now were tied up servicing an unprofitable client – you could pitch your PPC service to your profitable client to complement the SEO work you already might be doing.
Offering more services to these clients will a) make your client’s know you have a genuine interest in the success of their business and b) generate more profitable revenue for your agency.
Raise your prices, drop your unprofitable clients & make the profitable ones feel like royalty.
Start by exporting your client list, sort them by revenue and then calculate their gross margins. You’ll be able to see quick-smart which accounts are profitable and which ones are not. From there, your next step is to raise your prices to a profitable level so that both your clients and your business are winning.
In my experience, there are three potential outcomes when it comes to proposing a price increase – so here’s my advice for every eventuality:
Everybody Says Yes – Great, now all your clients are profitable and your agency will continue to grow, and they’ll continue to receive high-quality service as you can now afford to do so.
Some Say No/Some Say Yes – Fine, losing a handful of unprofitable accounts won’t impact the profitability of your agency. The reality is, they were costing you money, so by letting them go, you’re still in the black.
The ones you have retained, have agreed to your price increase. You’re now making a healthier margin that covers the cost of any clients you had to let go of.
Even better, the time your team were spending to deliver the service for the unprofitable clients, can be reallocated so you can give back to your top 20% of clients who are generating 80% of your revenue.
Worst Case Scenario, They All Say No – Another positive outcome. These clients were costing you money and now they’re out of your hair. With fewer clients, you might have to slim some costs and reduce the size of your team – now you have a leaner agency that is easier to manage.
This might sound a little counterproductive, but you’re still guaranteed to be generating the same profit because you’re no longer losing out on the unprofitable clients.
What I’m trying to get at is, don’t fret about losing some clients who aren’t prepared to pay you the margin that a) your work deserves and b) you need in order to grow your agency. Chances are, your loyal, legacy clients will want to support your business and continue working together and will happily agree, which will cover the cost of any who might say no.
If you need any help increasing the profitability of your agency then Get In Touch with my team at Digital Agency Coach.
We’ve helped hundreds of clients achieve stratospheric growth through strategies just like this and we’d love to help you too.
Me and my team of experienced and dedicated Coaches are here to help you understand your business better and the best growth strategies for you, your agency and your team.
In a recent value-packed webinar about what the high performing agencies do, I shared the importance of knowing, understanding and keeping on top of your gross margins and the impact this has on your agency’s long-term success.
I’ve plucked out the key takeaways from the presentation and put together a valuable and actionable guide to gross margins, to help you accelerate your agency’s growth.
In this article, I’ll unpack exactly what gross margins are (and are not), what a good gross margin looks like and how to fix your gross margins if they’re not up to scratch.
When it comes to digital agencies, gross margin is a simple calculation using the direct costs of delivering a specific service and the price at which you sell it out – the gross margin is what’s left in the middle.
In a product-based business, like a chippy, the gross margin will be what the customer pays for the chips, less the cost of the potato and the labour required to peel & cut them. It might cost the chippy £1 to buy the potatoes and 50p in labour to prepare them, which means when they sell them for £2 the gross margin is 50p (or 25%).
Whereas in an agency, where the offering is service-based, the question is how much are we selling our time for and how much does that time cost?
It’s crucial you calculate your gross margin against the separate groups of revenue within your agency. For some, this might be geographically (UK vs US) or by industry (eCommerce or Lead Generation), while for others this could be the individual services (PPC, WebDev, Design etc.)
For example, if you’re an agency that delivers PPC, and you charge £1000 per month for PPC, and the salaries and freelancer fees for your PPC team are £500, then your gross margin is £500 (or 50%).
Your gross margin considers the revenue the service generates and the direct costs associated with getting the job done. What your gross margin won’t include, is all your general overheads, like your office, accountancy fees, utilities and so on. These still have to be deducted in order to understand your Net Profit.
In order to make sure there’s still plenty leftover in your net profit, you need to ensure your gross margin is healthy enough to allow for all your general expenses. If your services are unprofitable at a gross margin level, then there’s no hope for your agency to be making any money at a net profit level.
In my experience, a lot of agency owners muddle the waters when it comes to their gross margins, direct costs, overheads and net profit – which is how they end up providing unprofitable services and losing money.
The key learning here is that your salaries and contractor or freelancer fees must be attributed as direct costs to the associated service, not in your general overheads. Remember you can also factor in partial salaries of team members such as account managers, who spend only a portion of their time on chargeable client work.
This enables you to look at your services objectively and understand which ones are actually profitable. Rather than taking note of a huge gross margin number on your P&L sheet that tricks you into thinking your services are 95% profitable because you haven’t calculated the wage bill.
Now to the bit we’re all here for – what does a good gross margin actually look like, what should you be aiming for in order to grow your agency and become one of the high performers?
In our experience, agencies with gross margins anywhere above 50% are doing great. North of 60% and you are doing brilliantly. On the contrary, if you’re numbers are anywhere less than 40% then you have some serious work to do to ensure your agency is still profitable once you get to your net profit.
Now that you’ve calculated your gross margins and know exactly what each of your services is generating, you can take an objective view about what’s actually making your agency money (and what isn’t for that matter).
For any services that are underperforming – ie. the cost (salaries & tools) associated with delivering them are higher than the revenue they bring in, you need to ask whether you can fix them. If you can increase your prices and/or decrease your costs by making the service more efficient and your team more productive and grow your gross margins back up to 50-60%, then brilliant.
If you can’t make these changes, then it’s time to drop the service and refine your offering to focus on the services that are actually generating a healthy gross margin. Without taking this action, your agency won’t be growing anywhere.
Digital Agency Coach is a team of coaches, consultants and mentors servicing digital agencies across the globe. Led by me, Janusz Stabik, we’ve helped hundreds of agencies transform their agencies to achieve more revenue, more profit, more time and less stress.
My team and I use this blog to publish insightful, valuable and actionable insights on a weekly basis. To make sure you never miss a tip – subscribe to our newsletter to be the first to know once a new article arrives.
The new ‘Intro to Game Art’ short course will give you an insight into the world of game art, exploring the range of roles and essential skills needed to get you started when exploring a potential future career in game art. There is a host of exciting modules that your tutor will guide you through, including:
Planning and producing work to a design brief.
Working in the games industry
Concept art for computer games
Modelling for computer games
This new and exciting programme is designed to equip individuals (aged 19+) with the technical skills, knowledge and understanding needed to produce digital content across several platforms, ensuring you can use social media most effectively for your small business, sports team or trade.
This course will provide a great opportunity for you to develop media production techniques, such as camera operating (on mobile devices, DSLR cameras and broadcast cameras), video editing, graphics and motion graphics to produce content for Instagram, TikTok, Facebook and more. There is a host of exciting modules that your tutor will guide you through, including:
Planning your Project
Camera Production Techniques
Sound Recording Techniques
Editing Techniques
Mr B & Friends has welcomed another new member to the team, following a period of growth. Ali Al Amine has joined the team this month as a Junior Designer.
Ali was struck by some of the agency’s work while studying at Bath Spa university. He applied for the Future Friends internship but the role had already been filled. Luckily for all, the panel were so impressed by his work that he was brought into the design team anyway. Within his outstanding portfolio is an award win from the prestigious D&AD Young Blood Award, where Ali redesigned the Grey Poupon dijon mustard brand.
Outside of work Ali enjoys hiking. Having previously lived in the Middle East, he’s enjoying exploring the surrounding green spaces and national parks. While working from home he’s often accompanied by his cat, Cosmo, who has already made himself part of the team too.
Ali says, “Aside from the work I’d seen created by Mr B & Friends, the warm, welcoming culture really appealed to me- and since joining the agency this hasn’t disappointed.”
Creative Director, Kate Gorringe, says, “Even when we’re not actively recruiting, we like to keep our eye out for real talent. When we came across Ali we knew we couldn’t let him go – he has skills, aptitude and smart thinking that are exceptional in someone of his experience. And he’s lovely to have around.”
Since opening in October, Gather Round Brunswick Square is already home to a bustling creative community. For a limited time only, Gather Round are offering a free day pass so you can try out the new space for yourself.
Designed for creatives, by creatives
Bristol-based Gather Round is a growing family of unique, soulful, creative workspaces, purposefully designed for creatives by creatives. Its mission is to build remarkable co-working spaces where creative thinkers and doers can connect, collaborate and thrive.
Founded by Fiasco Design owners, Ben Steers and Jason Smith, Gather Round’s flagship workspace in the Cigar Factory, Southville, opened its doors to Bristol’s curious creative community in 2019. The second space on Brunswick Square, St Pauls, opened last month and supports up to 90 professionals; freelancers, self-employed and micro businesses, from the surrounding areas of St Pauls, Montpelier, Easton, St George, Kingsdown and more.
Split over three floors, the beautiful Grade II listed building provides flexible areas with fixed and casual desks, private studios, meeting rooms, hang-out areas, communal tables and quiet areas for contemplation. It also boasts a dedicated private event space with a 60-person capacity.
A community of creatives
Its members are a truly eclectic and talented bunch; designers, writers, filmmakers, publishers, photographers, brand strategists and more. The supportive, collaborative community is valued as highly by members as the beautifully designed workspaces themselves: “Collaborating with exciting and interesting individuals is what gets me out of bed in the morning. – Gareth Rutter, Founder and Creative Director of Bellow Studio.
Gather Round offers private studio, resident and co-working membership options, with part-time flexible co-working costing £110 per month (plus VAT), and full-time memberships from £195 (plus VAT).
Get Your Free Day Pass Today
Knowing that signing up to a co-working space can feel like a big step, Gather Round are offering a free day pass* for Brunswick Square so you can try out the space for yourself. Get your free day pass here.
*For November only.
Building a great digital agency is no different to building any other kind of successful business — it’s seriously hard work, and if you’re trying to conquer it all by yourself, it’s damn near impossible.
Instead of battling it out all on your own, you’re going to need a team of people you are able to delegate certain functions within your agency toward. And, by delegating, I don’t mean directing or managing — I mean empowering and trusting them to do what they know best and to grow the business on your behalf.
This small team of people (otherwise known as a leadership team) will be brighter, more experienced and more skilled than you are, and they’ll know exactly what they’re doing when it comes to growing your agency, because (ideally) they’ve done it before.
In this article, I’m sharing what a good leadership team actually looks like, why you need to be the most naive person in the room and where to find the right kind of leaders for your team.
A strong leadership team will have a senior representative from each corner of the business and they’ll speak for their department during key business activities and meetings.
In a medium-sized agency, a leadership team might be made up of a Financial Director, Operations Manager, Customer Experience Manager, Head Of Sales, Marketing Director and a senior representative from your IT & HR departments. Then, of course, there’s you too — the founder/director/MD/CEO.
Your leadership team should be cohesive. While they will represent different areas of the business and will have their department’s interest at heart, they will share the same core values and will be well-equipped to make big business decisions that benefit your agency.
Building this empowered leadership team won’t happen overnight and it certainly won’t happen by accident.
Digital agencies, like any other business, go through life cycles as they grow. And with each new phase of business, there usually comes a need to recruit, restructure and promote your internal team. Agency leaders tend to offer promotions to high performing team members who are loyal to the cause and great at what they do (which is understandable).
But this is where the trouble lies.
As the business builds and time goes on, this process can repeat itself over and over until your senior management team is a loyal collection of overly-promoted technicians, rather than commercially skilled and strategic business people. And while this might have been great for the most recent growth cycle, it doesn’t necessarily mean this group of leaders will be equipped for the next stage of growth. Horses for courses so to speak.
A digital agency owner should surround themselves with a group of leaders, strategists and experts from each function within their agency who are more experienced and better qualified than they are.
The agency leader should be the most naive member of the leadership team.
If you’re in the market for new leaders, make sure you’re looking for talent from aspirational agencies, rather than your current competitors. You want people on your team who know how to grow, manage and lead agencies at the scale you’re hoping to achieve.
Growth is often measured differently from one agency to another — however, there are generally two metrics that matter to almost all agency leaders, revenue and headcount.
As an agency leader, the fastest and most sure-fire way to grow your agency, be it headcount or revenue is to surround yourself with a strong, experienced and brilliant leadership team from the outset.
When a digital agency is pushing a headcount of around 25–30 people, it’s time to implement a leadership team.
Surrounding yourself with a team of leaders (who are all much more brilliant than you are) when your agency is in its infancy, means you have a strong support network of experts from each function within your agency. This then allows you to tackle the next stage of growth with confidence, knowing that every corner of your agency will be considered and looked after as you gear your agency up for another round of growth and your headcount pushes toward 80.
By now, I’ve hopefully established that you need to have a leadership team in place in order to grow your agency and that everyone in your team should be more experienced and qualified than you are. So how can you go about finding these brilliant people and how do you build yourself a leadership team?
First, take a look at your existing senior management and ask yourself — are they over-promoted technicians or are they genuine managers and leaders?
If the answer is over-promoted technicians, you have two options:
1 — You can invest time (3–4 years) and money to train them and build them into the leaders you need in order to grow your agency. Or,
2 — You can go out and buy your leadership team from an aspirational agency (this is my recommendation)
When you’re recruiting for new senior leaders to join your agency, don’t look for managers from agencies on the same rung as you — make sure you’re recruiting from an agency that is the size and shape you’re aspiring to grow into.
These individuals will know what’s required to grow your agency because they’ve evidently already done it.
Make sure they’re loaded with management experience, experts within their function and who are downright better than you are. If you’re not completely floored by the excellence and the performance of your potential leaders, then don’t hire them.
Remember, the agency owner should always be the most naive person in the leadership team.
Just like growing your agency, building a great leadership team won’t happen overnight — so it’s never too early to start your search. Start connecting with leaders and managers who inspire and impress you now and keep them within your network.
That way when you’re ready to recruit or change things up, you already have a starting ground. Then, once you’re actively recruiting and gearing up for a new phase of growth within your business, call on Digital Agency Coach for expert advice on how to tackle (and succeed with) your plan.
What does the future of PR and marketing look like? Business leaders are planning ahead for 2022 in one of the most unique situations that people have faced. How do you prepare your business for life when dealing with a pandemic?
AMBITIOUS and Insider Media spoke to business leaders in the South West to find out what their approaches to PR and marketing will be in 2022. Which areas will be their focus? Where are they increasing their investment? And, where they’ll be choosing not to spend.
The answers show that business leaders in the South West are planning to invest: engaging with their core customers and visitors more than ever before. And not just their customers. Thanks to a skills shortage across many sectors, using online to source new recruits is alo where businesses will be investing. As a result, online activity is becoming more important than ever for PR and marketing activities.
Life really did move online during the last 12 months and while in-person events are starting to come back, digital has taken the lead on many aspects of businesses. As well as B2C companies, B2B businesses are seeing the value of social media and how to use it for success.
Mike Ribbeck, Insider Media Editor said: “As the purse strings tighten, business leaders look at expenditure and decide which are the most important functions to protect and which areas of the business are expendable.
“The reality is that, rather than bringing the world to a standstill, the pandemic has accelerated many of the trends that were reshaping the world that we all live and work in. The digital revolution has picked up pace and businesses from all sectors and different sizes have made the transition to operating virtually.
“All of that means that the need to get the message out about your business and the services it can offer has never been more important.
“And the channels of communication to potential clients and business partners have continued to multiply with social media playing an even more important role when it comes to marketing and PR.
“According to our survey, the majority of businesses have maintained the level of spending or even increased.
“One of the most interesting findings was where businesses will be concentrating theory efforts. The two main areas that stood out were content creation and social media.”
Our survey has found that there are six core areas where business leaders will be focusing their PR and marketing efforts, including content, PR and SEO. Results from our survey include:
Phil Smith, Managing Director, Business West, said: “In the past 18 months, South West businesses have wrestled with a unique and complex set of challenges as a result of Brexit and the pandemic.
“Whilst business impacts such as social distancing measures are temporary, labour shortages and inflationary pressures look set to continue (at least in the medium term) and could have a stymieing effect on our economic recovery.
“As the government looks to recoup some of the £300bn+ that it spent during the pandemic, SW businesses will no doubt be anxious about potential tax hikes and rate increases.”
It is encouraging that businesses recognise the huge part that PR and marketing play not only in boosting their brand and growing sales but generating awareness of new products and services too.
It is also evident that marketing has a vital role in attracting, engaging, and recruiting talent into the business (as well as helping to retain talent). Indeed, today’s job candidates discover and weigh up potential employers in the same way they find consumer goods, restaurants, and hotels. It is mission critical that marketing budgets reflect this digital shift.
The amount of online content consumed by the average person doubled to seven hours a day. Social media activity increased by 12.3 per cent with the average person spending nearly two and a half hours on social sites.
A clear, resounding message from the businesses we spoke to is that we are going through an accelerated pace of significant change.
The pandemic hit the fast forward button, transforming consumer perceptions, expectations, and behaviours almost overnight. There are no pause or rewind buttons – consumers and the world have moved on. This has profound implications for how we market ourselves. Failure to keep up with the pace of change could mean being left behind forever.
Download your copy of the white paper now.
cxpartners sees two new hires join the business to boost how we support clients as our portfolio grows.
We are thrilled to welcome two new team members – Gabriella Lambert and Chris Edge.
Gabriella joins us as Client Engagement Director, bolstering our account management and business development within our Financial Services team. She joins with a wealth of experience in creating sustainable customer experience strategies for multinational organisations, startups and the nonprofit sector. She previously worked at the Royal National Institute of Blind People (RNIB) as the Head of Customer Experience.
She has spent her career building customer experience departments and overarching design strategies that move from being sales and product driven to being customer-focused.
Feel free to reach out to Gaby at [email protected] to have an informal chat to learn more about ways cxpartners and the Financial Services team can help your business.
Chris joins cxpartners as Account Director, strengthening the client services team following a number of recent major client wins.
He is highly experienced, with over 15 years working in client services and marketing at digital, creative, employee engagement and film production agencies. He has added value to clients and delivered solutions in many sectors including IT, healthcare, manufacturing, professional services and education.
Chris is also a qualified PRINCE2 Agile Project Manager. If you’d like to get in touch, please contact him at [email protected].
Gaby and Chris are brilliant new hires for cxpartners as we continue our growth as a team and support our growing client base. We have recently welcomed new clients such as WaterAid, UK Export Finance and UCAS.
Welcome to the team!
We are hiring for several roles at the moment, in both our Bristol and London offices, including:
Most people don’t go into business because of their love of finance (except us, of course). Whatever your ‘why’ is, it’s unlikely that involves organising invoices, chasing debts, and delving into your reports. But even as a team of one, having a financial forecasting model in place can actually take the pressure off and give you the confidence in your numbers you need to get on with the parts of your business you really love.
Once you understand the benefits of having an accurate and realistic forecast that can support your day to day, it’s much less intimidating and far more empowering. So, let’s get into some of the reasons you should make a financial forecast a priority in your business.
The money coming in and out of your business doesn’t always line up with your plans. An accurate forecast will give you a good view on your cash flow over the coming months so you can be prepared when things don’t always go to plan. For example, before you go and spend big on a new piece of equipment, you’ll be able to see what will happen if invoices get paid late next month and make sure you don’t end up in the red. Mismanaging cash flow is the biggest reason that small businesses fail, so this is an important one.
Have you ever been caught out by a surprise tax bill? Or maybe your invoices go out and before you know it, they’re a week late and you’ve not chased up? Setting up a forecasting model will give you a chance to make sure everything is accounted for. You can siphon off small amounts across the year to make sure big bills don’t hit quite as hard and implement revenue recognition strategies to make sure that money coming in is acknowledged in the right period. If you do project work and get paid in large lump sums, it’s advisable to spread that income across the time it takes you to do the work so that your finances tell the story of the reality of your business.
Having an up to date and realistic forecast will impress any stakeholders that you need, from the board to potential investors. It can act as a communication tool to express your plans, concerns, and ideas as well as help answer any questions they have, no matter how detailed.
Once you have a forecast in place, as long as you update and engage with it regularly, you can use it as a tool to support your decision making. Having all the elements of your business in one place will give you an overview of how one decision will affect another. It will be easy to see how each decision, big or small, will impact your finances and future.
While a forecast needs to be realistic, you can use it to do more than tell the story of your business – utilise it to take control and make your goals happen! Once you have a clear picture of your numbers you’ll be in a much better position to see the path you’re heading down and change course to get where you want to go.
Getting started is usually the hardest part, but having the right expert to help can make it an empowering experience. They’ll be able to support you in finding the right model and make sure it’s set up in a way that makes sense for you. Having a bespoke model will make your experience with forecasting far more efficient and effective.
FD Works know what’s involved in running a small business, from startup to success. We’ve used our experience to create a customisable forecasting model to specifically support complex, small businesses.
If you want to know more about how to get started with forecasting and how it can support your business, read our research report on SMEs and their relationship with forecasts.
If you’re looking for a forecasting model, or some guidance around financial forecasting then get in touch on 01454 300 999 or [email protected], or head over to www.fd-works.co.uk to find out more.