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.
boomsatsuma launches a new BA (Hons) Visual Effects Degree, with the appointment of John Rowe as Head of Animation and Visual Effects, Nov 21.
Extending boomsatsuma’s Higher Education skills training into the expanding Creative Industries sector, the new BA (Hons) Visual Effects, and newly announced BSc (Hons) Web Design and Development Degrees, are in-line with the national strategy for digital skills training, with transferrable skill sets that cross over into many industry sectors.
John Rowe has written the Visual Effects focussed course content, with industry support and approval, and he will lead its delivery to students from September 2022. He brings extensive experience and expertise in 3D visual effects, including his previous role creating digital courses at the National Film and Television School. John states:
“This course will give students the skills they need to gain employment in the expanding creative industries. It is driven by the needs identified by employers, both now and in the future, so we are listening closely to our commercial partners when constructing course content. It is particularly focused on training and empowering the storytellers of the future, using state-of-the-art technologies and software.
“boomsatsuma has a proven history of connecting the diverse communities across the West Country with creative companies, through education pathways that empower students to find their own voices, which I am delighted, and proud, to be a part of.”
The new Visual Effects degree supports boomsatsuma’s ambitious plans to develop socially diverse talent for the creative and tech sectors. It complements boomsatsuma’s existing degrees in Filmmaking (Production and Post Production) and Game Art and will be designed to encourage people to think about visual effects and game engines not just for the creative industries, but also for other sectors – from health to architecture.
For more course information and details on how to apply follow the link to https://www.boomsatsuma.com/visualeffects.
Social distancing rules and lockdowns during the coronavirus pandemic had a “catastrophic” and “devastating” impact on Britain’s arts, culture and heritage organisations, with output falling by 60% over the past 18 months.
That’s the finding of a major new report by researchers at the University of Sheffield which analysed how COVID-19 has affected museums, galleries, cinemas, theatres and other arts and cultural organisations.
As the pandemic took hold in March 2020, the impact on the sector was immediate. Annual gross valued added (GVA) output fell dramatically with a decline of around a third from the second quarter of 2019 to the same period last year in real terms.
Businesses categorised as “creative, arts and entertainment activities” along with libraries, archives and museums were worst hit with declines of 63% and 45% respectively.
Few businesses saw an increase although with millions of people locked down at home and looking for entertainment, computer games companies experienced a 18% rise in output, while book publishing firms increased output by 2%.
At the other end of the scale, with theatres shuttered during lockdown and then facing limits on audiences, output among performing arts organisations declined 60%, while it fell 70% at cinemas.
Government funding has been vital for the survival of arts, culture and heritage businesses during the pandemic. The study found that 55% of employees in the sector were furloughed through the Coronavirus Job Retention Scheme. That’s the second highest sector behind accommodation and food.
At its peak in May 2020, 450,000 arts, entertainment and recreation employees were furloughed, falling to 150,000 by the end of May 2021.
Freelancers were hard hit too, given the high number employed by arts and culture organisations. They made more than 80,000 claims for grants through the Self-Employment Income Support Scheme (SEISS), 68% of the UK’s eligible population.
The funding was not without its problems though. For the fourth round of SEISS, 181,000 self-employed people in the arts sector were assessed for eligibility, the research revealed, but only 54% were deemed eligible – compared to 67% across all sectors.
“There is substantial evidence to suggest that a large number of people in the sector failed to claim under either the SEISS scheme or the furlough scheme, due to their strict eligibility criteria,” the report said.
“Many creatives move between employment and self-employment or do both at the same time – a reflection of the dynamism of the sector – meaning they’ve not qualified for either SEISS
or furlough, or only been able to claim small amounts of support.
“Others have their own companies for work purposes which were seen to fall between the two schemes. In short, there has been insufficient support for a large number of self-employed people in the CAH sector.”
Please respond to our new survey about the creative industries in Bristol and Bath. It will help us design – and advocate for – future support for the creative economy in our region.
The £1.5bn Cultural Recovery Fund (CRF) was another vital scheme. It was set up by the Department for Culture, Media and Sport in July 2020 in response to data gathered during the first lockdown which suggested 65% of arts and culture organisations had stopped trading and over 30% would run out of cash by September 2020.
The University of Sheffield report said the success rate of applicants for revenue grants was 69% and 70% for capital grants.
The amount of funding received through CRF varied between regions but the study said it “includes a handful of very large grants/loans which distorts the overall picture”.
Among those areas was Gloucestershire, Wiltshire and Bath/Bristol due to a £23m loan to English Heritage based in Swindon and a £6m capital grant to Bristol Beacon (formerly Colston Hall) which is currently undergoing refurbishment.
The report also highlighted some local authority schemes set up to help creative businesses deal with the impact of the pandemic. The examples cited include the West of England Combined Authority’s Creative Sector Growth Programme. Find details in our creative industries funding guide.
The report includes a specific focus on the experiences during the pandemic of freelancers in the arts and culture sector in South Yorkshire. The findings are likely to ring true for thousands of other self-employed people in other parts of the UK.
More than three quarters of freelancers said their mental wellbeing was worse since the start of lockdown. Male respondents, under-30s, and those with a diagnosed mental health condition experienced even greater levels of distress.
The main causes of stress and worry were personal finances, unemployment and the ability to cover overheads. Anxiety over these issues was much higher amongst freelancers than the general population.
South Yorkshire freelancers also reported lower levels of wellbeing and happiness and higher levels of anxiety than the general public. With their mental health impacted, the report said the pandemic led “to a sense of lost identity, skills and motivation”.
Event crew, lighting and sound engineers reported greater worsening of mental health than respondents in other roles, with 53.8% saying that their mental health was “much worse” compared to 25.5% on average.
Professor Vanessa Toulmin, director of city and culture and chair in early film and popular Entertainment at the University of Sheffield, said:
“The COVID-19 pandemic has had a devastating impact on the UK’s arts, culture and heritage sector. This landmark report reveals how social distancing and lockdowns over the past 18 months have had a catastrophic effect on the finances of people who work in the sector, as well as businesses and venues.
“People have lost their jobs, businesses and venues have closed and this economic impact has severely affected the mental health and wellbeing of people who work in the sector across the UK. People in the sector have been losing sleep and have had much higher levels of anxiety due to how the pandemic has affected their personal finances and uncertainty about the future.”
The creative industries contribute to making Bristol and Bath amazing places to live and work. But how can they grow and prosper? Tell us in our survey here.
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:
You are invited to join the Department For International Trade’s CreaTech Mission to Mumbai 21 to 25 February 2022.
This UK Government supported mission to India is delivered in partnership between the Department for International Trade in the UK and in India and the UK Creative Industries Council. The mission aims to open export opportunities in India for 12 selected UK companies which are demonstrating cutting edge innovation and proven commercial success where creativity meets technology.
CreaTech businesses are those applying technology solutions to music, advertising, film & TV, experiential, gaming, e-sports – and sports (fan engagement) or any combination of the above.
In Mumbai, the focus will be on technology in those sectors of the creative industries where there is the greatest synergy between UK and Indian businesses and markets.
It’s anticipated that the event will be made up of:
Additionally, visits will be scheduled to leading Indian businesses, locations and hubs which represent both CreaTech and commissioners of CreaTech, and meet with potential partners, influencers and experts in helping to build an export business with India.
Opportunities to enhance UK and Indian collaboration in the CreaTech space will be underpinned by the publication of a ‘UK & India CreaTech Ones to Watch’ listing – a version of the proven ‘CreaTech Ones to Watch’ developed by the UK Creative Industries Council – which will highlight and promote the most innovative SMES at the intersection of creativity and technology in the UK and in India.
We want CreaTech businesses that have a genuine interest in doing business in India, will be competitive in the Indian market and have the resources to develop and sustain an export strategy for India. These businesses may be from anywhere around the UK.
There are no fees for selected businesses to take part in this CreaTech mission. Delegates are responsible for their travel, hotel and subsistence costs. Delegates will be supported to apply for grant funds to contribute towards their costs of participating and developing their business in India. Availability is not guaranteed and will depend on multiple factors which could include business location, timing, previous grant history and company financials.
Delegates will be invited to participate in follow-up Commonwealth Games Business Programme events in the UK. In particular Indian corporate buyers of CreaTech services and technology will be invited to come to our UK-India business event in Birmingham around the time of the Commonwealth Games.
Register your interest in the CreaTech Mission to Mumbai 2022 here
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.
Most agency owners are familiar with Key Performance Indicators (KPIs) — these are values that measure the success of your ongoing progress against a defined metric. In essence, a KPI will measure, or indicate, how an agency is likely to grow.
For most of us, KPIs have been a mainstay of working life since our internship days. However, what often comes as a surprise to many of my clients is that KPIs can come in two forms, Leading & Lagging.
In this article, I discuss leading & lagging KPIs, how and why you should measure both types and why the high performing agencies do just that.
As we all know, a KPI is a pre-defined metric or milestone which is used to gauge progress across all functions and departments. KPIs are tangible, valuable insights that help inform decisions about how an agency is run.
A Leading KPI is input related. Leading KPIs measure the current activity in your agency, whereas a lagging KPI only demonstrates what you’ve already achieved.
Lagging KPIs are important to monitor, as they give a good snapshot of the topline performance of your agency. However, if the numbers are a little off, and this is the only metric you have, it can be tricky to pinpoint and fix where things went wrong.
The idea behind Leading KPIs is that they create targets, focus and accountability within your agency on a daily basis. This helps to keep you (and your team) on track toward successfully meeting your lagging KPIs.
To get a good handle on your agency’s growth trajectory, me and my fellow Coaches always recommend tracking more leading KPIs than lagging ones — with a ratio in and around 4:1.
This is often the secret sauce to success — monitoring, reporting and acting upon leading and lagging KPIs is what sets the high-performing agencies apart from the pack.
Because I love an analogy, let’s imagine your digital agency is trying to shed some pounds. In this instance, you would have a Lagging KPI of ‘Total Weight Lost’.
Jumping on the scales once a month just to measure the outcome and see how much weight has been lost is going to make for slow, blinded progress.
Instead, you could measure your daily exercise, track your diet and weigh yourself on a weekly basis. These metrics would be your Leading KPIs and will give a more accurate reading of how you are tracking toward your weight-loss goal.
If you reach the end of your third month and you still haven’t lost any weight, then you can review all your KPIs and see where the shortfalls or issues might be. The more Leading KPIs you track, the easier it is to identify areas of improvement.
A key differentiator between high and underperforming agencies is how many, and what kind of KPIs they are measuring and learning from.
Successful digital agencies have more Leading KPIs than lagging. This helps them predict and prepare for their growth — they’ll know where their agency is heading before it actually gets there.
By monitoring both types of KPIs, you are able to see the relationship your leading efforts will have on your overarching goal. By keeping an eye on both figures, you’ll be able to attribute any issues with your Sales to any increases or decreases to your Call Tally or Event Attendance.
At Digital Agency Coach, we host bi-weekly Mastermind Groups for digital agency owners. These informal workshops are centred around peer learning — you’ll learn from other agencies who are navigating the same challenges as you and will pick up game-changing tactics such as today’s KPI hack, which improve the performance of your agency.
Get In Touch with myself or my team of friendly digital agency experts, we’d be delighted to help answer any questions about this article, our Mastermind Group or our Coaching & Mentoring Programs.